The Lemon Fool

Looking at market analyst/economist interviews, particularly on Bloomberg, nearly all openly and blatently suggest that ongoing and future Government "stimulus" will be one of the main factors in continued upward market trajectory.

Is economic stimulus now mainly being used to support and accelerate Western Markets. I cannot figure out why these enormous quantities of money are becoming essential for market performance.

Serious question.

scotview wrote:Looking at market analyst/economist interviews, particularly on Bloomberg, nearly all openly and blatently suggest that ongoing and future Government "stimulus" will be one of the main factors in continued upward market trajectory.

Is economic stimulus now mainly being used to support and accelerate Western Markets. I cannot figure out why these enormous quantities of money are becoming essential for market performance.

Serious question.

I suspect the closest historical situation to today are how governments spend in wars, but with the big difference that we are not seeing any supply constraints so that there is little of the usual inflation, although the gold bugs believe it is beginning.

In all wars once one side wins the politicians turn off the spending & presumably at some point the politicians will reign in their spending re covid & the markets will have to cope.

Bloomberg & all other media commentary is mostly worse than useless, just various journos finding things that will bring eyeballs for advertising revenue.

Regards,

odysseus2000 wrote:I suspect the closest historical situation to today are how governments spend in wars, but with the big difference that we are not seeing any supply constraints so that there is little of the usual inflation, although the gold bugs believe it is beginning.

I'm not sure that it's true that we are not seeing any inflation or supply constraints.

The price of Iron, copper and aluminium have more than doubled.
Lumber trippled.

Microchips are that difficult to get that car factorys are shutting down, waiting for supply.

As for the change in the "Baltic dry index", the cost of shipping goods. Well have a look for yourself.
https://tradingeconomics.com/commodity/baltic

Is it really just gold bugs who look on these facts and think "inflation"?

Will things get better or worse? Who can say. Are governments actually going to spend what they say on infrastructure? If they do then increasing material demands and supply constraints will push prices up.

Urbandreamer wrote:

odysseus2000 wrote:I suspect the closest historical situation to today are how governments spend in wars, but with the big difference that we are not seeing any supply constraints so that there is little of the usual inflation, although the gold bugs believe it is beginning.

I'm not sure that it's true that we are not seeing any inflation or supply constraints.

The price of Iron, copper and aluminium have more than doubled.
Lumber trippled.

Microchips are that difficult to get that car factorys are shutting down, waiting for supply.

As for the change in the "Baltic dry index", the cost of shipping goods. Well have a look for yourself.
https://tradingeconomics.com/commodity/baltic

Is it really just gold bugs who look on these facts and think "inflation"?

Will things get better or worse? Who can say. Are governments actually going to spend what they say on infrastructure? If they do then increasing material demands and supply constraints will push prices up.

Good points!

For me it depends on magnitude and effect.

As of now I am not seeing extensive rises and shortages in most commodities, save for the odd case such as automotive electronics, as you mention. This problem was created by the IC fabricators scaling back, expecting demand to fall back and not wanting unsold inventory rather than too much demand causing supply issues.

When China, last century, was in full scale building mode they were consuming vast amounts of resources, but there was still not excessive inflation.

What happens now I do not know, but I am wary of the inflation thesis since so much has changed on the supply side.

Regards,

This is the Baltic dry index over 20 years, putting the current level in perspective:

https://twitter.com/0_ody/status/138994 ... 39584?s=20

Regards,

I've just realised that I failed to say that I was talking about changes in the last 12 months when I talked about doubling and trebling.

We really can't look further back than 24 month's if we are to consider the effects of the covid stimulus package.
If we were to group stimulus packages together then arguably we can go back to the financal crash. So about 13 years.

Here is a 15 year histogram of Iron prices, ignoring last years doubling.
https://www.statista.com/statistics/282 ... ince-2003/
Here is Rio's (a big iron miner) share price and earnings over the last 30 years.
https://www.macrotrends.net/stocks/char ... ce-history
https://www.macrotrends.net/stocks/char ... to/revenue

"Inflation" is a funny thing. It can be viewed as a fall in the value of money. If we take that view then it is natural that comodeties and share prices should rise. Where it get's difficult is that the price of shares in a company reflect it's earning potential, while supply and demand effect commoneties. If the earning potential falls then the share price should fall, if it rises the price should rise. In this example we can see little effect upon profitability or returns after the financial crash. Very different from the stagflation of the 60's and 70's.

I should admit to owning shares in Rio.