Latest Inflation Numbers and Discussion

[aja8888]

That might be difficult as California uses a special blend of gasoline for air quality reasons.

Crude oil will be brought in and then refined in California. Or if straight gasoline is piped in then the product terminals will blend in the proper additives.

 

[Breedlove]

OPEC cutting production by 2 million bbls in November

 

[Koolau]

This is apparently due to a refinary shutdown for maintenance:

https://www.northbaybusinessjournal.com/article/news/refinery-issues-cause-sudden-spike-in-california-gas-prices/

It's always something! Short on crude and now refinery problems. Next week, it will be something else. We just don't currently have a reliable supply of oil/refined products. That will fluctuate over time, but it's not going to go away - especially as long as we don't produce more oil. OPEC just announced a 2 million bbl cut and our Strategic Reserve is down to '80s levels.

I'll stop there.

 

[aja8888]

It's always something! Short on crude and now refinery problems. Next week, it will be something else. We just don't currently have a reliable supply of oil/refined products. That will fluctuate over time, but it's not going to go away - especially as long as we don't produce more oil. OPEC just announced a 2 million bbl cut and our Strategic Reserve is down to '80s levels.

I'll stop there.

With news like this, it's time to load up on oil stocks. I did that a year and a half ago and sold most of them in Dec 21. Now it's time to buy with both hands again.

 

[Popeye]

It's always something! Short on crude and now refinery problems. Next week, it will be something else. We just don't currently have a reliable supply of oil/refined products. That will fluctuate over time, but it's not going to go away - especially as long as we don't produce more oil. OPEC just announced a 2 million bbl cut and our Strategic Reserve is down to '80s levels.

I'll stop there.

Well it’s not really a surprise. There’s a lot of equipment in a refinery that needs regular maintenance. They’ve been putting it off and are now catching up. The article says three of the four are scheduled outages. Those can take three weeks or more if it’s a major outage.

We sold to these guys and some were well spared while others were cheap SOBs!
This was the fun time of year. They didn’t like hearing a part would take 12 weeks to make! Yikes!

 

[audreyh1]

From a recent Schwab article (9/21/22):

This is the fastest rate hiking cycle since the early 1980s

Certainly in my investing experience. Quite striking

From https://www.schwab.com/learn/story/fomc-meeting

 

[MichaelB]

From a recent Schwab article (9/21/22):

This is the fastest rate hiking cycle since the early 1980s

Certainly in my investing experience. Quite striking

From https://www.schwab.com/learn/story/fomc-meeting

Great graph. I’d say that in addition to hiking faster, the Fed also has a far more hawkish message than in previous cycles. IMO these are bullish indicators.

 

[JBTX]

Well it’s not really a surprise. There’s a lot of equipment in a refinery that needs regular maintenance. They’ve been putting it off and are now catching up. The article says three of the four are scheduled outages. Those can take three weeks or more if it’s a major outage.

We sold to these guys and some were well spared while others were cheap SOBs!
This was the fun time of year. They didn’t like hearing a part would take 12 weeks to make! Yikes!

We haven’t built a new refinery in decades. They are insanely expensive and a bad investment given goals of phasing out fossil fuels.

Also what I didn’t realize until recently is how much money was lost during the fracking boom - hundreds of $billions. It was great for consumers but businesses finally wised up and we’re more diligent about drilling. The result was we got used to artificially cheap oil.


https://www.nytimes.com/2022/07/27/opinion/environment/energy-crisis-oil-gas-fracking.html

 

[Born2Fish]

From a recent Schwab article (9/21/22):

This is the fastest rate hiking cycle since the early 1980s

Certainly in my investing experience. Quite striking

From https://www.schwab.com/learn/story/fomc-meeting

Great graph. I’d say that in addition to hiking faster, the Fed also has a far more hawkish message than in previous cycles. IMO these are bullish indicators.

I hope you're right.

The slope is VERY steep compared with all previous efforts.

It is possible that the slope of the ongoing QT effort may be too steep to allow the necessary deadtime between when the rate change is made and when the rate response from the change on the controlled variable (inflation rate) has happened.

What a mess.

 

[Koolau]

I hope you're right.

The slope is VERY steep compared with all previous efforts.

It is possible that the slope of the ongoing QT effort may be too steep to allow the necessary deadtime between when the rate change is made and when the rate response from the change on the controlled variable (inflation rate) has happened.

What a mess.

No expert here, but I take the steep rise as a tacit admission that they got started late and are trying to catch up to where they should be on the curve by now. Just my humble opinion so YMMV.

 

[Born2Fish]

No expert here, but I take the steep rise as a tacit admission that they got started late and are trying to catch up to where they should be on the curve by now. Just my humble opinion so YMMV.

Definitely no expert here, either!!

But that won't keep me from chiming in.

 

[Montecfo]

Here in the heartland, I'm seeing a lot of $2 bills. No problems with using them but YMMV.

Well the $3 bills are really getting hard to pass in this area. Too many people passing those $2 bills and creating needless angst.

 

[FREE866]

Great graph. I’d say that in addition to hiking faster, the Fed also has a far more hawkish message than in previous cycles. IMO these are bullish indicators.

I totally agree.Sentiment is sooo bad too which usually happens close to market bottoms.

 

[jldavid47]

Great graph. I’d say that in addition to hiking faster, the Fed also has a far more hawkish message than in previous cycles. IMO these are bullish indicators.

Bullish? 4 words: Don't fight the Fed

 

[Car-Guy]

I have a bunch of USA $2 bills I'm afraid to use because I think people would think it is funny money.

I often use $2 bills for tipping at restaurants. Nobody has turned them down yet.

 

[plex]

I've seen the graph before. The problem is it just so happens to not include the early 80s, the late 70's, or early 70's, all of which involved hikes just as steep or much steeper than now. The problem is the sharp inflation rise we are seeing is eerily similar to the 1970's, not the late 80's to 00's. As such, I think the graph paints a rosier/more hawkish picture than exists in reality, the fed is acting about the same as it did in the 70's, I am hoping they tame it like they did in the late 70's, and do not repeat the disaster of the early 70's, otherwise we will get to experience a decade worse than the so-called "lost decade," we get to re-experience the 70's.

 

[Montecfo]

Terrible PPI print. Up .4 percent versus expectation of .1 pct. Last month was a decline of .2 pct.

Well, bright side is we are going to get better rates on bonds (Weak smile).

 

[copyright1997reloaded]

Terrible PPI print. Up .4 percent versus expectation of .1 pct. Last month was a decline of .2 pct.

Well, bright side is we are going to get better rates on bonds (Weak smile).

It is quite clear that inflation has moved into services. Hottest sector was "Final demand services (without transportation, trade, warehousing). It was up 0.6% Month over month). This is stuff like hotels - so all that cooped up deferred vacation travel is hitting prices.

Here's the report if anyone wants to read it: https://www.bls.gov/web/ppi/ppi_dr.pdf

 

[Montecfo]

It is quite clear that inflation has moved into services. Hottest sector was "Final demand services (without transportation, trade, warehousing). It was up 0.6% Month over month). This is stuff like hotels - so all that cooped up deferred vacation travel is hitting prices.

Yes. This continues the same theme of excess money and bulging demand that began with homes and vehicles.

One reason inflation can persist is there is so much excess cash on individual balance sheets. Another is the government continues to massively overspend relative to resources.

All of these things need to be tamped down for normalcy to return.

 

[MichaelB]

Yes. This continues the same theme of excess money and bulging demand that began with homes and vehicles.

One reason inflation can persist is there is so much excess cash on individual balance sheets. Another is the government continues to massively overspend relative to resources.

All of these things need to be tamped down for normalcy to return.

I often agree with your views on inflation, but this time I beg to differ. Only two ways for inflation to persist. One is when labor costs grow at the same rate as prices, so they become a self-sustaining cycle. The other is widely available easily accessible credit at negative rates.

There’s no sign credit is fueling the current inflation. Refinancing and mortgage equity withdrawals are in sharp decline. Wages, however, are growing around 5%, which is high, and IMO worrisome.

 

[Montecfo]

I often agree with your views on inflation, but this time I beg to differ. Only two ways for inflation to persist. One is when labor costs grow at the same rate as prices, so they become a self-sustaining cycle. The other is widely available easily accessible credit at negative rates.

There’s no sign credit is fueling the current inflation. Refinancing and mortgage equity withdrawals are in sharp decline. Wages, however, are growing around 5%, which is high, and IMO worrisome.

Well, happy to agree or to disagree. But I did not say "credit is fueling the current inflation". Nor did I mention refinancing or mortgages. Was that inferred somehow? It was not part of my thesis.

I do disagree that high wages by themselves fuel inflation. They are evidence of inflation. But absent a growing money supply, overall inflation (meaning prices rising overall) cannot rise. Instead, other prices must decline in turn if money supply is stagnant. Milton Friedman told me .

Money on people's balance sheets, which I did mention, is the result of government largesse and saving during the pandemic due to lockdowns.

 

[Looking4Ward]

I often agree with your views on inflation, but this time I beg to differ. Only two ways for inflation to persist. One is when labor costs grow at the same rate as prices, so they become a self-sustaining cycle. The other is widely available easily accessible credit at negative rates.

There’s no sign credit is fueling the current inflation. Refinancing and mortgage equity withdrawals are in sharp decline. Wages, however, are growing around 5%, which is high, and IMO worrisome.

Exactly. Which is why the next stage of this economic cycle is to be expected - unemployment. Companies will be forced to perform payroll optimization.

 

[all4j]

Exactly. Which is why the next stage of this economic cycle is to be expected - unemployment. Companies will be forced to perform payroll optimization.

I've seen a few things questioning whether existing means of measuring employment still work in gig economy, etc. While I haven't searched, I haven't stumbled on much regarding the impact of deglobalization on employment numbers. That is, how much of the unemployment will be in US numbers vs global?

Thoughts?

 

[Looking4Ward]

I've seen a few things questioning whether existing means of measuring employment still work in gig economy, etc. While I haven't searched, I haven't stumbled on much regarding the impact of deglobalization on employment numbers. That is, how much of the unemployment will be in US numbers vs global?

Thoughts?

I think it will vary by sector. Take tech, for instance. I've personally seen those $200k-$400k and more tech workers who take pride in the fact they've proven to their employer that they can work remotely from anywhere in the world without ever having to step foot in an office.

Unfortunately, they've also proven that someone else could do that remotely for perhaps half the cost. Tech companies are getting squeezed financially and are looking for big cost savings. What's this guy Steve in Austin do that we are paying $300k a year? Work from home? Not anymore.......

 

[copyright1997reloaded]

Exactly. Which is why the next stage of this economic cycle is to be expected - unemployment. Companies will be forced to perform payroll optimization.

We all need to think in real (not nominal) terms.

If an employer is able to raise their prices more than their input costs (including labor), then they may not be forced to reduce labor. Whether they are able to do so successfully (raise prices) is a function of the supply and demand curve for their products, and with rising wages the demand curve may just be shifting right enough to allow for the increased price w/o resulting lower quantity demanded. They may even have a higher demand for labor if the labor cost component isn't increasing at the same rate as other input costs, i.e. they may be able to substitute labor for other inputs.

To answer how this would play out requires more knowledge than we have.