(notes:)

New to us: a situation of high nominal growth. Nominal growth = real growth + inflation. Stagflation = the high nominal growth is absorbed by higher prices but output (production) doesn't keep up (low real growth).

Labor productivity has been positive so far (output rose), but nominal spending was far greater.

A reduction in nominal spending is the only viable solution, because it looks like productivity can't be raised much. Economies are approaching capacity constraints. Note: a simple raise in rates isn't necessarily 'tightening' unless it is relative to what is discounted and relative to economic conditions. Note: short-term interest rates.

Inflation is increasingly entrenched and supplies and inventories are low.

Stocks: Companies that are most liquidity-sensitive and longer-duration cash flow, have seen the biggest value effect.

War in Ukraine: big effect on commodities (R a supplier). Normal short-term flight to quality (weeks or a month) and afterwards unfolding macro pressures typically dominate.

Expect reinforced capex cycle (surge in demand). Lingering bottlenecks. Capexs to boost efficiency. Particularly industrials and materials (companies reshoring to US from Asia due to supplychain disruptions). Automation. Software and info processing equipment over past couple years.

Governments' choice: tighten to control inflation and face a potential economic downturn, or don't tighten and allow inflation.

Household balance sheets stronger (than 2018). Lots of cash in bank, appreciated home values and stocks. Poor people wealthier than past 60  years.

Banks are very liquid. Money printing found its home there. Reallocating into loans.

Where are we in the monetary policy?

One man's debts are another man's financial assets. So they won't be able to raise interest rates to a high enough level to provide a real return to investors. 3% or 4% won't be enough to compensate for the inflation rate.

Paradigm shift. People believed everything that happened in the past 10 years, and then they get a surprise, and then they start to change.

Do I think cash is a safe asset, or bonds are a safe asset? Am I getting a real return? There's gonna be a supply-demand balance. The Fed, individuals, foreigners, and the US gov (to fund its deficit) are all selling/going to sell. Going to produce a squeeze because so much money was put out.

What's going to get you a real return? Real assets. Like the 70s.

Everybody's wrong. Everybody wants everything to go up. They keep giving you money. They want you to buy everything. They hype it. The world is holding all these financial assets. You're going to have an environment of negative real returns.