Tuesday, October 5, 2021

Important charts to watch

We're in the midst of what is so far a moderate selloff in the equity market. And as usual, in such circumstances (at least in the past decade or so) there is no shortage of bad news. China is ramping up its military threat to Taiwan, Congress is struggling to pass damaging tax hikes and massive and wasteful social spending, equities have soared by almost 550% since their March '09 bottom, 10-yr Treasury yields have jumped by 30 bps in the past two months, the Fed is about to start tapering it bond purchases, Biden's popularity is plunging, and our southern border is being overrun. In the background is the growing sense that we don't know if anyone, even Biden, is in charge. That in turn contributes to a global policy vacuum which our rivals and enemies are unlikely to ignore. 

That's an uncomfortably long list of things to worry about—no wonder the stock market is uneasy. Indeed, it's a wonder it has done so well of late.

I won't pretend to be able to predict whether now is a good time to buy or not. But I can offer some charts and thoughts which are reassuring in the sense that they offset at least some of the bad news, and also because they are not being talked about much these days (the things the market is overlooking can often be very important). Meanwhile, I'm pretty sure that inflation is going to be a lot higher for longer than the Fed currently predicts, and the eventual realization that we have an inflation problem (sometime next year?) will pose a threat to the economy because it eventually will lead to some serious Fed tightening. That just so happens to be the scenario that has preceded every recession in my lifetime save the last one (which was entirely the fault of Covid and politicians' overreactions to it). 

Chart #1

Chart #1 shows the level of M2 less currency in circulation. It's the total of all the retail bank savings deposits and checking accounts, plus a small amount of retail money market funds. This is money that the public has socked away, and it is money that is easily spendable. What we see here is a shocking and totally unprecedented increase in the money supply immediately following the Covid lockdowns. The amount of spendable money in the economy is almost $4 trillion higher than it would have been had the money supply grown at its long-term rate of about 6% a year. Notably, the Fed's three waves of Quantitative Easing in the 2009-2018 period hardly register on this chart. It's remarkable indeed that this explosion of money (a REAL BIG quantitative easing!) is hardly mentioned in the press these days.

It's hard to see the economy stumbling when liquidity is super-abundant and borrowing costs are incredibly low. It will take a looonnng time for those conditions to reverse.

Chart #2

I didn't just make up the 6% growth rate shown in Chart #1. Chart #2 shows the same 6% growth rate trend going all the way back to 1995. For the past year, M2 has grown by about 12%, and the annualized growth rate of M2 over the past three months has been about 12% as well. Money continues to grow about twice as fast as it ever has before! It's hard to imagine, given this explosion of money, that the inflation we've seen so far this year is going to prove transitory. This is a big deal that is not getting much news. For more color on how inflationary psychology works, see my post from last June on my experiences with inflation in Argentina.

Chart #3

Chart #3 is one of my all-time favorites, since it makes clear that every recession in modern times (except for the last one) has been preceded by a prolonged period of Fed tightening. The blue line is the real Fed funds rate (the Fed's policy target minus the year over year change in the Core PCE deflator). Note that it rises to at least 3-4% just prior to every recession but the last one. This is the best measure of how "tight" Fed policy is, because high real interest rates equate to very expensive borrowing costs; the Fed raises this rate in order to discourage banks from lending and to discourage the public from borrowing—this results in a shortage of liquidity and that in turn puts downward pressure on inflation. The red line is the slope of the Treasury yield curve from 1 year to 10 years. Note that it falls to zero or less just prior to every recession. A flat to negatively-sloped yield curve is the bond market's way of saying that Fed policy is so tight that it threatens the economy; that will eventually force the Fed to ease in the future—thus making long term interest rates lower than short-term rates.

In the meantime, even if the Fed finishes its tapering and starts raising its target funds rate well before anyone currently expects them to, they will still have to counteract the super-abundance of bank reserves. In the past, Fed tightening meant a shortage of bank reserves and a general lack of liquidity–conditions that proved lethal to over-extended borrowers. It would take extraordinary measures and a lot of time for those conditions to return in the future. So the threat to the economy of Fed tightening today is not nearly as imminent as one might think based on past experience. 

Chart #4

Chart #4 compares the price of gold (blue) to the 3-yr forward yield on eurodollar futures contracts. This latter is a good proxy for what the market expects the Fed's target overnight rate to be 3 years in the future. There is a strong inverse correlation between the two (I've plotted the eurodollar yield in inverted fashion). When the Fed is expected to ease in the future, gold prices tend to rise. Today, the market is pricing in future Fed tightening, and gold is declining. Gold today is not reacting to rising inflation; on the contrary, it is reacting to the expectation that the Fed will eventually have to tighten policy in order to rein in inflation. Flat to falling gold prices today suggest the gold market is pricing in a future of Fed tightening and an eventual return to lower inflation. 

Chart #5

Chart #5 shows the inflation-adjusted price of crude oil futures contracts. This price has averaged about $55/barrel for the past 47 years. Today, crude is trading just under $70/barrel. The big jump in crude prices in the early 1970s was triggered by Nixon's decision to take the dollar off the gold standard. Both gold and crude prices (and nearly all other prices) rose following this effective devaluation of the dollar. 

Chart #6

Chart #6 shows the ratio of gold prices to oil prices. This ratio has averaged about 20 (i.e., one ounce of gold tends to be worth 20 barrels of oil. Today the ratio is in the mid-20s, which suggests that oil is somewhat cheap relative to gold. In any event, gold and oil prices seem to be in rough equilibrium these days, and neither one is out of line with historical experience.

Chart #7

Chart #7 shows the level of capital goods orders in both nominal and real terms. Capital goods orders are a good proxy for corporate America's confidence in the future: more orders mean greater productivity for workers in the future. Business investment hasn't been this strong for many years (but it was even stronger in the late 1990s). Strong business investment today suggests a stronger economy in the years ahead. This is a very optimistic sign, and good evidence that we are not facing a future of stagnant economic growth. We may have a lot of inflation, but the economy is still likely to grow. High inflation is eventually destructive of an economy's growth potential, but that might take years to play out. In short: in may be premature to worry about "stagflation."

Chart #8

Chart #8 is very important, since it shows how inflation expectations are built into bond prices. The green line is the difference between the yield on nominal and real 5-yr Treasury notes, and thus it is the market's explicit expectation of what consumer price inflation will average over the next 5 years (currently 2.7%). That's near the high end of historical experience, which tells us that the bond market is only just beginning to believe that the Fed is wrong to predict that the current spurt of inflation will prove transitory. It also tells us that if future inflation expectations rise to the 4-5% level that exists currently, the bond market will have an awful lot of painful adjustment to endure (e.g., nominal yields will have to rise significantly and/or real yields will have to hold steady or fall). 

Chart #9

Chart #9 compares the level of housing starts (blue) with an index of home builders' sentiment. Sentiment tends to lead starts, not surprisingly, so the current level of sentiment points to continued strength in the housing market. One reason home prices have been so strong of late is that the nation has acquired a meaningful housing deficit after the collapse of new home building which began in 2006. It could take years to make up for this. The major risk facing the housing market today is rising mortgage rates, which are currently still incredibly low (~3% for 30-yr fixed rate mortgages). Borrowers may well be intimidated by soaring home prices, but the prospect of borrowing cheap money in a rising inflation environment is very appealing. What we are seeing today (rising housing prices and cheap borrowing costs coupled with rising inflation) is a virtual replay of what happened in the 1970s. Recall that mortgage rates eventually topped out at double-digit levels in the early 1980s. 

And by the way, it took the Fed quite a few years to break the back of double-digit inflation back in the early 1980s. 


K T Cat said...

Thanks for sharing this with us, Scott!

What's your take on the Baltic Dry Index? https://tradingeconomics.com/commodity/baltic

The Smoky Mountain Hiker said...

Scott - thanks for another great post that provides a level-headed analysis. I don't believe you've commented on the global supply chain / shipping backlog that I remember. Are we to take that you don't see this as a major/critical issue for the US/world economy. Would love to hear your comments/analysis, as I see it as potentially a major problem.

Thanks again!

Benjamin Cole said...


I thought about this really hard and for a really long time, and after many minutes of contemplation, I have concluded gold does not have a value.


OK, if you look, you see there is a teeny-weeny sliver of gold demand for industrial use.

The rest is for jewelry, investment and purchase by central banks.

So what is the value of gold? What people say it is. Like fine-art oil paintings, or Bitcoin, collectible stamps or coins, antiques.

You could have made tons of money buying the right collectibles in the past 20 years. What people pay for "a Warhol" boggles the mind. Some really cool cars are worth a mint (this, I somewhat understand).

So what is a Warhol, or a 1958 Impala, or gold worth?

What people say, that's what. No interest, no dividends, no income.

I am not sold on gold.

Carl said...

Chart #7 would be more meaningful and more representative if depicted as a % of GDP. The picture (along with corporate capital investments eventually realized) then would help to appreciate the very convincing downward trend in productive investments (which would also explain lower trends in GDP and productivity growth etc etc). It would also help to provide historical perspective for the recent unimpressive dead cat bounce.
Looking also at capital orders (and investments) as a % of NIPA corporate profits or S&P 500 GAAP earnings, one would continue to 'see' the outcome of what seems to be a deep dearth of reinvestment opportunities.
It's running season once again and time to fine tune the training schedule. Peers have been putting some weight (excess capacity) and they mention that they will compensate with a 'keto' diet and multi-vitamins (easing instead of reform) and consult and get treated for their knee pain. They also plan to invest in expensive running shoes. i've always wondered why people have difficulty 'looking' at root causes.
Gold's value is a function of social conventions and it has maintained some of its flight to safety shine. This time, i'm not buying it but the relic may have some relative luster.

randy said...

I can't understand what to make of charts 5 and 6. Is it that oil prices are not materially out of whack and therefore not something that is a risk indicator?

I'm also with Benjamin on gold. To me it only has value because there is a subset of investors that all collectively agree it has some store of value. And the measure of that changes by too many factors that are not knowable, and more related to sentiment than fundamentals. Including now many investors turning to BTC as an alternative. Until a few weeks ago I didn't understand BTC either. But listening to an advocate describe how it will be critical as a key lubricant to blockchain transactions, and blockchain transactions will become key to everything over the coming years - helped me appreciate how BTC might become more ubiquitous and stable. Still have no idea how to "value" it.

Scott Grannis said...

Re "what is the value of gold?" Like bitcoin (theoretically), gold's supply is limited. Al the gold ever produced is still in existence and held by someone. New production of gold is a small fraction of total supply (~2-3%). And of course, like anything else, the value of gold is what someone is wiling to pay. But I think the charts show that gold retains value--relative to other things--over long periods. An ounce buys you more or less 20 barrels of oil, on average, over long periods. Gold is useful because it doesn't degrade and because of its luster. It has centuries of history as a medium of exchange throughout the world. My guess is that the "intrinsic" value of gold (which would be similar to a long term average relative to other things) is about $700-800 in today's dollars. The same cannot be said for bitcoin: no one has a clue to its value, and that is why I'm not a bitcoin speculator.

Junkyard_hawg1985 said...

Gold does have intrinsic value. Its chemical, electrical and physical properties would make it very useful for multiple applications. The reason it is not used much for these applications is because it is very expensive. It has greater value as a store of wealth (i.e. money). It is ideal for money because it is rare and easily identifiable based on color and density.

Bitcoin has no intrinsic value. For long term investing, the best way to make a small fortune from Bitcoin is to start with a large fortune.

Scott Grannis said...

Carl, re Chart #7: You make a good point. Capital goods orders as a share of GDP have fallen by 50% since their high-water mark in 2000. That's huge, and it surely helps explain why GDP growth has been sluggish since the Great Recession. But the most thing is what occurs on the margin, and on the margin capital goods orders have surged both nominally and as a share of GDP. This is an important recent change, and it is a change for the better. Business optimism has definitely improved this year. Sure, it has been far stronger in the past, but it is picking up, and that's important.

Benjamin Cole said...

WTI crude trading around $76 a barrel.

OPEC+ is doing its part for the global economy by limiting output, and doubling oil prices from a year ago.

Once in a while, I wish the people who rhapsodize about what is called "free trade" would mention OPEC.

OPEC members have flourished by eschewing "free trade."

Benjamin Cole said...


"It (gold) is ideal for money because it is rare and easily identifiable based on color and density."

Actually, gold is very, very clunky to use as money. It would have to be assayed in every large transaction. There are such things as gold-plated lead bricks. For smaller transactions, gold is more or less useless due to transaction costs.

Gold must be stored safely, or it is stolen. Thus both transaction and ownership costs can be high.

Gold does not hold its value, but vacillates, and quite a bit. The track record on gold in the last 50 years makes a roller-coaster look smoothed out.

Actually, Bitcoin makes more sense as money than gold, but even on BTC...there are questions. Will people regard BTC as valuable in 10 years? 20 years? I don't know.

In contrast, property in a good part of a growing city will likely hold its value---you can collect rents. Urban dwellers need shelter to work and live, and need some level of propinquity. That is intrinsic value.

Sure, there risks in well-placed property, and changes on the margin, and some cities die. Risk, oh yes. Government rent control, for example. But likely you will collect rents on a good property for the rest of your life. You could lose money, but you can get paid along the way (unlike gold, where you pay storage fees).

All that said, gold may do great in the next 10 years, and may be great ballast in any portfolio.

Silver was actually a monetary metal before gold. No one calls for a silver standard, or an electrum standard.

Life is funny.

Carl said...

"But the most thing is what occurs on the margin, and on the margin capital goods orders have surged both nominally and as a share of GDP. This is an important recent change, and it is a change for the better. Business optimism has definitely improved this year. Sure, it has been far stronger in the past, but it is picking up, and that's important."

A picture is worth a thousand words:


It helps to put perspective on the recent "surge" and raises the question related to the potential 'transitory' effects versus deeply entrenched secular forces.

Occasionally, people get into hospitals as a result of an inflammatory condition and are put on high-dose steroids (it is a very old treatment and, as expected, was found to be useful at certain stages of the Covid impact on the immune system) which conceptually is related to monetary easing; the inflammatory response is suspended and the hope is that the 'natural' forces will take over after homeostasis is restored). Sometimes, the steroids trigger some kind of manic episode which may trigger some kind of spending, a kind of spending that typically does not end up productive. Let's call this disease an artificially disturbed supply chain psychosis of the crowd.

Net investments to GDP have been going down, down and.. flirts now with the negative territory as there does not seem to be an absolute zero bound. Life is funny.

Benjamin Cole said...


Are what you are seeing, particularly in your second chart, is the offshoring of US industry?

So..the multinationals (the real big boys) are investing as much as they ever were...but offshore.

Who in their right mind would build a factory in the US when you can get all the subsidies in the world in Singapore, Japan, China or SE Asia?

And the US will welcome imports for those nations?

Say you want to borrow few billion to build a US factory...would lenders, knowing the international landscape, finance you?

Add on, US state and national governments are not always business friendly....

Carl said...

Hi Benjamin,
Your thoughts are interesting but there are a few weaknesses in your inputs:
-FDI out of the US has increased significantly but FDI into the US has increased even faster.
-Somehow, the 2017 Tax Act has not resulted in a significant and durable increase in corporate domestic investments (the tax change has been mostly correlated with higher share buyback activity).
-Contrary to popular beliefs most FDI out of the US is invested in high income countries in order to gain market share in that foreign space.

i'm not saying you're wrong, i'm only suggesting that this question is multi-dimensional. When the UK entered some kind of decline in world economic hegemony towards the end of the 19th century, the natural reflex was to reverse the free trade mentality instead of reforms to improve competitiveness. My bet is that the US will (eventually) use its magic sauce to restore the balance between efficiency and equity and it will be interesting to watch how countries like China will 'manage' such transitions.

But yeah households need to earn more (relatively) and need to save more in order to equity invest and to support associated new loans to create productive new money. IMO, the low interest rate environment remains the elephant in the room.

Scott Hammond said...

Charts #1 and #2 basically say Fed has injected too much money into the system. Not mentioned here are some very large repo operations the fed has been engaged in lately. Since the fed has been heavily active in reverse report this is taking money out of the system (see below link) any comments to the contrary are welcome: https://www.newyorkfed.org/markets/desk-operations/reverse-repo

Unrelated this post mentions how housing prices are high. This is true in nominal terms, but adjusting for inflation produces a very different picture (below link). Real housing prices are about 40% below their housing boom peak:

Scott Grannis said...

Re Fed's repo operations: Yes, the Fed has done some huge repo operations, but this only serves to drain reserves, not cash. Reserves are still abundantly plentiful; banks have an almost unlimited ability to expand their lending.

Re real housing prices: National Home Prices according to the Case Shiller index are at a new all-time high in both nominal and inflation-adjusted terms. The index you link to adjusts prices for interest rates; since mortgage rates are much lower today than they were at the peak of prices in 2006, this boosts current house prices because it makes them more affordable.

Scott Grannis said...

Correction to my previous: Last sentence should read: "... this lowers current house prices because it makes them more affordable."

Carl said...

^The easiest way to keep tab on the net addition of reserves by the Fed (taking into account the massive drainage of the Treasury General Account at the Fed and massive repo operations) is to look at reserves deposited at the Fed by depository institutions:
Net result over the relevant period: +2.4T of reserves (which are included in M2).

Of note and as of most recent releases, commercial banks in the US have continued to expand their balance sheets by holding more and more government and agency securities. Since early 2020 about 40% of this expansion has been related to commercial banks holding on their balance about 0.5T of US government debt effectively meaning that banks created 0.5T by synthetically (net result is the same in the end) lending directly to the government (this is rising faster than GDP growth!).
Of course, this direct financing is potentially inflationary (eventually) but now it clearly looks like an affordable option and one that creates an addiction-like pattern (facilitated by the Fed but who cares?)
i wonder if this is not some kind of Freudian slip as a few real estate people (including some indices) integrate mortgage rates into their appreciation of affordability on top of prices and incomes. Maybe the statement was (unconsciously or not) meant to be: "this boosts current house prices because it makes them [look} more affordable."
Maybe it's the globalist side of me but i think people should start to focus on another index strongly correlated to oil prices:
Inspired by Animal Farm: Some people are hungrier than others.

Benjamin Cole said...


The FDI figures vis-a-vis real investment in plant and equipment are squishy, as I am sure you know.

There can be FDI to acquire existing developed property, and transnational commercial real estate deals are a big thing. I don't know how much, but if you have to make an investment in a foreign land, the security of property in Western developed nation is hard to top.

Also, multinationals have become so large that tracking capital flows is probably a guess. Apple claims to make most of its profits in Ireland. So, say Apple builds factories in mainland China, but says the money financing the factories came from Ireland.

My guess is multinationals, when they do build factories, choose lowest-cost locations, with the best subsidies...duh....usually, the Far East.

The globalists insist this is wonderful, Americans get cheaper products. Chronic and huge trade deficits are a positive, not a negative.

I have my doubts.

Carl said...

"The globalists insist this is wonderful, Americans get cheaper products. Chronic and huge trade deficits are a positive, not a negative."
i have doubts too. :)
The US has driven the global 'recovery' by issuing an unprecedented level of debt and the trade deficits are reaching also unprecedented levels.
To link with this thread, in Q1 and Q2 of 2021, when inflation worries have taken hold, what happened to US commercial bank assets? Assets rose (hundreds of billions from reserves increase and buying of safe government or government-explicitly-supported debt securities) mainly as a result of the safety and liquidity preferences maintained by the vicious circle imposed by low interest rates and the Fed's involvement in the capital markets. During that time frame, what happened to main street lending activity? Lending activity declined by $25 billion.
'We' (the global we) need a new set of common discipline and Americans (who live in the real non-hyper-financialized world) will have to become more competitive. My bet is that winning may simply mean the ability to make it through.

wkevinw said...

"The globalists insist this is wonderful, Americans get cheaper products. Chronic and huge trade deficits are a positive, not a negative."

The money printing that has created the "wealth effect", has failed to be transmitted to the real economy due to job loss- mostly from off-shoring. The corruption in the economics profession has made it so that few studies have been done to try to understand the "wealth inequality" that has gotten worse in the past 50 years. Corruption is never helpful.

There hasn't been meaningfully improved manufacturing output in any industry save one, for about 40 years.

"Since the 1980s, however, the apparently robust growth in manufacturing
real output and productivity have been driven by a relatively small industry—computer and
electronic products, whose extraordinary performance reflects the way statistical agencies
account for rapid product improvements in the industry. Without the computer industry, there is
no prima facie evidence that productivity caused manufacturing’s relative and absolute
employment decline."

My comment: it was off-shoring/globalization of manufacturing capital/factories


Benjamin Cole said...


I agree.

Yes, free trade theory is wonderful (although note: David Ricardo eschewed his own trade theory if capital was mobile among nations).

Surely, it makes sense to trade salmon for bananas. So some international trade obviously makes sense.

But today in the US there is a globalist blob in DC, of 1000s of foundations, think tanks, institutions, centers, lobby groups, academics, international federal agencies (including the national security state) and media. All financed by the multinational community.

I cannot think of a single center-foundation-institute etc. advocating for non-interventionism, unless it is the Cato Institute.

On trade, the same picture in Dc, "free trade" is wonderful---although the entire Far East and Germany have prospered not through free trade, but by export-driven growth. Asia is defined largely by dirigiste economies.

US leadership will not satisfied until they have Detroitified the US heartland, and Hong Kongified the coasts (fantastically expensive housing).

Carl said...

^The protectionist agenda is again relevant and a bipartisan issue (both parties support protectionist policies to different degrees).

A lot has been said about the Smoot-Hawley tariff Act but this was also the result of a bipartisan effort. Many relate the Act to the depth of the Depression but the possibility of a simple correlation should be considered. The protectionist climate was driven by a growing disconnect between false and real prosperity and what made the Act really 'effective' was the amazing deflationary economic contraction associated with falling global demand. The bust, in the end, needed to be in proportion to the preceding boom.

The US eventually came out of the slump as a result of winning a war (a real one), by increasing private savings and by setting up the industrial landscape allowing leading edge innovation and productivity growth, a naturally inclusive kind of growth.

Simply asking for protection, keeping unsustainable promises and entitlements in place, maintaining close to a 20% of GDP healthcare tapeworm in place and money 'printing' won't do the trick. In the past, there been episodes when it was felt that the US couldn't compete.

Tariffs and protection will always be part of the picture but the transition will require to roll up sleeves. i continue to think that a deflationary scenario would help achieve such a transition but there's the MMT risk (banana republic risk).

There are two jobs i would avoid now (and for the upcoming transition): one, to manage pension assets in this environment and two, being a politician. That may be why sociopaths and demented candidates get the job.

Benjamin Cole said...


Washington DC: More guns and butter for the safe and fat.

Carl said...

^That's what's likely to happen if you have too much money sloshing around.
If you refer to the previous episode when people (DC people leading the way despite some resistance by the Fed (William McChesney Martin Jr.) when transitory inflation (a few years) appeared, remember that the US economy then was much leaner, more productive and more inclusive.

And people now are unusually eager to drive up the price of government bonds, driving down yields, as a symbol of safety.

Inflation appears to be stubborn once again but secular forces (high debt, demographics) are growing in importance which likely means that inflation will likely be much less persistent in the grand scheme of things.

If interested (this is especially relevant as there will likely be growth in the potential application of MMT soon), take a look at the following.
Short version: In order for inflation to really take off, there needs to be a perception that the debt is no longer backed by a present or future taxes and a catalyst may include a potentially credible flight from the currency. At this point, for better or for worse, the US still has huge tax potential (having the possibility to do something does not mean it's a good idea to do it) and the USD still has hegemonic power holding the reserve currency.

In order for significant and persistent inflation to occur, there needs to be much more recklessness and complacency. Of course, anything is possible.

Benjamin Cole said...


We seem to have people in one of two camps: There will be bad inflation, pretty high, or "no worries" we will go back to 1.9% soon.

Maybe we get 3%-4% inflation for a few years. Not pretty, but if a depression is avoided, OK.

I am more worried by anti-business laws, and higher taxes on productive people.

And by zoning-induced housing shortages.

Carl said...

In typical times (more than 95-99% of the time), i would not waste time posting here (but i may read and learn along the way). For example (you referred to butter before), i've followed the dairy industry closely and the Dean Foods bankruptcy was very interesting (and could have been foreseen if inclined to dissect 10-Ks and footnotes as well as industry reports).
But my hypothesis is that we are going through one of the most interesting (and tricky) period of all times for investing.
A way to express this is the unstable equilibrium that (IMHO) has built up (inflation vs deflation). There are building (and huuuge) deflationary forces that have been masked by inflationary monetary and fiscal policies.
i wonder if our "leaders' have not painted themselves into a corner and the only perceived way (at some point, maybe soon, next ultimate step after 'whatever it takes') to escape the deflationary spiral will be to cross the Rubicon, a process that will make everybody miserable (runaway inflation).
Of course i hope for some kind of muddle-through scenario but i wonder more and more if we are reaching non-linear stages.

BTW, fresh milk consumption has been going down but, for butter and cheese, it's another excess capacity story:

Maybe i focus too much on productivity and sustainability but here's a comment from a leading ice cream organization of years' past:
"Everything was wonderful while we were riding the crest of the wave.
Then suddenly and without warning something happened – the wave flattened out and we found ourselves gasping for breath and struggling to get our feet on solid ground. And, we are still engaged in that struggle.
If, after reflecting upon the course of events in the past four years, we will make an appraisal we must reach the conclusion that we were not the sound, sagacious business men we pretended to be.
We were carried away with the fantastic notion that because handsome profits were being made in the industry a miracle, for which we were responsible, was being performed.
In the light of our knowledge today we realize fully that these same handsome profits acted as a powerful drug that lulled us to sleep."
The year was 1933, a time when anti-business sentiment was about to reach new highs and after a period of 4 years when construction of residential property fell 95 percent which did not prevent housing prices falling 35%.
i hope you're right but want to make sure i can prosper under any circumstances, in this very specific environment.

Carl said...

For the above post, here's the missing illustrative link for the unstable inflation-deflation equilibrium: