TL:DR -- I believe inflation is the match that has been lit that will light the fuse of our rocket. Part 2
=========================================================================================================

| Author       | Source       | 
| :-------------: |:-------------:|
|  [u/Dismal-Jellyfish](https://www.reddit.com/user/Dismal-Jellyfish/) | [Reddit](https://www.reddit.com/r/Superstonk/comments/oe6i3l/tldr_i_believe_inflation_is_the_match_that_has/) | 

---

[DD 👨‍🔬](https://www.reddit.com/r/Superstonk/search?q=flair_name%3A%22DD%20%F0%9F%91%A8%E2%80%8D%F0%9F%94%AC%22&restrict_sr=1)

[](https://preview.redd.it/ehs02c6dwd971.gif?format=mp4&s=1d76c4fc8a45cd543d9a2ffeb4cd2eff02f74138)

Good morning r/Superstonk, neighborhood jellyfish here!

I would like to revisit some more data recently released and posted and continue trying to tie this all together as the situation continues to evolve.

Posts being referenced: [1st Inflation Post](https://www.reddit.com/r/Superstonk/comments/nxxwqt/tldr_i_believe_inflation_is_the_match_that_has/), [Existing Home Sales May](https://www.reddit.com/r/Superstonk/comments/o6ie6p/a_deep_dive_into_the_housing_data_released/), [New Home sales May](https://www.reddit.com/r/Superstonk/comments/o6soxw/part_ii_a_deep_dive_into_the_housing_data/), [Fed Balance Sheet through 6/16](https://www.reddit.com/r/Superstonk/comments/o2dw45/thoughts_on_the_feds_balance_sheet_after_todays/), [It's not just manufacturing supply shortages, manufacturers can't get people for work](https://www.reddit.com/r/Superstonk/comments/od9tt1/a_deep_dive_into_some_more_of_the_data_released/), [6.4% annualized inflation (PCE, excluding food and energy the most conservative inflation measure US government releases and the Fed relies on)](https://www.reddit.com/r/Superstonk/comments/o7r4zw/the_feds_favorite_inflation_measure_which_is_the/)

I want to start by revisiting the Fed's balance sheet. The last time we talked about it (6/17), it stood at a then RECORD $8.064 trillion. Let's write this one out: $8,064,000,000,000.As of July 1st, that number stands at a NEW RECORD $8,078,544,000,000---an increase of $14,544,000,000.

[![r/Superstonk - TL:DR -- I believe inflation is the match that has been lit that will light the fuse of our rocket. Part 2](https://preview.redd.it/z8dnwn5swd971.png?width=1827&format=png&auto=webp&s=6c72023ffe5b27cd93dfceb0df11fbf263ec6d5b)](https://preview.redd.it/z8dnwn5swd971.png?width=1827&format=png&auto=webp&s=6c72023ffe5b27cd93dfceb0df11fbf263ec6d5b)

$8,078,544,000,000

[![r/Superstonk - TL:DR -- I believe inflation is the match that has been lit that will light the fuse of our rocket. Part 2](https://preview.redd.it/jwxf3k0uwd971.png?width=1465&format=png&auto=webp&s=ceb3523e78313f82c4376e1fb65ec775e1b9cc16)](https://preview.redd.it/jwxf3k0uwd971.png?width=1465&format=png&auto=webp&s=ceb3523e78313f82c4376e1fb65ec775e1b9cc16)

Look at that triangle that has started at $7 trillion!

So what caused the jump in the balance sheet?

The Treasury General Account (TGA), which Yellen said in February she wanted to [get to $500 billion by the end of June](https://home.treasury.gov/news/press-releases/jy0011), actually increased by $86.815 Billion to $851 Billion.

Federal Reserve Notes, net jumped $4,594 million.

The Fed's balance sheet is jumping while we are watching the housing bubble inflate in front of us.

The rate of sales continues to trend downward, but median home prices for existing homes are up 23.6% year-over-year to an all-time high of $350,300 with May rising at the greatest year-over-year pace since at least 1999, up from $283,500 last year and $340,600 in April.

So, months' supply is increasing (supply taking longer to move), sales are beginning to decrease (.9%) (demand), and median existing-home price across all housing types hit a record high of $350,300 in May, an increase of 23.6% from the year before (price).

Despite supply increasing for months, single-family home sales by homebuilders to the public in May fell 6% from the prior month to a seasonally adjusted annual rate of 769,000 houses, down 23% from the recent high in January. This steep decline in sales occurred amid rising prices.

The median price of new single-family houses rose 2.5% from the previous month, and spiked 18.1% year-over-year, to a record $374,400:

[![r/Superstonk - TL:DR -- I believe inflation is the match that has been lit that will light the fuse of our rocket. Part 2](https://preview.redd.it/4xj0opyl1e971.png?width=802&format=png&auto=webp&s=6690f087ada69f13a8c35b8841a34c4d48e036c1)](https://preview.redd.it/4xj0opyl1e971.png?width=802&format=png&auto=webp&s=6690f087ada69f13a8c35b8841a34c4d48e036c1)

The drop in sales of new homes in the past months brought sales back to about pre-pandemic levels. On the other end of our equation, inventory really is rising!

Unsold speculative houses rose for the fifth month in a row to 330,000 houses and months' supply rose to 5.1 months.

New single-family homes completed since Jan 2021 : 1,328,000+1,347,000+1,497,000+1,426,000+1,368,000 = 6,966,000 homes

New single-family homes sold since Jan 2021 : 993,000 +823,000+886,000+817,000+ 769,000 = 4,288,000 homes

Supply is up +2,678,000 homes in 2021 so far.

Stated another way:

The current supply is steadying with current inventory not moving at the current prices and is increasing as more homes come online (census bureau has it at ~ 4-8 months in 2020 to build from start to finish, projects started during the pandemic will be coming online), Demand is decreasing, Median Prices has increased to an all-time high.

With the conditions of the housing market above, I believe we are entering 'textbook' bubble territory.

[![r/Superstonk - TL:DR -- I believe inflation is the match that has been lit that will light the fuse of our rocket. Part 2](https://preview.redd.it/bcoa3frsxd971.png?width=794&format=png&auto=webp&s=3d348043be4dd619112aad871705fd00ba02f737)](https://preview.redd.it/bcoa3frsxd971.png?width=794&format=png&auto=webp&s=3d348043be4dd619112aad871705fd00ba02f737)

Source: https://www.investopedia.com/terms/h/housing_bubble.asp

Ok, as we covered above, demand had been through the roof, but the supply is back on the rise and current stock is taking longer to move. At the same time, demand for new mortgages is decreasing as the supply continues to hold and increase---but prices continue to go up!

[![r/Superstonk - TL:DR -- I believe inflation is the match that has been lit that will light the fuse of our rocket. Part 2](https://preview.redd.it/e8ge1yn0yd971.png?width=884&format=png&auto=webp&s=adbea8646a332e991679cf2214603ff39a2b499e)](https://preview.redd.it/e8ge1yn0yd971.png?width=884&format=png&auto=webp&s=adbea8646a332e991679cf2214603ff39a2b499e)

But what about delinquency rates? This can be a source to the supply...

[![r/Superstonk - TL:DR -- I believe inflation is the match that has been lit that will light the fuse of our rocket. Part 2](https://preview.redd.it/e2jq2nc3yd971.png?width=1111&format=png&auto=webp&s=20b980c2faf5d470a30dc34a8f3106acdfc79fc3)](https://preview.redd.it/e2jq2nc3yd971.png?width=1111&format=png&auto=webp&s=20b980c2faf5d470a30dc34a8f3106acdfc79fc3)

https://www.mba.org/2021-press-releases/may/mortgage-delinquencies-decrease-in-the-first-quarter-of-2021

> On a year-over-year basis, total mortgage delinquencies increased for all loans outstanding. The delinquency rate increased by 141 basis points for conventional loans, increased 498 basis points for FHA loans, and increased 297 basis points for VA loans.The delinquency rate includes loans that are at least one payment past due but does not include loans in the process of foreclosure. The percentage of loans on which foreclosure actions were started in the first quarter rose by 1 basis point to 0.04 percent. The percentage of loans in the foreclosure process at the end of the first quarter was 0.54 percent, down 2 basis points from the fourth quarter of 2020 and 19 basis points from one year ago. This is the lowest foreclosure inventory rate since the first quarter of 1982.The seriously delinquent rate, the percentage of loans that are 90 days or more past due or in the process of foreclosure, was 4.70 percent. It decreased by 33 basis points from last quarter and increased by 303 basis points from last year. From the previous quarter, the seriously delinquent rate decreased 34 basis points for conventional loans, decreased 19 basis points for FHA loans, and decreased 37 basis points for VA loans. Compared to a year ago, the seriously delinquent rate increased by 205 basis points for conventional loans, increased 771 basis points for FHA loans, and increased 379 basis points for VA loans.

Then there are those still in or coming out of forbearance with the likely expiration and non-renewal of these Covid rules at the end of the month:

[The Mortgage Bankers Association's (MBA) latest Forbearance and Call Volume Survey revealed that the total number of loans now in forbearance decreased by 2 basis points from 4.18% of servicers' portfolio volume in the prior week to 4.16% as of May 30, 2021. According to MBA's estimate, 2.1 million homeowners are in forbearance plans.](https://www.mba.org/2021-press-releases/june/share-of-mortgage-loans-in-forbearance-slightly-decreases-to-416-percent)

[![r/Superstonk - TL:DR -- I believe inflation is the match that has been lit that will light the fuse of our rocket. Part 2](https://preview.redd.it/1hp4jrdbyd971.png?width=1169&format=png&auto=webp&s=33d5b84e2ff464c95a84049f5887674a1bc3f224)](https://preview.redd.it/1hp4jrdbyd971.png?width=1169&format=png&auto=webp&s=33d5b84e2ff464c95a84049f5887674a1bc3f224)

While it is great to see people come out of forbearance, if I am reading the numbers correctly, more than half of folks coming out are still going to have amounts that still need to be paid back. Budgets are already stretched tight, wage growth is decreasing, and inflation is making everything else more expensive.

So, the central-bank asset purchases that continue chugging along [($120 billion per month](https://www.wsj.com/articles/central-bank-will-begin-reducing-bond-purchases-well-before-raising-interest-rates-powell-says-11618421656)) continue to help directly inflate this bubble! The music on inflating home prices is going to stop!

This brings me back to a comment from earlier this week I made in the RRP's post:

> Inflation is blowing up as they have a full-blown liquidity crisis on their hands!
>
> The Fed has backed themselves & the banks in a corner after letting the printer run brrrrr. High Reverse Repo Purchase usage signals that the banks simply don't have the balance sheets to accept the excess reserves. Even accounting for end-of-quarter use spiking, $991.939 billion to 90 participants is absolutely bonkers!!!
>
> Thus, they are forced to park them right back with the Fed using the [Overnight Reverse Repo Purchase and 0.05% lending](https://apps.newyorkfed.org/markets/autorates/temp).
>
> This has created a dangerous game of chicken in the market. Currently, the liquidity in the market is entirely artificial because of the aforementioned brrrrr. If the Fed lets up the slightest bit on the central-bank asset purchases [($120 billion per month currently](https://www.wsj.com/articles/central-bank-will-begin-reducing-bond-purchases-well-before-raising-interest-rates-powell-says-11618421656)), it could shut down the entire game. However, if JPow keeps letting the printer run, he risks hyperinflation and [further cracks in support from his members](https://web.archive.org/web/20210630081637/https:/www.nytimes.com/2021/06/30/business/economy/inflation-federal-reserve.html).
>
> It's turned into either no more liquidity for anyone or so much liquidity that the value of USD becomes near worthless and we see [Weimar Republic levels of hyperinflation.](https://en.wikipedia.org/wiki/Hyperinflation_in_the_Weimar_Republic)
>
> For GME, I believe the thought is that no liquidity means institutions will have to sell off other assets to increase their capital supply. This will continue until they can no longer increase their capital supply to meet margin requirements.
>
> When/if institutions cannot meet their margin requirements (aka prove liquidity to be able to cover positions), DTCC will forcibly close all of their positions and MOASS takes flight

This is the game of chicken the Fed is caught up in---demand for housing (as we covered above) is going down, supply is increasing, yet prices continue to inflate---I believe this is in large part because of the $120 billion per month central bank MBS is allowing prices to continue to increase and build this bubble!

Let's revisit the rate of inflation from my first post. The [CPI report](https://www.reddit.com/r/Superstonk/comments/nwodvj/the_consumer_price_index_climbed_06_from_the/) had inflation at 5% and we reviewed ICE BofA Single-B US High Yield Index Effective Yield @ 4.47% -.53% adjusted for inflation (Highly Speculative) and ICE BofA CCC & Lower US High Yield Index Effective Yield @ 6.83% 1.83% adjusted for inflation ("extremely speculative" to "default is imminent with little prospect for recovery").

Annualizing the Personal Consumption Expenditures, excluding food and energy (PCE), again the *most conservative* inflation number the government offers, from the BEA report the other day, inflation is at 6.4%--inflation is at least 28% higher than the first time we examined this at 5%!!!

Looking at the bonds again, adjusted for inflation, things are worse!

[![r/Superstonk - TL:DR -- I believe inflation is the match that has been lit that will light the fuse of our rocket. Part 2](https://preview.redd.it/2zrpzjetyd971.png?width=1468&format=png&auto=webp&s=9afed52a1cd40a63a9fb923cf8953c2559a15d48)](https://preview.redd.it/2zrpzjetyd971.png?width=1468&format=png&auto=webp&s=9afed52a1cd40a63a9fb923cf8953c2559a15d48)

ICE BofA Single-B US High Yield Index Effective Yield @ 4.44% -1.93% adjusted for PCE inflation (Highly Speculative)

[![r/Superstonk - TL:DR -- I believe inflation is the match that has been lit that will light the fuse of our rocket. Part 2](https://preview.redd.it/m0nc740uyd971.png?width=1463&format=png&auto=webp&s=4ef8591e2dc1146b2e6d241184a0178f6299e362)](https://preview.redd.it/m0nc740uyd971.png?width=1463&format=png&auto=webp&s=4ef8591e2dc1146b2e6d241184a0178f6299e362)

ICE BofA CCC & Lower US High Yield Index Effective Yield @ 6.60% .2% adjusted for inflation ("extremely speculative" to "default is imminent with little prospect for recovery")

Can we let that sink in again for a moment? To get any sort of positive yield an investor must expose themselves to bonds rated "extremely speculative" to "default is imminent with little prospect for recovery". If they invest in the Single-B 'Highly Speculative' they lose principal capital to inflation!

Remember, they can't just sit on this cash as the dollar is losing buying power (as we have covered before), the cash would get eaten by inflation, and it is a liability for them---since they must pay interest on client cash. (This is where having *too much* cash is considered a liquidity crisis! There isn't enough good debt to place it in!). No wonder the Reverse Repo Markets are so heavily used!

Before we go any further, let's do some quick level setting on bonds and their risk descriptions:

[![r/Superstonk - TL:DR -- I believe inflation is the match that has been lit that will light the fuse of our rocket. Part 2](https://preview.redd.it/5pbdgumczd971.png?width=839&format=png&auto=webp&s=032247d092bcbcc01e6b348857e2c16839955c33)](https://preview.redd.it/5pbdgumczd971.png?width=839&format=png&auto=webp&s=032247d092bcbcc01e6b348857e2c16839955c33)

How the Credit Rating Agencies Classify Corporate Bonds and Loans by Credit Risk or the Risk of Default.

0:00

3:44

Any excuse to use this clip again makes my day...

Again, JPow believes this inflation is transitory and will drop back down to 2%. The Fed has been 2 steps behind on inflation and I think they are severely underplaying a new wild dynamic in this inflation madness---people and businesses are willing to pay these prices!

We have looked extensively at the record median prices in homes, but let's consider cars for a minute. This is why I think the inflation game has changed! According to data from the [Bureau of Economic Analysis](https://apps.bea.gov/iTable/iTable.cfm?1921=underlying&isuri=1&reqid=19&step=2#1921=underlying&isuri=1&reqid=19&step=2) June sales for autos fell to 1.30 million vehicles, down 14.2% from June 2019, after a strong March, April, and May.

Vehicle sales picture

The Seasonally Adjusted Annual Rate (SAAR) of sales,(takes the number of selling days and other seasonal factors into account and then annualizes the result), vehicle sales look:

June: 15.4 million SAAR, -9.5% from June 2019; the lowest for any month since January 2014.

May: 17.0 million SAAR, -1.0% from May 2019.

April: 18.6 million SAAR, the highest total for any month in 16 years, +7.4% from April 2019.

March: 17.9 million SAAR, +7.9% from March 2019.

Carmakers and dealers are making money hand over fist though! Dealers by and large don't produce 'economy' cars and trucks anymore. Everything is has shifted to high profit-margin vehicles---for example, Ford (except for the Mustang) doesn't produce cars anymore!

Because of this and shifting to have 'on-demand' inventories, the average transaction price for cars is at record highs, so is average gross profits per unit---the average transaction price (ATP) of new vehicles in June jumped 14.9% from a year ago, to $40,206, a [joint forecast from J.D. Power and LMC Automotive](https://www.businesswire.com/news/home/20210625005063/en/J.D.-Power-and-LMC-Automotive-U.S.-Automotive-Forecast-for-June-2021)---a record surge,

> The combination of strong retail volumes and higher prices means that consumers are on track to spend $45.6 billion on new vehicles this month, the highest on record for the month of June. Consumer expenditures on new vehicles are expected to reach a Q2 record of $149.7 billion, up 60.7% from 2020 and up 27.9% from 2019.
>
> Total retailer profit per unit, inclusive of grosses and finance & insurance income, is on pace to reach an all-time high of $3,908, an increase of $2,061 from a year ago. Grosses have been above $2,000 for 11 of the past 12 months. Coupled with the strong retail sales pace, total aggregate retailer profits from new-vehicle sales will be $4.4 billion, the highest ever for the month of June and up an astounding 175% from June 2019.
>
> The combination of strong retail volumes and higher prices means that consumer expenditures on new vehicles are expected to reach a first-half record of $270.8 billion, up 47.8% from 2020 and up 24.7% from 2019.
>
> Retailer profits from new-vehicle sales will reach first-half record levels on both, a per unit, and total basis. Profit per unit for the first half of 2021 will reach $2,844, up $1,310 from the same period in 2020 and up $1,457 from 2019, while total profits will reach $20.2 billion, up $12.1 billion from 2020 and up $11.2 billion from 2019.

The trade-in market is also nuts! [The chip shortage](https://www.detroitnews.com/story/business/autos/ford/2021/07/02/ford-sales-fall-27-june-lingering-chip-shortage/7839245002/) and covid have set the secondary market on fire. Normally, it is tempered through rental car companies and the like offloading their fleets. Covid has thrown a huge wrench into that, and add in the chip shortage in new vehicles, has led to what I believe is the fairy dust on this inflation fire, reports of low-mileage used vehicles costing more than the new model would cost if it were available.

(timeout, I do hope RC and the GameStop team are reading up on how Toyota is killing this chip shortage since they had this sort of risk already identified in their Business Continuity Plan because of what happened with Fukushima in 2011!)

A study by [iSeeCars](https://www.iseecars.com/used-cars-cost-more-than-new-study), which combed through over 470,000 new vehicles and "lightly used" 2019 and 2020 model-year vehicles, found that the gap between new and slightly used had "drastically narrowed" across the board, and it found that 16 hot models were selling for more money as used vehicles than their equivalent new versions, that were not in stock.

On top of this list is the Kia Telluride, it would sell for $44,166 as new vehicle sold for $47,730 as a slightly used vehicle. The first six on the list were either pickups (GMC Sierra 1500, Toyota Tacoma, Toyota Tundra) or SUVs (Telluride, Mercedes-Benz G-Class, Toyota RAV4 Hybrid).

Rather than haggle till they get the price down, or just not buy as they had done for a couple of years of the Great Recession, consumers are buying are paying whatever it takes to get a new or used vehicle or new or used home as their whole mindset about inflation has changed!

[![r/Superstonk - TL:DR -- I believe inflation is the match that has been lit that will light the fuse of our rocket. Part 2](https://preview.redd.it/75z9o0bf0e971.png?width=600&format=png&auto=webp&s=be0146e852127aa6467848a5b4a3d31189834415)](https://preview.redd.it/75z9o0bf0e971.png?width=600&format=png&auto=webp&s=be0146e852127aa6467848a5b4a3d31189834415)

The brakes on inflation have been cut! This beast is going to keep running!

OK, so to try and wrap this up again:

- More cash is going to continue to pour in that needs to be placed.

- Inflation is going to make it impossible to earn positive rates on assets after being adjusted for inflation on anything but "extremely speculative" to "default is imminent with little prospect for recovery" risks.

- Cash can be stashed with the Fed @ 0.05% currently

- Previous collateral (zombie CMBS as an example) is considered junk and may be losing value due to being mistakenly rated/valued to begin, with yield rates, which had been used to secure the balance sheet now also being eaten by inflation. ([Washington Prime Group and certain of its subsidiaries filed for Chapter 11 bankruptcy protection since the last time](https://investor.washingtonprime.com/investor-relations/news-and-views/news/news-details/2021/Washington-Prime-Group-Commences-Voluntary-Chapter-11-Financial-Restructuring-with-RSA-Supported-by-Over-70-of-Holders-of-Secured-and-Unsecured-Corporate-Debt/default.aspx))

- Their cash can't be used as collateral because it is a liability, and even if used, will suffer a loss of value from inflation.

Opinion: Because of inflation, the shorts are going to drown in their cash. There is no place for it to go to earn a positive yield greater than what inflation will eat, or should be acceptable for the level of risk of default.

With nowhere to park this cash to generate positive yields and while having to contend with balance sheets that are having assets eaten away, participants will continue to use the Reverse Repo to buy time until:

Being down in real terms because of inflation is something that cannot be made back up to service the debt and will weigh on balance sheets as they try to protect from margin calls.

Their existing collateral on the balance sheet can get re-rated lower, re-appraised lower, or just eaten by inflation to the point even what they are borrowing in treasuries can't meet the requirements to hold off a margin call.

They hit the 80 billion Reverse Repo limit because of nowhere else to place cash, are tapped out on treasuries, and no longer able to post acceptable collateral to meet their margin requirements.

Finally, GameStop now faces inflation concerns because of that fat stack of cash they have ready to deploy!

I am sure RC and company have plans to deploy that capital in ways that will earn more than the rate of inflation, but I would like to propose they consider setting at least 1% of that cash aside to hedge the company against inflation moving forward to invest in b I t c o I n and e t h e r e u m.

I know this investment suggestion is probably controversial! However, I've been in crypto longer than GameStop (and DFV has been in GameStop), and it was understanding these fundamentals that helped make his explanations and some of the DD here click for me to ape into GameStop when I learned about it.

I am happy to touch on these subjects in the comments further (but I do want to keep this on the topic as much as possible and try and wrap up), but in short, I believe in [PlanB's Stock-to-Flow](https://twitter.com/100trillionUSD) hypothesis on b I t c o I n.

I think GameStop could benefit some cash to this asset that cannot be inflated away, and as Elon proved, can be turned from cash-b I t c o I n-cash instantly.

More importantly, though, I think the company should allocate a portion of that to staking e t h e r e u m and offering the ability to stake to GameStop's user base.

In the future, I believe GME values decentralization of ownership of our digital assets, which is why we should buy and mint NFT's on GameStop's Blockchain.

For the less blockchain familiar GameStop users, I think GameStop should open up the protocol to allow ETH2 staking with GME? Empower the players to secure the metaverse?

For the balance sheet though, if you're staking on E t h e r e u m 2.0, E t h e r e u m 's parallel PoS network, your operations are earning you a roughly 8% annual percentage return (APR). This number is higher than the rate of inflation that we covered as well! Yes, E t h e r e u m fluctuates in price, but as we covered above, staking will also further secure and make the network stronger, which in turn does the same for the metaverse!

EIP-1559 is in flight. What this means is that net "issuance" of new coins minted is going to be dramatically lowered. To put it in perspective, the issuance rate right now is 4.5% per year, the estimates for the issuance rate after EIP 1559 is implemented are .5 - 1%. Why does this matter?

So b I t c o in issuance halves every 4 years right? (this is what makes the stock-to-flow model tick) Well, an issuance drop from 4.5% is the equivalent of 3 halvenings happening at one time. (4.5 cut in half to 2.25 again to 1.125 and again to .56). E t h e r e u m is already at a multi-year low supply on exchanges, once this happens E t h e r e u m will become more instantly scarce. People have dubbed this the "Cliffening".

I believe this increasingly scarce asset that will also secure the metaverse would be a great place to place cash to avoid inflation!

TL:DR -- I believe inflation is the match that has been lit that will light the fuse of our rocket.
