Latest Inflation Numbers and Discussion

[Montecfo]

Inflation is higher in other countries, including developing countries which didn't give their population covid money.

Yes. Also true pre-covid.

I would say there is more difference than similarity there.

 

[milford]

One thing I'm definitely not trying to do here is to say that what I'm doing should be done by everyone. Everybody is in their own financial situation and has their own risk tolerance and needs to figure out how to navigate the current market environment in that context. There is no "one size fits all" even though at times it seems like the financial press thinks there is. I'm comfortable doing what I'm doing because I understand our own financial situation and risk tolerance.

Time frame is important. My wife and I have a shorter time horizon than our son, for example. I've been encouraging our son (who has 30-35 years to retirement) to continue to put money into the stock market because he has a long time to dollar cost average and build wealth. A serious downturn is an opportunity for him to buy more at lower prices. A market downturn for someone who is in distribution mode (e.g. retirees like us) creates drawdowns that they may not have time to recover from.

I know what I think is likely to happen, but then Mr. Market often laughs in my face. All I can do at this point is analyze our needs and control our risk accordingly.

And you're right: None of this is easy.

Well put... and the hardest part is preserving wealth during a bear market as many people end up panic selling as they believe the market can only keep going up, but when the market capitulates during a bear market they realized they've lost 50% of their portfolio and cannot stand it anymore. So adjust accordingly based on your situation and risk tolerance.

 

[Mulligan]

For as long as I can remember NH has had one of the highest electric rates in the lower 48. I believe it started when Seabrook Nuclear Power Plant Unit #2 was aborted after all the components had been paid for and construction of it started. "Stranded costs" are still part of our electrical bills. In addition Eversource, the largest provider owns no power plants, they simply buy power and resell it. Prior to Aug 1, 2022 our supply rate was roughly .105 per kwh. According to Eversource the increase in the cost of natural gas used to produce electricity pushed the residential rate up to .225 per kwh. Again with tranmission costs, stranded cost etc the overall rate is over .32 per kwh. It's hard on residents and business' alike.

Wow, that is almost CA like costs. Its 13 cents a KW here in MO where I live. Im sure we will get a increase soon, but Im glad we have a triple vertical regulated ute with plenty of base load.

 

[Koolau]

Wow, that is almost CA like costs. Its 13 cents a KW here in MO where I live. Im sure we will get a increase soon, but Im glad we have a triple vertical regulated ute with plenty of base load.

Yeah, I wonder what ours is gonna be. The "take home" price (including the half dozen or so extra fees, all averaged out) is now pushing 40 cents/kwh on Oahu. Worse on the other Islands. So glad we don't need AC!

 

[ExFlyBoy5]

Went to the state fair yesterday; turkey legs were $15 and 12 oz "cheap" beers were $9. I saw that turney legs at the San Diego fair were $22.

 

[jldavid47]

Went to the state fair yesterday; turkey legs were $15 and 12 oz "cheap" beers were $9. I saw that turkey legs at the San Diego fair were $22.

Oh, that's just price gouging and has nothing to do with their costs.

 

[ExFlyBoy5]

Oh, that's just price gouging and has nothing to do with their costs.

Nonetheless, it's a cost that you can't avoid if you want to go the fair and eat and/or have a couple of adult beverages.

 

[Montecfo]

Fed hikes .75. Signals rate as high as 4.9 pct by end of 2023.

And once again, the market seems surprised!

 

[Koolau]

Went to the state fair yesterday; turkey legs were $15 and 12 oz "cheap" beers were $9. I saw that turney legs at the San Diego fair were $22.

Keep in mind that the venue likely gets 1/3 or even 1/2 the full sale price. Friends participate in a State Fair and have to give ALL their proceeds to the state fair AND buy all consumables (other than food) from the State Fair commissary (cups, straws, napkins, plastic utensils, etc. - at inflated prices compared to open market prices.) Keep in mind empl*yees have to be paid at end of the fair. THEN a couple of months later, the SF sends them a check for "their Share" after all expenses are subtracted.

Not "endorsing" the high prices, but keep in mind that vendors have a lot of expenses and fees to be able to participate - but it's the only game in town. YMMV

 

[ExFlyBoy5]

Keep in mind that the venue likely gets 1/3 or even 1/2 the full sale price. Friends participate in a State Fair and have to give ALL their proceeds to the state fair AND buy all consumables (other than food) from the State Fair commissary (cups, straws, napkins, plastic utensils, etc. - at inflated prices compared to open market prices.) Keep in mind empl*yees have to be paid at end of the fair. THEN a couple of months later, the SF sends them a check for "their Share" after all expenses are subtracted.

Not "endorsing" the high prices, but keep in mind that vendors have a lot of expenses and fees to be able to participate - but it's the only game in town. YMMV

Oh no, I know there are a lot of costs for this. This particular fair is called "state" but is actually run by the city and county. The city doesn't take a "cut", instead, there are fees for everything at the outset. If you are selling prepared food, it's around $1500.00. A fella I used to fly with is on the "fair" circuit and told me once that the first $5000 is spoken for before they make a red cent. I am sure this is more since he told me about this a few years ago.

 

[braumeister]

Nonetheless, it's a cost that you can't avoid if you want to go the fair and eat and/or have a couple of adult beverages.

We have to remember that the purpose of state fairs is to provide things we can't get elsewhere: weird deep fried things on a stick.

Well worth the cost!

 

[Chuckanut]

Fed hikes .75. Signals rate as high as 4.9 pct by end of 2023.

And once again, the market seems surprised!

No surprise here. I am glad they are doing the interest rate hikes. This inflation rate is taking a big chunk out of the earnings of the most of us. The cost of food is hitting lower income people hard. It's hard to put off eating. I have seen double digit inflation once in my life. That is enough for me.

I recently setup another CD ladder. Rates were about 1% higher than the previous one. While this is better, it still leaves me about 4-5% behind inflation before taxes. After taxes it's even worse, of course. Not so good.

 

[Chuckanut]

Unfortunately, I am now hearing radio commercials for gold, jewelry, precious metals, and similar as a great way to protect one's money from inflation. I am reminded of a similar spike in such things in the 70's and early 80's when we had double digit inflation. This is very sad, IMHO. I suppose it's only time until I start hearing about investing in barrels of Scotch stored in Scotland (the longer you let it age the more valuable it becomes!!!), land on the edge of nowhere that will skyrocket when the new highway/airport/industrial-center, etc is built there, and even renting out RVs you don't want to own. This is all too familiar.

 

[milford]

Keep in mind that the venue likely gets 1/3 or even 1/2 the full sale price. Friends participate in a State Fair and have to give ALL their proceeds to the state fair AND buy all consumables (other than food) from the State Fair commissary (cups, straws, napkins, plastic utensils, etc. - at inflated prices compared to open market prices.) Keep in mind empl*yees have to be paid at end of the fair. THEN a couple of months later, the SF sends them a check for "their Share" after all expenses are subtracted.

Not "endorsing" the high prices, but keep in mind that vendors have a lot of expenses and fees to be able to participate - but it's the only game in town. YMMV

This reminded me as I just watched a vlog of a family of 3 doing a review of a local SoCal fair and the family spent $200 one night for "dinner"... a rainbow cheese corn cob $15, large aqua fresca in a bottle $20, flavored potato sticks $11, bbq meat on skewer $12, the prices were outrageous... yet the place was hustling and bustling. Another example how runaway inflation is baked into the economy and people are willing to pay for it (although I have no idea how).

 

[JoeWras]

Another example how runaway inflation is baked into the economy and people are willing to pay for it (although I have no idea how).

As long as they can make their minimum credit card payment, they are golden. That's how...

Then again, if this youtube family has serious views, they are pulling in more money than you can imagine.

 

[Graybeard]

Unfortunately, I am now hearing radio commercials for gold, jewelry, precious metals, and similar as a great way to protect one's money from inflation. I am reminded of a similar spike in such things in the 70's and early 80's when we had double digit inflation. This is very sad, IMHO. I suppose it's only time until I start hearing about investing in barrels of Scotch stored in Scotland (the longer you let it age the more valuable it becomes!!!), land on the edge of nowhere that will skyrocket when the new highway/airport/industrial-center, etc is built there, and even renting out RVs you don't want to own. This is all too familiar.

Gold as an inflation hedge? I forget which year but at the least last Fall maybe it was 2 years ago spot gold was a little above $1960 and I think it actually got above $2000 for a short time. Today gold is around $1670. So that's a $300+ drop in value but the clowns selling gold are making money.

 

[JoeWras]

Why are we so surprised? There were clues.

The fact that Ford is now holding back thousands of cars while waiting for a nameplate-logo part to be built got me thinking.

This inflation thing is waaaay bigger than chips.

Call it the lifeguard curve. We should have seen this coming. Lifeguards were starting to be in short supply even before the pandemic. When the pandemic hit, it became a full blown, worldwide crisis. It's not local, it's not due to (political issue), it's worldwide, especially in resort areas.

We've got a demographic labor issue. And there's push back for higher wages from those left willing to do the work, whether it is lifeguarding or operating machinery.

The pandemic was the match thrown into a pool of gasoline dumped over by massive "just-in-time" contracts world over. What ever happened to "second sourcing?" Well that's too expensive, said the smart executives who are actually the source of "too expensive," paid by stock buybacks from free money.

We got drunk on cheap labor from far flung areas of the world who abuse their workers and the environment. But even those areas went on lockdown for a while. For those other areas more willing to play be the rules of decency, there's not enough workers.

Supply shock is the fires above, but wage inflation is the growling monster coming out from below and chewing us all up.

Should have seen this coming.

 

[Koolau]

Gold as an inflation hedge? I forget which year but at the least last Fall maybe it was 2 years ago spot gold was a little above $1960 and I think it actually got above $2000 for a short time. Today gold is around $1670. So that's a $300+ drop in value but the clowns selling gold are making money.

I don't disagree that, on a relatively short-term basis, gold is not a reliable hedge against inflation. Certainly not something you want to count on for the current bout of inflation. But long term, it's proven to be much more reliable as a hedge. The old adage "A $20 gold piece has always bought a suit of clothes" is still essentially true. (A $20 gold piece is one ounce of gold.) Lots of downsides to owning gold but it has typically been a smoothing part of an AA at about 3 to 5%. Naturally, YMMV.

 

[jurgs01]

I don't disagree that, on a relatively short-term basis, gold is not a reliable hedge against inflation. Certainly not something you want to count on for the current bout of inflation. But long term, it's proven to be much more reliable as a hedge. The old adage "A $20 gold piece has always bought a suit of clothes" is still essentially true. (A $20 gold piece is one ounce of gold.) Lots of downsides to owning gold but it has typically been a smoothing part of an AA at about 3 to 5%. Naturally, YMMV.

Central banks still hold significant positions (growing in the East).

I'll look at what the big players and trends are in the world vice some guy on an internet forum referring to short term data to discount gold's purpose and worth.

 

[nap470]

Remember the Twilight Zone episode "The Rip Van Winkle Caper". Robbers stole a shipment of large gold bars and then hid in a cave with "coffins" that put them in a state of suspended animation for 100 years. When they wake up, their greed ultimately kills them, but we find out that gold is now worthless because it can be manufactured.

 

[Closet_Gamer]

Personally, I'm quite conflicted on the state of things. Setting aside the how we got here stuff...here we are...and I think there is some good and bad stuff going on.

Good:
1 - Rates. The Fed is hard on the rate handle now and doing the right thing with urgency.

2- The Fed has conviction. The've set the table that they are going to dig in and do what is necessary to really get inflation under control. Messaging matters and they are on the right message.

3 - People are responding to incentives. Real estate is slowing. Its a near certainty cars will normalize. If they can nip the wage spiral with some unemployment, this will be critical. And you see big companies - incl tech companies - axing jobs and spending. My megacorp just initiated what I believe is the first early retirement package in its history.

4 - Rational rates will help create more stable retirements. If they can get the long end of the yield curve up, I will snap up 30 year debt that is priced at >6%. Should take a lot of risk/volatility out of retirements instead of relying on divvies & market growth. That will also stabilize pension systems, etc.

5 - King dollar is roaring. This in itself will blunt inflation and slow jobs. And we're still queen of the pigs. The effects elsewhere are brutal. We still receive communications from our utility company in England even though we've moved home. We lived in a nice/large country house, so energy wasn't cheap to begin with, but we just got mail from them that we could expect to pay $29k/year for gas & electric next year. That's about 2.5x what we paid last year. Families in row houses are being driven into energy poverty. A first world country has a real currency crisis brewing.

6 - Asset price drops help young people. Those of us with assets are getting bled, but if that means my kids can actually afford a house, that's a good thing.

7 - China is taking it on the chin. Companies are abandoning China and its supply challenges. Their government policies are catching up with them. US growth > China growth and their demographic bomb is detonating now. China has a brutal reckoning at hand.


Bad
1 - Govt interest burden. The interest implications for the govt costs are terrifying. $30T in debt * 2pp increase in borrowing costs = $600B in additional interest. Can only come from taxes or inflating it away with what I think many believe is debt that is now fueling the inflation. Though they could still borrow long right now at very low rates. I hope they don't continue to miss this opportunity.

2 - Long term bear market in bonds? Nevermind rate increases, QT is a long term enterprise. It will take almost 8 years to unwind the balance sheet. We've experienced a 40 year bull market in bonds which has shaped most our investing lives. A true, long term reversion will create a whole new world. A lot of conventional wisdom will be tested and I'm sure some will be found wanting

3 - China is taking it on the chin. As they face instability at home, we may see more instability abroad. They are a strategic issue on every level. Fortunately, I will take the western allies over their allies any day.

My $0.02.

 

[Fermion]

Oh geez...if my electric bill was $29,000 a year I would either be rich or broke.

 

[copyright1997reloaded]

Remember the Twilight Zone episode "The Rip Van Winkle Caper". Robbers stole a shipment of large gold bars and then hid in a cave with "coffins" that put them in a state of suspended animation for 100 years. When they wake up, their greed ultimately kills them, but we find out that gold is now worthless because it can be manufactured.

Ironically we are now 61 years, 5 months, and 5 days since that episode aired.
Gold was $35 in 1961, as of today $1645. That is 47x, or a 6.5% compound growth rate.

While not perfect, I'd say that was a decent long term hedge. Inflation over that time span (measuring 1961 to 2022) averaged 3.78%. (These are somewhat off as the online calculator I quickly uses (I think) year end values and I'm too lazy to look up the April 61 CPI index to do a more accurate calculation).

Note that I am not saying that Gold is a better long term investment than equities. If the economy is working correctly, it should NOT be. After all, over the long run we should have an increased standard of living because of productivity improvements ..and that will also be reflected in wealth associated with the ownership of business (i.e. stocks). Gold on the other hand would be "money", i.e. a store of value and if it is a successful one should be expected (in the long run) to bring about the same buying power over time.

 

[Popeye]

The fact that Ford is now holding back thousands of cars while waiting for a nameplate-logo part to be built got me thinking.

This inflation thing is waaaay bigger than chips.

Call it the lifeguard curve. We should have seen this coming. Lifeguards were starting to be in short supply even before the pandemic. When the pandemic hit, it became a full blown, worldwide crisis. It's not local, it's not due to (political issue), it's worldwide, especially in resort areas.

We've got a demographic labor issue. And there's push back for higher wages from those left willing to do the work, whether it is lifeguarding or operating machinery.

The pandemic was the match thrown into a pool of gasoline dumped over by massive "just-in-time" contracts world over. What ever happened to "second sourcing?" Well that's too expensive, said the smart executives who are actually the source of "too expensive," paid by stock buybacks from free money.

We got drunk on cheap labor from far flung areas of the world who abuse their workers and the environment. But even those areas went on lockdown for a while. For those other areas more willing to play be the rules of decency, there's not enough workers.

Supply shock is the fires above, but wage inflation is the growling monster coming out from below and chewing us all up.

Should have seen this coming.

PRODUCTIVITY AND COSTS
Second Quarter 2022, Revised

Nonfarm business sector labor productivity decreased 4.1 percent in the second quarter of 2022, the
U.S. Bureau of Labor Statistics reported today, as output decreased 1.4 percent and hours worked
increased 2.7 percent.

I wonder how much is a productivity problem. Too many people working for too long at home in their pajamas? Maybe all the people who know how to do stuff retired! ��

https://www.bls.gov/news.release/prod2.nr0.htm

 

[Gumby]

Ironically we are now 61 years, 5 months, and 5 days since that episode aired.
Gold was $35 in 1961, as of today $1645. That is 47x, or a 6.5% compound growth rate. .....

A gold price of $35 per oz. was set by law until 1971 rather than by the market, so that is somewhat misleading. I would look at my adult life instead. When I graduated from college in May 1981, it was $479 per oz. It is $1655 today. That's a compound growth rate of 3.05%, and only 0.11% more than inflation over the same period. And that doesn't count storage costs if you wanted to hold physical gold.