11 ms·

I'm honestly surprised inflation hasn't been worse than what we've already seen. 10-year treasury yields are still well below their 2019 levels and are currentl

I'm honestly surprised inflation hasn't been worse than what we've already seen. 10-year treasury yields are still well below their 2019 levels and are currently below their levels from Q2 of this year.

anm89 5y ago
It is worse than what we've already seen if what we've already seen is CPI
nwiswell 5y ago
Do treasury yields actually have a causal relationship with anything besides the demand and supply of treasury bonds? I don't see any reason why we can't have a negative real yield (indeed, I suspect that is presently the case).
- P00RL3N0 5y ago
  You may be right on the negative real yield. My thinking was that, ceteris paribus, if expected inflation is rising I would expect interest rates to rise as well. QE has likely been playing a large role in muting this effect.
  - pishpash 5y ago
    The metric you want is the breakeven rate, the difference between nominal Treasury yields and TIPS yields (which are indeed very negative). https://fred.stlouisfed.org/series/T10YIE https://fred.stlouisfed.org/series/T10YIE The Fed is artificially holding real yields negative on the short end for years at a time to enable money-losing ventures to "prosper" in order to "stimulate" the economy. It gets people working and society running but the long-term misallocation of capital can't be good. Real yields have been negative out to 30 years for some time now, meaning the real economy could well be full of stuff that destroys value over a 30-year horizon as a norm!
    - hogFeast 5y ago
      There is actually a parallel effect of QE that no-one really wrote about: it causes a shortage of risk-free assets, and makes it harder for savers to fund liabilities. I can believe that QE had a positive portfolio effect in the early 2010s. But no-one really acknowledged the downsides (it took them most of the 2010s to work out why QE "worked"). So we have the amazing situation where you will get funding for a project, but only if you promise to lose money. Investment into real assets is extremely low, chemicals and O&G are trading on mid-single digit P/E ratios, and are furiously trying to return capital...whilst we have massive shortages...it is a very unusual situation. And, imo, the cause of this is the shortage of risk-free assets (because creating this shortage, due partly to regulatory restrictions, did not mean that investors suddenly started making investments into the real economy...most couldn't...they just had to buy more "risk-free" assets from corporates who already had too much money or PE funds that were playing the capital cycle...ofc, no central banker understands that some institutions are limited, the textbook doesn't teach that, they don't understand it).
      - richiebful1 5y ago
        I don't think it's that Jerome Powell doesn't understand. Rather the central bank only has a few tools (interest rates/QE) to nudge the economy in the right direction. It takes real policy (Congress and the White House) to direct the investment to the more sustainable long-term investments
        pishpash 5y ago
        Here is the problem: if Powell is too successful with monetary tools, what incentive does it leave the policy side to do anything at all? He isn't powerless to force policy action by holding the line, but understandably he's more interested in keeping his job.
      - naveen99 5y ago
        > shortage of risk-free assets Risk free assets don’t exist. So by definition, they are always in short (0) supply. Even treasuries are at currency, inflation, and interest rate risk. If you are using risk free as a synonym for us treasuries , that’s what qe has been pumping into the system. Are you saying you want even more qe ?
mattnewton 5y ago
I’m not an economist, but it’s hard to shake the feeling that the CPI is gamed somehow, or at least the official government numbers do not reflect the bubble of the US I live in. My friends and family are seeing record wages and investment growth, but when my generation cohort looks at housing and all the numbers there are proportionally even higher, and people are selling 3 year old cars for nearly the nominal price they paid for it 3 years ago.
- hogFeast 5y ago
  There was an article the other week from Canada about their CPI (I can't find it right now). Their CPI calculation was using prices that were half those available in stores (butter was one product, there are large variations in prices for some primary products in Canada because of producer's co-operatives particularly in dairy), and used sizes for some products that haven't existed for decades. CPI calculations are very tricky. Deflation in telecoms, for example, has been very understated because how do you compare a data plan with a voice plan (in the UK, they had to adjust two decades of CPI numbers because of this calculation error). Imo, we place far too much reliance on CPI which is, after all, only one measure of inflation. Everyone seems to believe that prices are rising faster than CPI, and they would probably be right (I am in the UK, food prices in Canada particularly are...out of this world...particularly for meat, which seems to cost at least 3x the price here).
  - clavicat 5y ago
    Is [this](https://www.thestar.com/business/2021/10/23/experts-say-statcan-doesnt-capture-the-high-food-prices-we-see-in-stores-and-it-could-be-because-the-big-grocers-supply-the-data.html https://www.thestar.com/business/2021/10/23/experts-say-stat...) the article?
    - hogFeast 5y ago
      Yes.
      - 5y ago
01100011 5y ago
It feels to me like assets all inflated first, and when that failed to pop it was an omen of the future inflation which would follow. It seems like there is a tsunami of inflation that is just starting to hit the economy, and because of the early asset bubble it is too late to find obvious safe havens to protect inflation vulnerable assets. Your choice at this point, barring some insider information on specific companies, seems to be to have to follow the FOMO wave into an already insanely overvalued market with the hope that you can get out before it all comes crashing down.
ovone 5y ago
Totally agree. We have been living a long period of low inflation with a huge QE at the same time...

anm89 5y ago

It is worse than what we've already seen if what we've already seen is CPI

nwiswell 5y ago

Do treasury yields actually have a causal relationship with anything besides the demand and supply of treasury bonds? I don't see any reason why we can't have a negative real yield (indeed, I suspect that is presently the case).

P00RL3N0 5y ago
You may be right on the negative real yield. My thinking was that, ceteris paribus, if expected inflation is rising I would expect interest rates to rise as well. QE has likely been playing a large role in muting this effect.
- pishpash 5y ago
  The metric you want is the breakeven rate, the difference between nominal Treasury yields and TIPS yields (which are indeed very negative). https://fred.stlouisfed.org/series/T10YIE https://fred.stlouisfed.org/series/T10YIE The Fed is artificially holding real yields negative on the short end for years at a time to enable money-losing ventures to "prosper" in order to "stimulate" the economy. It gets people working and society running but the long-term misallocation of capital can't be good. Real yields have been negative out to 30 years for some time now, meaning the real economy could well be full of stuff that destroys value over a 30-year horizon as a norm!
  - hogFeast 5y ago
    There is actually a parallel effect of QE that no-one really wrote about: it causes a shortage of risk-free assets, and makes it harder for savers to fund liabilities. I can believe that QE had a positive portfolio effect in the early 2010s. But no-one really acknowledged the downsides (it took them most of the 2010s to work out why QE "worked"). So we have the amazing situation where you will get funding for a project, but only if you promise to lose money. Investment into real assets is extremely low, chemicals and O&G are trading on mid-single digit P/E ratios, and are furiously trying to return capital...whilst we have massive shortages...it is a very unusual situation. And, imo, the cause of this is the shortage of risk-free assets (because creating this shortage, due partly to regulatory restrictions, did not mean that investors suddenly started making investments into the real economy...most couldn't...they just had to buy more "risk-free" assets from corporates who already had too much money or PE funds that were playing the capital cycle...ofc, no central banker understands that some institutions are limited, the textbook doesn't teach that, they don't understand it).
    - richiebful1 5y ago
      I don't think it's that Jerome Powell doesn't understand. Rather the central bank only has a few tools (interest rates/QE) to nudge the economy in the right direction. It takes real policy (Congress and the White House) to direct the investment to the more sustainable long-term investments
      - pishpash 5y ago
        Here is the problem: if Powell is too successful with monetary tools, what incentive does it leave the policy side to do anything at all? He isn't powerless to force policy action by holding the line, but understandably he's more interested in keeping his job.
    - naveen99 5y ago
      > shortage of risk-free assets Risk free assets don’t exist. So by definition, they are always in short (0) supply. Even treasuries are at currency, inflation, and interest rate risk. If you are using risk free as a synonym for us treasuries , that’s what qe has been pumping into the system. Are you saying you want even more qe ?

mattnewton 5y ago

I’m not an economist, but it’s hard to shake the feeling that the CPI is gamed somehow, or at least the official government numbers do not reflect the bubble of the US I live in. My friends and family are seeing record wages and investment growth, but when my generation cohort looks at housing and all the numbers there are proportionally even higher, and people are selling 3 year old cars for nearly the nominal price they paid for it 3 years ago.

hogFeast 5y ago
There was an article the other week from Canada about their CPI (I can't find it right now). Their CPI calculation was using prices that were half those available in stores (butter was one product, there are large variations in prices for some primary products in Canada because of producer's co-operatives particularly in dairy), and used sizes for some products that haven't existed for decades. CPI calculations are very tricky. Deflation in telecoms, for example, has been very understated because how do you compare a data plan with a voice plan (in the UK, they had to adjust two decades of CPI numbers because of this calculation error). Imo, we place far too much reliance on CPI which is, after all, only one measure of inflation. Everyone seems to believe that prices are rising faster than CPI, and they would probably be right (I am in the UK, food prices in Canada particularly are...out of this world...particularly for meat, which seems to cost at least 3x the price here).
- clavicat 5y ago
  Is [this](https://www.thestar.com/business/2021/10/23/experts-say-statcan-doesnt-capture-the-high-food-prices-we-see-in-stores-and-it-could-be-because-the-big-grocers-supply-the-data.html https://www.thestar.com/business/2021/10/23/experts-say-stat...) the article?
  - hogFeast 5y ago
    Yes.
    - 5y ago

01100011 5y ago

It feels to me like assets all inflated first, and when that failed to pop it was an omen of the future inflation which would follow. It seems like there is a tsunami of inflation that is just starting to hit the economy, and because of the early asset bubble it is too late to find obvious safe havens to protect inflation vulnerable assets. Your choice at this point, barring some insider information on specific companies, seems to be to have to follow the FOMO wave into an already insanely overvalued market with the hope that you can get out before it all comes crashing down.

ovone 5y ago

Totally agree. We have been living a long period of low inflation with a huge QE at the same time...