Latest Inflation Numbers and Discussion

[youbet]

Why has gold and silver done basically nothing with all this inflation? It gives me hope it is transitory.

It's already past being "transitory." That horse left the barn months ago.

 

[copyright1997reloaded]

The dollar is very strong and treasury yields are quite a bit higher.

This. We see Gold/Silver in terms of $USD pricing. In addition, things like "Bitcoin solves this" competes with PM's in terms of hedging against inflation or government control or ...

There is also a belief that the Fed will beat inflation, and with treasuries yields higher the carry cost of having a non-dividend, non-interest paying asset (e.g. Gold) tarnishes (pun intended) the luster of PM's.

Some out there (including myself) think that longer term that the Fed cannot beat inflation. That we have so many systemic issues in the system (I won't go into details because I want this thread to remain open) other than to say the path of least resistance is to print money to try to paper over problems. Eventually (who knows when that will be, it might be after I am long gone) this will result in our current dollar as the reserve currency and our resulting living beyond our means society getting a very big shock when that is no longer true.

But each of us needs to make our on decisions - I can only control what I do, and that is to remain very cautious on the market but keep 50% in equities as somewhat of an inflation hedge (compared to cash), keep my fixed durations short (or hedged for inflation), and keep some hedge in PM's in case my bad-scenario of a big flush down of the $ someday comes true.

 

[Running_Man]

Well, I think we can breathe a sigh of relief as it appears that the possible RR strike has been averted. I can only imagine what a mess that would have been created with a prolonged rail stoppage.

Averted with a 14% immediate increase in wages, $1,000 additional to be paid annually, then 25% in total over the next 5 years.

 

[Koolau]

Averted with a 14% immediate increase in wages, $1,000 additional to be paid annually, then 25% in total over the next 5 years.

Isn't that what is called push-pull inflation?

My understanding is that the biggest strike issues weren't even money but rather "working conditions."

 

[Running_Man]

Isn't that what is called push-pull inflation?

My understanding is that the biggest strike issues weren't even money but rather "working conditions."

Well interesting the 5 year deal begins in 2020 so the first two years are immediately payable along with prorated 2022 - that immediate 14% increase is paid in cash for back pay upon settlement, wages up 14% the day after contract signed and they are given extra day off per year and guarantee that health care premiums cannot be raised even after this contract expires, and workers can leave job unpaid to go to doctor.

Still one union has rejected the package.

Still, the union can cripple the country with a strike so they had a lot of power. But this is deeply inflationary and sets a precedent for all other unions.

 

[Koolau]

Well interesting the 5 year deal begins in 2020 so the first two years are immediately payable along with prorated 2022 - that immediate 14% increase is paid in cash for back pay upon settlement, wages up 14% the day after contract signed and they are given extra day off per year and guarantee that health care premiums cannot be raised even after this contract expires, and workers can leave job unpaid to go to doctor.

Still one union has rejected the package.

Still, the union can cripple the country with a strike so they had a lot of power. But this is deeply inflationary and sets a precedent for all other unions.

I was under the impression that the gummint has the ability to intervene - at least temporarily - when stakes are as high as a nationwide rail strike. Maybe that was in the past so YMMV.

 

[Running_Man]

I was under the impression that the gummint has the ability to intervene - at least temporarily - when stakes are as high as a nationwide rail strike. Maybe that was in the past so YMMV.

They already did, they implemented a cooling off period. The average railworker salary after this new agreement is $110,000 per year. 5 weeks vacation 14 paid holidays. With pension, healthcare value is 160K per year.

https://raillaborfacts.org/news/bargaining-status-faq-2022/

I think one of the main stumbling blocks is the railroads automation of certain jobs.

 

[Fermion]

They already did, they implemented a cooling off period. The average railworker salary after this new agreement is $110,000 per year. 5 weeks vacation 14 paid holidays. With pension, healthcare value is 160K per year.

https://raillaborfacts.org/news/bargaining-status-faq-2022/

I think one of the main stumbling blocks is the railroads automation of certain jobs.

Holy moly, why go to college? Well...I mean if your loans get paid off I guess college makes sense but imagine getting $110k plus pension without having racked up $150,000 in student loans!

Wait, I am seeing average salaries of around $47k per year, not 110k

 

[explanade]

Holy moly, why go to college? Well...I mean if your loans get paid off I guess college makes sense but imagine getting $110k plus pension without having racked up $150,000 in student loans!

Wait, I am seeing average salaries of around $47k per year, not 110k

Yeah those may be max salaries or salaries after a decade or more in the industry.

 

[ExFlyBoy5]

Isn't that what is called push-pull inflation?

My understanding is that the biggest strike issues weren't even money but rather "working conditions."

The working conditions were probably this biggest hang-up. A few fellas I used to fly with went to work for the RRs after they retired from Uncle Sam. Only one of them still works there and even with decent seniority as an engineer, he still hates the job but has admits he can't find a job that comes close to the pay he gets. As he laments, the amount of time away from home/on call is pretty ridiculous.

Automation is also a big deal. Many of the RRs want to go to one person operations which the union opposes...probably for good reason.

Edit: I chatted with my buddy that still works for the RR. He said that they pay a daily rate of about $200 for new conductors and for the first 5 years, you can expect to be furloughed for a good 1/5th of that time and will have very little time to yourself since if you aren't "running" you aren't making any money. He also said that folks he has talked about are NOT happy with the negotiated terms, so there are no guarantees that it's a done deal. Also, a lot of folks have left the job and they are having a tough time right now onboarding new folks making it painful for everyone else. He shared quite a bit more, but it sure sounds like it's not a great job for the $$$.

I do think this will empower many of the airline pilots that are in the middle of contract negotiations right now. They will probably benefit greatly when all is said and done.

 

[MichaelB]

It's already past being "transitory." That horse left the barn months ago.

Most understood “transitory” to mean “short lived”. I interpreted it to mean “it will fall back to more typical levels without needing much help from Fed monetary policy”. Inflation doesn’t usually remain at high levels unless wages stay there as well, and for the past 2-3 decades high wage growth has always been short lived. Containing wage growth has not been a challenge.

Until a month ago, the news was exactly that. Real wages rose, peaked, and then began to fall, and annualized, are back pretty much to pre-pandemic levels. See the St Lois Fed chart here

The August release of BLS monthly data (here) showed a sharp increase in real wages month to month (0.6%), and the Sept release showed another, smaller rise (0.2%). A clear challenge to the “wage growth containment” trend. I would say this is one of the most worrisome datapoints and one of the reasons the Fed has come out so strongly, and the Fed will stay aggressive until real wage growth stabilizes.

 

[copyright1997reloaded]

I would say this is one of the most worrisome datapoints and one of the reasons the Fed has come out so strongly, and the Fed will stay aggressive until real wage growth stabilizes.

Yes, the Fed now realizes that the cancer has spread and is not contained to one non-life-dependent organ.

"Some of us" weren't/aren't surprised, partially because the Fed was still injecting heroin into the system in the form of QE right along with fiscal stimulus ALL after injecting tons of money into the money supply during the pandemic. Even with inflation breaking out the Fed was still doing QE.

What is so surprising is that anyone is surprised at what happened.

So here we are.

Where I'm sure opinions will differ is where things will go from here. I'm glad I'm not trying to figure out what to do (i.e. in Powell's position). On the other hand, I'm pretty confident I wouldn't have gotten us in this position. Of course, I am in the position of trying to figure out how I will continue to play this, for better or worse.

 

[ExFlyBoy5]

Yes, the Fed now realizes that the cancer has spread and is not contained to one non-life-dependent organ.

"Some of us" weren't/aren't surprised, partially because the Fed was still injecting heroin into the system in the form of QE right along with fiscal stimulus ALL after injecting tons of money into the money supply during the pandemic. Even with inflation breaking out the Fed was still doing QE.

What is so surprising is that anyone is surprised at what happened.

So here we are.

Where I'm sure opinions will differ is where things will go from here. I'm glad I'm not trying to figure out what to do (i.e. in Powell's position). On the other hand, I'm pretty confident I wouldn't have gotten us in this position. Of course, I am in the position of trying to figure out how I will continue to play this, for better or worse.

I think the only ones who are truly surprised are those that have had their heads in the sand and only go off of click bait headlines they see in the "news." The writing has been on the wall for quite a while now.

 

[CarbonaNotGlue]

Most understood “transitory” to mean “short lived”. I interpreted it to mean “it will fall back to more typical levels without needing much help from Fed monetary policy”. Inflation doesn’t usually remain at high levels unless wages stay there as well, and for the past 2-3 decades high wage growth has always been short lived. Containing wage growth has not been a challenge.

Until a month ago, the news was exactly that. Real wages rose, peaked, and then began to fall, and annualized, are back pretty much to pre-pandemic levels. See the St Lois Fed chart here

The August release of BLS monthly data (here) showed a sharp increase in real wages month to month (0.6%), and the Sept release
showed another, smaller rise (0.2%). A clear challenge to the “wage growth containment” trend. I would say this is one of the most worrisome datapoints and one of the reasons the Fed has come out so strongly, and the Fed will stay aggressive until real wage growth stabilizes.

Very true. The wage pull cycle of inflation is a real concern. We also have the huge SS increase, the expected government employee "GS" scale increase of at least 4.6% (without locality adjustments), and all the other union wage negotiated agreements on deck. All of which will make Powell's job all the more difficult. We're deep into entrenched inflation and breaking this cycle won't be easy.

 

[Montecfo]

Fed Ex's warning and pull of forward guidance suggests we are starting to see some economic slowing.

This is a good sign that Fed actions are beginning to bit.

Long way to go though.

 

[jldavid47]

I think the only ones who are truly surprised are those that have had their heads in the sand and only go off of click bait headlines they see in the "news." The writing has been on the wall for quite a while now.

The Fed has "trained" the market over the past 12 years that at the first sign of trouble in the stock market they will pump liquidity to help prop things up (aka QE). The first 10+ times Powell said (effectively) they weren't going to do that any more many of the major participants (hedge funds, etc) scoffed. I'm sure there are many that still believe in the "Fed put." If the days of the "Fed put" are truly over (and they pretty much have to be given the destructive nature of runaway inflation) the market has a LONG way to go before it hits a bottom.

No more free money for rich people is a bitch.

 

[copyright1997reloaded]

The Fed has "trained" the market over the past 12 years that at the first sign of trouble in the stock market they will pump liquidity to help prop things up (aka QE). The first 10+ times Powell said (effectively) they weren't going to do that any more many of the major participants (hedge funds, etc) scoffed. I'm sure there are many that still believe in the "Fed put." If the days of the "Fed put" are truly over (and they pretty much have to be given the destructive nature of runaway inflation) the market has a LONG way to go before it hits a bottom.

No more free money for rich people is a bitch.

While I agree with your sentiment (and am over 50% cash), I wonder how much they are *really* willing to do.

What if the market is at SPX 3300 (the level just before the COVID drop and subsequent takeoff)?

What about SPX 2200? (The COVID bear low.)

What if housing drops 25% and foreclosures rise dramatically?

What if the "robust" employment numbers (that some in power are holding onto like a life preserver when discussing economic conditions) becomes dramatically *less* robust?

and so on.

It is easy to talk tough on inflation - maybe not so easy when things start hitting the fan. If any real amount of the above happens and Powell and crew are still talking tough (more importantly still raising rates and doing QT) there will be calls for their heads from Washington. In addition, there will be tons of activity to have relief programs and anyone getting in the way of fiscal stimulus will be called "heartless" (or much worse).

I unhappily maintain that our system is designed to take the easy way out, and that is to paper over the problem. No need to fix what our kids and grandkids will need to worry about.

The buying power of the $ has dropped to 20 cents from 1913 when the federal reserve was created until 2000. (So even worse now.) How did we get there? Well, as I stated, by taking the easy way out (printing money).

We are even told that having some inflation (e.g. 2%) is good. While I understand the theory, the reality is utter nonsense. In the long run, improvements in economic well being for the average person can only be generated because of improvements in productivity. If productivity is improving (i.e. more stuff can be produced by the same amount of human capital), we should see DECLINING prices over time.

End of rant. We are where we are.

 

[Surewhitey]

Well, I picked up material for a project.

Plywood +10%
Primer +50% shocking! $49 to $75 / gallon

This is compared to 1 month prior...

 

[jldavid47]

While I agree with your sentiment (and am over 50% cash), I wonder how much they are *really* willing to do.

Actually, I wonder the same thing. I believe because the Fed is caught in a liquidity trap of their own making they may flinch too soon. However...

The Fed has 2 mandates required by law: Control inflation and full employment. Now, those two mandates can at times be mutually exclusive. Nowhere in the law is the Fed granted a mandate to prop up financial markets, not should it.

The Fed made a big mistake at the end of 2018 when it gave up on QT after the market threw a fit. (Not to mention the even bigger mistake of allowing QE to go on for MUCH longer than necessary in the 2010s). I don't think they are going to make that mistake again, but who knows?

My skin is in the bear market game. We're down to 25% in equities and I have that hedged to prevent a disaster. The rest is either deployed or in the process of being deployed into short-term Treasuries. My current belief is that there are times in history where return of capital is more important than return on capital and we're living in one of those times. If I'm right I'll have saved our retirement from ruin. If I'm wrong all I've lost is opportunity between the return on Treasuries and whatever return there would be on equities. "Settling" for the latter would have no negative impact on our lifestyle so caution it is.

 

[copyright1997reloaded]

Actually, I wonder the same thing. I believe because the Fed is caught in a liquidity trap of their own making they may flinch too soon. However...

The Fed has 2 mandates required by law: Control inflation and full employment. Now, those two mandates can at times be mutually exclusive. Nowhere in the law is the Fed granted a mandate to prop up financial markets, not should it.

The Fed made a big mistake at the end of 2018 when it gave up on QT after the market threw a fit. (Not to mention the even bigger mistake of allowing QE to go on for MUCH longer than necessary in the 2010s). I don't think they are going to make that mistake again, but who knows?

My skin is in the bear market game. We're down to 25% in equities and I have that hedged to prevent a disaster. The rest is either deployed or in the process of being deployed into short-term Treasuries. My current belief is that there are times in history where return of capital is more important than return on capital and we're living in one of those times. If I'm right I'll have saved our retirement from ruin. If I'm wrong all I've lost is opportunity between the return on Treasuries and whatever return there would be on equities. "Settling" for the latter would have no negative impact on our lifestyle so caution it is.

I hear you, and ponder every day if I'm making a mistake still keeping a little under 50% in equities. (Down from around 70% late 2021.) I'm doing so because of my longer term belief that I have to stay in the game for a decent chance at an inflation hedge, especially since I have a decent NON-cola'd pension which (when I FIRE'd in 2009) provided enough to have a tight but decent base-line budget but will be quickly eaten away if inflation continues to rage.

None of this is easy. I do understand I am extremely fortunate to be in the position I am in. [I won't get into whether that is luck or skill. I do know I sacrificed buying a lot of toys over the years, and used my skills to get where I am. But I also know "there but for the grace of God go I". ]

 

[jldavid47]

I hear you, and ponder every day if I'm making a mistake still keeping a little under 50% in equities. (Down from around 70% late 2021.) I'm doing so because of my longer term belief that I have to stay in the game for a decent chance at an inflation hedge, especially since I have a decent NON-cola'd pension which (when I FIRE'd in 2009) provided enough to have a tight but decent base-line budget but will be quickly eaten away if inflation continues to rage.

None of this is easy. I do understand I am extremely fortunate to be in the position I am in. [I won't get into whether that is luck or skill. I do know I sacrificed buying a lot of toys over the years, and used my skills to get where I am. But I also know "there but for the grace of God go I". ]

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.

 

[DJRR]

The Fed has "trained" the market over the past 12 years that at the first sign of trouble in the stock market they will pump liquidity to help prop things up (aka QE). The first 10+ times Powell said (effectively) they weren't going to do that any more many of the major participants (hedge funds, etc) scoffed. I'm sure there are many that still believe in the "Fed put." If the days of the "Fed put" are truly over (and they pretty much have to be given the destructive nature of runaway inflation) the market has a LONG way to go before it hits a bottom.

No more free money for rich people is a bitch.

This. The reason that it is surprising to people is that we have had accommodative monetary policy and huge deficits since the tech crash in 2000 and no inflation in sight. Crying wolf for 20 years tends to make people complacent. What changed:

1. China has a zero covid policy which has crushed the supply side of the equation. Takes me 6-9 months to get a sofa and longer for a car.

2. Trump/Biden gave money to "normal" people through the covid tax/unemployment give aways and the child tax credit give aways and they spent it. Previous give aways went to the rich and corporations who saved it or bought back stock - almost no new investment or demand.

Inflation peaked with the market bottom in June. Unless another black swan hits we should muddle through. We have not even begun to see the impacts from the rate hikes, 6% mortgages, and the uber strong dollar.

If you are really bothered by 12.6% inflation loss on the dollar then buy European/Japanese goods that you like. You will come out ~ 8% ahead due to the huge runup in the dollar. If we sold 100% of the strategic reserve that is ~ 5 days world oil supply, it does not matter long term in a 100 million barrel daily market. If you want cheap gas again then crush the economy like Covid, oil was negative then. Don't think that is a good plan for your non 10%'s in this country.

 

[Koolau]

The Fed has "trained" the market over the past 12 years that at the first sign of trouble in the stock market they will pump liquidity to help prop things up (aka QE). The first 10+ times Powell said (effectively) they weren't going to do that any more many of the major participants (hedge funds, etc) scoffed. I'm sure there are many that still believe in the "Fed put." If the days of the "Fed put" are truly over (and they pretty much have to be given the destructive nature of runaway inflation) the market has a LONG way to go before it hits a bottom.

No more free money for rich people is a bitch.

I'm still trying to figure out who the "rich people" are. I certainly didn't turn down my "covid money" but it didn't change my life (life-style) so maybe I'm rich. What I do notice is inflation. It's changing my life-style even though it probably doesn't have to be that way (IOW I can afford the inflated prices - but I refuse to if I can avoid it.) IF I'm rich, I don't feel like it if that makes any sense. YMMV

 

[explanade]

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

 

[Koolau]

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

There are a number of factors involved in inflation. It's not JUST Covid money. BUT Covid money IS and has been a big factor in current inflation. Other countries have other ways to inflate their currency (not just Covid money.)