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Inflation: Rip or Ripple

Inflation numbers have been coming in high now, for more than a year, but for much of the early part of 2021, bankers, investors and politicians seemed to be either in denial or casually dismissive of its potential for damage. Initially, the high inflation numbers were attributed to the speed with the economy was recovering from COVID, and once that excuse fell flat, it was the supply chain that was held responsible. By the end of 2021, it was clear that this bout of inflation was not as transient a phenomenon as some had made it out to be, and the big question leading in 2022, for investors and markets, is how inflation will play out during the year, and beyond, and the consequences for stocks, bonds and currencies.
inflation-and-its-ripple
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  • His conclusion, as he tipped, was a 2-handed conclusion:

    "If you believe that last year's surge in inflation is a precursor to a long time period when inflation is likely to stay high, and come in above expectations, you should be shifting your holdings away from financial to real assets, and within your equity holdings, towards small cap stocks, stocks trading at lower pricing multiples (PE, Price to Book) and companies with more pricing power. If, on the other hand, you believe that inflation worries are overdone, and that there will be a reversion back to the low inflation that we have seen in the last decade, staying invested in stocks, and especially in larger cap and high growth stocks, even if richly priced, makes sense."
  • edited February 11
    Lindsay Owens (don't know who she is) on Twitter today::

    As you read today's inflation report, pay close attention to what the CEOs who set prices are saying. We got our hands on the latest batch of earnings reports, and it's a doozy. They're literally bragging about hiking prices while hiding behind "inflation." The receipts...

    CEOs often speak more candidly on earnings calls (held when a new report comes out), in an effort to impress investors, by bragging about their ruthless profit-rigging schemes. It apparently doesn't occur to them that the public might find out about them! For instance...

    The company 3M, which produces N95 masks (and other things) crowed on its earnings call that “the team has done a marvelous job in driving price. Price has gone up from 0.1% to 1.4% to 2.6%." The CFO told investors, "We see that to be a tailwind."

    Tyson, one of the big 4 meat monopolies Biden is targeting for price-fixing saw profits nearly DOUBLE after price hikes of 32% on beef and 20% on chicken which the CEO attributed to the "continued resilience of our multi-protein portfolio."
    U.S. meatpacker Tyson Foods Inc on Monday beat Wall Street estimates for quarterly revenue on higher prices for its products, sending its shares up 5% in premarket trading.

    In its 4th quarter report, Johnson & Johnson revealed it raised prices…despite raking in billions from COVID vaccine sales. Its CEO told investors that the need for medical care & to “address suffering and death” is part of J&J's “optimism” & “opportunity” for its future.
    Kimberly Clark is a megacorporation manufacturing everything from paper towels to diapers. On its recent earnings call, CEO Mike Hsu crowed to investors about “multiple rounds” of “significant pricing actions” & admitted he plans to continue doing it throughout the year.

    If you want to understand the role of corporate greed in price hikes & inflation in America today, you don't have to take the word of watchdogs or critics of corporations. CEOs are admitting it themselves in plain daylight. And they're betting they can get away with it.

    https://pbs.twimg.com/media/FLP02B-VEAkCEUO?format=jpg&name=900x900
  • A brief little bio on Ms. Owens.

    Twitter Feed Source
  • Think many now believe is no longer “transitory”. @lynnbolin posted in Feb’s commentary with several commodity funds to deal with the inflation - VCMDX (Vanguard) and EAPCX (Fidelity and Schwab).
  • Of course I saw her twitter profile when I was copying her earnings tweets (and also misspelling her first name, sorry). But I did not know her as an economy writer and had not drilled down in her groundwork bio including academic and thinktank work; thanks.

    Whatever transience inflation turns out to have will not be helped by price increases like these. But some see little entrenchment happening (let us hope!):

    https://www.nytimes.com/2022/02/01/opinion/inflation-recession-us-economy.html
  • Dan Price, CEO and founder of credit card processing company Gravity Payments:

    Coca-Cola: there's nothing we can do, we have to raise prices.

    Also Coca-Cola: our profit is up 65% in a year, we spent $68 billion on dividends / stock buybacks in a decade, laid off 12% of staff in the pandemic and CEO pay went up 70% in 2 years to $18.7M.


    Granularity, and possible decreasing rate:

    https://www.bls.gov/news.release/pdf/cpi.pdf
  • Honeywell has been jacking up prices on their N95 masks lately.
  • So the Marxist types and clown politicians want to blame the corporations and the billionaires for their idiotic fiscal and energy policy and subsequent off the charts inflation?

    Let's blame Joe Rogan for inflation, why not, just as rediculius as anything else, no?

    Kind regards,

    Baseball Fan

  • His conclusion, as he tipped, was a 2-handed conclusion:

    "If you believe that last year's surge in inflation is a precursor to a long time period when inflation is likely to stay high, and come in above expectations, you should be shifting your holdings away from financial to real assets, and within your equity holdings, towards small cap stocks, stocks trading at lower pricing multiples (PE, Price to Book) and companies with more pricing power. If, on the other hand, you believe that inflation worries are overdone, and that there will be a reversion back to the low inflation that we have seen in the last decade, staying invested in stocks, and especially in larger cap and high growth stocks, even if richly priced, makes sense."

    You mean, stuff like Real Estate. Gold-silver-uranium? Assuming a persistent high inflation rate?
  • So the Marxist types and clown politicians want to blame the corporations and the billionaires for their idiotic fiscal and energy policy and subsequent off the charts inflation?

    Let's blame Joe Rogan for inflation, why not, just as rediculius as anything else, no?

    Kind regards,

    Baseball Fan

    Gordon Gecko was full of shit. Greed is NOT good. It is and will always be EVIL. Why? It flies in the face of basic, fundamental human decency and dignity. Capitalism owns no conscience. People SHOULD.
  • edited February 11
    >> So the Marxist types and clown politicians want to blame the corporations and the billionaires for their idiotic fiscal and energy policy and subsequent off the charts inflation?

    Cool --- we have not had kneejerk wingnut ignorant slurs like this here for some time, maybe ever. What could it mean? What means 'Marxist'? This is AM-radio spittle. Why is price gouging (technically not quite the right term, but you get the spirit) not a considerable part of the problem, as the CEO comments make clear?
    Is there anything substantive here w/ you?

    I gotta say I love rediculius, but Kind regards is the cherry.
  • Howdy folks,

    I'm in the camp that believes inflation is NOT transitory but will remain with us for quite a while. I was rotating, on the margin, to natural resources, inflation protected bonds, PMs, etc. and have kept at it.
    t
    Here you go with Shadow stats, which I know will drive several of you crazy. If they calculated the CPI with the 1990 formulae, it would be around 12%. If you use the 1980 formulae, try 16%.

    http://www.shadowstats.com/alternate_data/inflation-chartses,

    You can knock him all you want, but his numbers feel more correct to me.

    and so it goes,

    peace

    rono
  • Howdy folks,

    @davidmoran Probably still correct, to a degree. There are some thing that have changed - hedonic adjustments is a perfect example. They can charge more for a new and improved product and not have it count. What if I want the old and unimproved version. 'Oh, that's not longer available.'

    And frankly David, inflation is running hotter than what they report. I'm to the point with basically not trusting any data out of Washington. Sorry. I watch the FDA and CDC make clowns of themselves and at least the last six administrations and congresses continually fucking the American people and it makes me angry and sad. I hate to see my country going down the tubes. Bullion, bullets and beans. Alas and alack.

    best and stay safe,

    rono


  • Beyond measurements and baskets, the current inflation is not capturing the housing inflation. This is because owners' rent-equivalents are used and those have huge lags. When other things start to cool down, higher rent-equivalents may start showing up in CPI and PCE data later in 2022 or 2023. Some past inflation episodes missed the housing effects entirely.
  • >> inflation is running hotter than what they report. I'm to the point with basically not trusting any data out of Washington. Sorry. I watch the FDA and CDC make clowns of themselves and at least the last six administrations and congresses continually fucking the American people

    Nothing to discuss, then
  • edited February 13
    I have no opinion on “transitory” or “non-transitory”. Nor have I any opinion what folks should buy if it turns out to be the former or the latter. But Barron’s this week seems to confirm what I’ve been seeing for about a year when I grocery shop. (I like to eat. I eat very well. But I don’t eat ice cream.)

    “The January consumer-price index confirmed what consumers have known for some time. Prices are rising across the economy, and fast, with the overall index up 7.5% from a year ago from a 7% pace in December. The narrative around reopening bottlenecks keeping inflation contained, if persistent, within a tight group of predictable, pandemic-affected areas has been stale for some time; January's report makes it worth shredding. From a year earlier, bread, meat, and eggs rose by double digits, gasoline surged 40%, and even banking services jumped 14%. As Grant Thornton chief economist Diane Swonk put it: ‘The only thing that looks like a good deal is ice cream.’ “

    Excerpted from “Forecasts” - by Lisa Beilfuss / Barron’s (print edition) February 14, 2022


    Yet another pundit in the same Barron’s issue writes …

    “In the inflation forecasting Olympics, Team Transitory missed the first gate, fell on the first jump, slipped at the first corner … We now expect headline CPI to average more than 6% this year before fading to just below 3% in 2023, both a long, long way from the 1.7% average in the decade prior to the pandemic.“ (Credited to BMO Capital Markets)


  • Fed's measure of inflation, the PCE deflator, released on Jan 28 showed an increase of 4.9% (excluding food and energy) from a year earlier. January numbers will be released on Feb 25.

    https://www.bea.gov/data/personal-consumption-expenditures-price-index-excluding-food-and-energy
  • rono said:

    Howdy folks,

    I'm in the camp that believes inflation is NOT transitory but will remain with us for quite a while. I was rotating, on the margin, to natural resources, inflation protected bonds, PMs, etc. and have kept at it.
    t
    Here you go with Shadow stats, which I know will drive several of you crazy. If they calculated the CPI with the 1990 formulae, it would be around 12%. If you use the 1980 formulae, try 16%.

    http://www.shadowstats.com/alternate_data/inflation-chartses,

    You can knock him all you want, but his numbers feel more correct to me.

    and so it goes,

    peace

    rono

    .....what rono said.
  • "Facebook posts claim that the rising cost of goods in the United States is due to price gouging rather than inflation. But experts rejected the idea that corporations are the main culprit and said the spike in prices follows big federal spending, heightened demand, and supply problems, all of which have accompanied the pandemic."

    https://factcheck.afp.com/doc.afp.com.9ZG3DG (apologies if the link does not work, go read the article)

    We can pee in each other's Cheerios all morning as to the root cause of the inflation we are experiencing, we likely won't agree. But there is no doubt it is real. The question is for how long and where to protect your investments.

    Anecdotally, my heating bill for my home in the Blue Ridge Mtns, same usage as prior year etc, ~$235 last month vs ~$145. Not a small increase. I don't have to tell you about grocery shopping or what services are costing these days.

    What concerns me the most is that from a product standpoint, my thinking is there might be a tremendous amount of "false orders", meaning I need 10k widgets but better order 15k because the lead times are extended. what happens when that unravels or there are cancelations?

    I want to see when many companies provide raises to their associates this spring...what willl that look like...what will the wage-price spiral look like?

    Wondering if we are about to get into a stagflation scenario...tough times during the late 70's early 80's. Will the precious metals protect our purchasing power...might not be a bad idea, dunno?

    WSJ article over the weekend stated we are in "unchartered waters" as we have never experienced the same scenario we are going thru now. So who knows?

    I'm thinking about the metals, also HSAFX, our ole' friend Hussy might be telling us "I told you so" by the end of the year but he likely has too much class to do that.

    Good Luck to ALL,

    Baseball Fan




  • krug today

    Seeing some people make a big deal of the decline in medium-term inflation expectations. But the more important point is the gap between 1- and 3-year expectations, showing that people don't expect inflation to persist:

    https://newyorkfed.org/microeconomics/sce#/inflexp-1

    This is really good news: inflation expectations haven't become entrenched. Suggests that the Fed may be able to restore stability without a recession ....
  • Ya, was listening to Josh Brown's podcast over the weekend and he had Tony Dwyer from Canaccord on.

    Dwyer pretty sharp guy and while I was out hiking freezing, so kind of half listening, he was alluding to something similar, that his signals are indicating that inflation already is and will calm down and economy will be alright.

    For sure I am not seeing any let up from a professional perspective; transportation costs, energy costs, product cost, labor costs, nor from personal expenditures' groceries, etc.

    I do recall someone stating that Cathie Wood's thinking is the fed will be a one and done and not mutiple rate hikes, very contrary to the current narrative.

    We'll see. Let's all hope that this inflation doesn't get out of hand if it hasn't already.

    Best,

    Baseball Fan
  • For a contrary and apocalyptic view Lacy Hunt is always worth listening to. He has believed that the debt burden of the US and the world is so huge that it will strangle the economy and create a massive depression.

    This is a pretty technical interview, although it is not really a debate between him and Harvey Bassman about what will happen to interest rates in that scenario.

    https://www.simplify.us/news-media/keeping-it-simple-ep10-inflation-and-rates-lacy-hunt?utm_medium=email&_hsmi=203561693&_hsenc=p2ANqtz-_hy0mKttax8Lt0RU223QWBcMW4ljj2Xx3VNdImJKr9ZCZT9GaN69IMwvpH1M7P4EPhSvC98uCw10-FCieU-sOMTW5Gxw&utm_content=203561693&utm_source=hs_automation
  • apocalyptic views are the best !
  • Of course Hunt has been saying that for years. If you want to just read his views in six pages go to the Hoisington Investment Management Company website economic reports 4th quarterly outlook

    https://hoisington.com/pdf/HIM2021Q4NP.pdf
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