Latest Inflation Numbers and Discussion

[ExFlyBoy5]

Well the kind of supply shock is different. The auto chips thing was due to makers knee jerk reacting and not contracting for the future, then the fabs found "new best friends" to fab out.

Here, you have the concrete mixing plant who can't get labor (unless they pay more), so concrete then is a supply issue.

It becomes a big tangled mess feeding against each other.

My DWs family is in the commercial concrete business and have had a bear of a time bringing in/keeping employees. They do primarily government contracts and have to add new clauses into the RFPs to address this issue.

 

[explanade]

Higher profits does not equal "greedflation".

For a non-cyclical company like a grocery store, one would generally expect revenues and profits to increase every year.

If the company had profits of $100 million last year, and $102 million this year, then they do indeed have "higher profits". If inflation was 5%, then the company actually lost ground despite those higher profits. Without any other context (like margins), higher profits doesn't say much about being greedy.

This is similar to how most salaried employees generally get an annual salary increase. When they get their annual salary increase, they have "record high salaries", even though they might actually be losing purchasing power due to not keeping up with inflation.

UBS chief economist attributes at least part of the rising prices to profit expansion.

The US restaurant and hotel sector helps explain why wage costs have played a limited role in today’s inflation. Since the end of 2019, the average earnings*of a worker in this sector have risen just under 20 per cent. But the number of employees has fallen over 5 per cent. Paying fewer people more money means that the sector’s wage bill has risen roughly 13 per cent. The real output of the sector has risen 7 per cent. So US restaurants and hotels are paying fewer people more money to work harder. The rise in wage costs adjusted for productivity since the end of 2019 is somewhere between 5 and 6 per cent. Restaurant and hotel prices have risen 16 per cent.

This is the current inflation story. Companies have passed higher costs on to customers. But they have also taken advantage of circumstances to expand profit margins. The broadening of inflation beyond commodity prices is more profit margin expansion than wage cost pressures.

https://www.ft.com/content/837c3863-fc15-476c-841d-340c623565ae

At least some companies have booked record profits this year.

 

[JoeWras]

My DWs family is in the commercial concrete business and have had a bear of a time bringing in/keeping employees. They do primarily government contracts and have to add new clauses into the RFPs to address this issue.

I had a driveway replaced earlier this summer and it was about 2x price of 3 years ago -- when I should have had it done. It reached crisis level (safety issues) and I had to have it done.

I just used concrete as an example. It is everything in construction. Road construction requires steel, piping, inspectors, surveyors, asphalt, concrete, heavy equipment, etc. Any one of those could be short due to labor issues. If the rebar plant has a shutdown due to whatever (labor, raw steel, energy, you name it), it could throw the whole project off.

It goes on and on.

I do volunteer construction and I just had an email exchange with a door company. I gave them a bunch of detailed information on a project and the owner literally asked me if I wanted a job as an estimator. We both LOL'd over that one. He was only half-kidding.

 

[Chuckanut]

I've just read in news article that Canada's top 3 grocers posted higher profits this year compared to 5-year average, and it's calling it greedflation as they are price gouging in the name of high inflation...

I don't know about Canada but here in the USA credit card usage is skyrocketing. People are charging purchases at a near record rate. Remember the savings rate that skyrocketed during the Covid lock downs? It's crashed down to earth and vaporized. It seems many people have spent that money and are now spending even more. Maybe that is helping to drive inflation.

 

[Beststash]

I just saw something I'd like to share.

I have a few energy stocks, but not Devon. Today, saw that it crashed -12.76%, compared to the S&P going down -2.50%. I told myself, it has got to be a bad earning report, no doubt.

Went in to take a look. No, it beat expectation on both top and bottom lines when reporting yesterday. So, what's wrong?

It is due to the company outlook. They expect to spend something like $900 million next year on capex. And this is so that they can increase output by 0 to 5%. I thought I saw that they had $1.3 billion in free cash, so a lot of it will get spent. And they are reducing dividend!

It's not as rosy as people think.

If they went bankrupt is wouldn't bother me in the least.

Over the last two quarters alone, ExxonMobil, Chevron, Shell, BP, ConocoPhillips, and TotalEnergy earned over $100 billion in profits – more than they earned all of last year, and more than two-and-a-half times what they earned in the same quarters of 2021.

If one company is not doing well in this environment it must be poor management?

As I said earlier, I do not invest in fossil fuels. I view them as a necessary evil but we can do much better if we collectively make better choices and start making them now. We can't afford to wait until the second half of the century to make the transition to non‑fossil-fuel energy. Building up the necessary infrastructure is going to be long and expensive.

The stone age did not end because of a shortage of stone. Transportation by horses ended because we found a better way. The fossil fuel age will end because there are newer, better and cleaner ways of providing energy, or when it is too late to prevent irreparable damage to the planet.

I realize my attitude is not popular (especially here in Texas) but I firmly believe we can do better if we have the will to do so. ☮

 

[NW-Bound]

If they went bankrupt is wouldn't bother me in the least.

Over the last two quarters alone, ExxonMobil, Chevron, Shell, BP, ConocoPhillips, and TotalEnergy earned over $100 billion in profits – more than they earned all of last year, and more than two-and-a-half times what they earned in the same quarters of 2021.

If one company is not doing well in this environment it must be poor management?

If these guys go bankrupt, we will all turn into cave dwellers. No more fuel for transportation, no more heating, no anything.

Earlier, somewhere on this forum, I recalled that in 2020 the 5 companies ExxonMobil, BP, Shell, Chevron, and Total lost $76 billion. Nobody felt sorry for them then.

But back to my point that high inflation doesn't help anybody, here's another example today: Nutrient, or what used to be Potash of Saskatchewan. In contrast to Devon Energy, I do have quite a few hundred shares of NTR in my portfolio.

NTR reported earnings yesterday. Stock dropped -14% today. The company missed both revenue and earning estimates, blamed it on low sales due to high prices.

A couple of months earlier, I read about farmers worldwide cutting back on fertilizer purchases because of the high prices. The news article added that this meant lower crop yield in the season ahead, and it of course will lead to high food prices.

No, high inflation is very bad. And I applaud Powell and the Fed for having a stiff backbone in order to slay this dragon.

 

[Taco]

UBS chief economist attributes at least part of the rising prices to profit expansion.

At least some companies have booked record profits this year.

Agreed.
I did not say that there were not any companies that have taken advantage of higher costs, and goosed their prices even higher.

My point was that "record profits" are not how one would measure that.

A company might have "record profits" and, on an inflation adjusted basis, they might have lost ground. A dollar today and a dollar a year ago are obviously different.

Some grocery stores having higher profits might be a sign of "greedflation", it might not. As I said in my previous message:
Without any other context (like margins), higher profits doesn't say much about being greedy.

 

[Koolau]

I've just read in news article that Canada's top 3 grocers posted higher profits this year compared to 5-year average, and it's calling it greedflation as they are price gouging in the name of high inflation...

One man's "greed" or "gouging" is another man's making up previous losses or lean years when economic fortunes reverse. If we insist that companies have a set profit margin (so, no more "gouging" and no more "excess profits" - every year is the same) is anyone here willing to pay companies to make up their losses when times are lean? I thought not but YMMV.

 

[NW-Bound]

One man's "greed" or "gouging" is another man's making up previous losses or lean years when economic fortunes reverse. If we insist that companies have a set profit margin (so, no more "gouging" and no more "excess profits" - every year is the same) is anyone here willing to pay companies to make up their losses when times are lean? I thought not but YMMV.

Eh, is that not the same as we investors getting 25% return one year, and -20% return the next?

What if the gummint taxes us on the 25% return, and we just eat the -20% the next?

Oh wait! They already do that.

PS. Well, we are allowed to deduct a measly $3K of investment losses against ordinary income. Then, "bank" the losses to offset future gains, so the loss is not a total loss.

 

[Koolau]

UBS chief economist attributes at least part of the rising prices to profit expansion.



https://www.ft.com/content/837c3863-fc15-476c-841d-340c623565ae

At least some companies have booked record profits this year.

Keep in mind that we've experienced inflation for 2 years. Any company not making record profits is losing compared to previous years.

What kind of profits did they have, say a year or two or 5 years ago? Some of those companies likely posted losses. Do we only allow companies to lose money without calling them "gougers?" What IS your idea for a "fair" profit? Clearly, "average" profits were made up of good years and lean years. If we jump on folks who finally do better, what do we do when they do worse? I don't see a line waiting to help out corps. that have fallen on hard times ( a few notable exceptions like car companies and big Financials.) SWAG is that Financials will do well now that folks are living off credit cards - until the time of reckoning some months/years ahead.)

One more time: Do you own any stock of the companies that are gouging? Seems like a good way to get rich - if you are a true believer in gouging. As always, YMMV.

 

[explanade]

As a measure, corporate profits as a percentage of GDP are the highest since the 1940s.

 

[NW-Bound]

As a measure, corporate profits as a percentage of GDP are the highest since the 1940s.

I wonder if there's a thing like CAPE for corporate profits.

My bet is that these seemingly outrageous profits will not last. Else, the S&P will grow to the sky like Jack's bean stalk, and investors will be jumping up/down with joy. Are they jumpin' and dancin'?

Everybody will just buy stocks, and nobody needs to work. Nice!

 

[explanade]

I wonder if there's a thing like CAPE for corporate profits.

My bet is that these seemingly outrageous profits will not last. Else, the S&P will grow to the sky like Jack's bean stalk, and investors will be jumping up/down with joy. Are they jumpin' and dancin'?

Everybody will just buy stocks, and nobody needs to work. Nice!

What is CAPE?

I suppose for companies which have seen record profits and margins, they will feel pressure from consumers who are more price-sensitive as the economy slows down.

Or there are enough layoffs that sales overall goes down.

Probably services like restaurants and hospitality will be among the first industries to see decline in sales, along with all the associated travel industries.

Airfares are still high for next summer so people are booking.

Supposedly some reports are predicting over 200k jobs in October so not enough of a slowdown yet.

 

[Montecfo]

I suppose that’s why the equity markets sold off after the press conference.

I continue to be fascinated by these stock rallies between Fed meetings. The market seems to have lost its collective "memory". Buyers get killed every time.

 

[Beststash]

I wonder if there's a thing like CAPE for corporate profits.

My bet is that these seemingly outrageous profits will not last. Else, the S&P will grow to the sky like Jack's bean stalk, and investors will be jumping up/down with joy. Are they jumpin' and dancin'?

Everybody will just buy stocks, and nobody needs to work. Nice!

Your assuming that profits will always revert to the "mean"? Only time will tell but I don't think that is necessarily the case. If it doesn't over a period of time then maybe something has changed. I don't think it is a "natural occurrence". Maybe a variable has changed? Economics is not based on natural laws. There are no constants that govern the system. Maybe it is in our interest for the gummint to intervene?

I'm sure the FED is trying to do their best to correct the inflation situation. I suspect that we will only know in hindsight but judging from past history it seems they can stimulate the economy much easier than they can deflate it. And who will suffer the most? The stock market has rewarded people through the years depending on their entry and exit points but it is not a guaranteed solution. In my particular case I worry that maybe I should have not been so aggressive at my age (72). Like everything else only time will tell but regardless in my case it won't be the end of the world but I do have empathy for those less fortunate.

 

[Montecfo]

If they went bankrupt is wouldn't bother me in the least.



Over the last two quarters alone, ExxonMobil, Chevron, Shell, BP, ConocoPhillips, and TotalEnergy earned over $100 billion in profits – more than they earned all of last year, and more than two-and-a-half times what they earned in the same quarters of 2021.



If one company is not doing well in this environment it must be poor management?



As I said earlier, I do not invest in fossil fuels. I view them as a necessary evil but we can do much better if we collectively make better choices and start making them now. We can't afford to wait until the second half of the century to make the transition to non‑fossil-fuel energy. Building up the necessary infrastructure is going to be long and expensive.



The stone age did not end because of a shortage of stone. Transportation by horses ended because we found a better way. The fossil fuel age will end because there are newer, better and cleaner ways of providing energy, or when it is too late to prevent irreparable damage to the planet.



I realize my attitude is not popular (especially here in Texas) but I firmly believe we can do better if we have the will to do so. [emoji1280]

I look forward to the newer/better/cleaner but there is no serious effort underway to meaningfully lower worldwide carbon emissions, particularly where it is growing the most (China and India).

So for now, fossil fuels are the only serious game in town and the efforts to reduce supply will continue to drive "record profits".

 

[audreyh1]

I continue to be fascinated by these stock rallies between Fed meetings. The market seems to have lost its collective "memory". Buyers get killed every time.

Yes - definitely. There is a hopeful rally up to the Fed meeting, then squashed yet again.

Equity markets are still trading on hope rather than fear.

 

[NW-Bound]

What is CAPE?

CAPE or Cyclically Adjusted Price to Earning ratio is a stock measure pioneered by Shiller. Because companies' PEs jump all over the place from year to year, Shiller had the idea of averaging it over the last 10 years instead of just the trailing 12 months.

If we do this 10-year averaging for a company profit, we may see that the current high profit is an outlier. Moreover, it's for the 12 trailing months, which is already old news.

It's no different than looking at our nice investment return last year and not expecting to get the same return year in/year out.

 

[NW-Bound]

I look forward to the newer/better/cleaner but there is no serious effort underway to meaningfully lower worldwide carbon emissions, particularly where it is growing the most (China and India).

So for now, fossil fuels are the only serious game in town and the efforts to reduce supply will continue to drive "record profits".

Reducing the supply of a commodity before its replacement is sufficiently brought online is not going to end well.

Perhaps people can cope by using less of that scarce commodity. Drive less. No more travel. Eat less (food production/transportation also uses a lot of fuel). Stop ordering from Amazon. Turn the thermostat up in the summer, down in the winter. Take cold shower. Europeans are doing this. We can too.

 

[NW-Bound]

Talking about eating less, instead of going hungry people just do some substitution for less expensive food that provides the same calories. No problem.

And as I was comparing Cisco and Hormel stock performance in the last 20 years for another thread (Hormel beat the pants off Cisco), I looked for news on Hormel to see if I should buy back the shares I sold a couple of years ago.

And I found this article, which is most appropriate in a thread about inflation.

Source: https://finance.yahoo.com/news/inflation-changing-shoppers-tastes-literally-220913780.html

Last month, inflation in Britain was up 10.1% from a year earlier—make that 14.5% for food prices.

That’s translated into a growing appetite for cheaper food, including Spam. Sales of the canned meat are up 36% this year, according to an annual food and drink report from Waitrose, as Sky News reported this week.

Searches on recipes using Spam—made of ground-up pork shoulder and ham—are also up, says Waitrose, with shoppers eager to expand their repertoire beyond the classic Spamburger. (Spam kebabs, anyone?)

The company says more Brits are reducing food waste as part of a “use it all trend” and cooking cheaper cuts of meat and fish in slow cookers. Sales of fish heads are up 34% from a year ago, with shoppers using them in curries, stews, and stocks.

Among the shoppers Waitrose surveyed, 72% said they had become more mindful of what they’re spending—not surprising given the rising prices.

Sales of Spam, made by Minnesota-based Hormel Foods, hit record highs last year, CEO Jim Snee told CNBC last December. He said he was particularly pleased with his company’s performance given inflation, which he described as “real” and “significant.”

 

[NW-Bound]

Misery loves company.

Here's a chart to make y'all feel better.

While there are places in the world with lower inflation (Australia, Scandinavia, Southeast Asia, China, etc...), we can commiserate with much of Europe. Many countries are suffering much worse inflation. Cheers.

 

[Popeye]

As a measure, corporate profits as a percentage of GDP are the highest since the 1940s.

This is actually a good thing! As you weed out the inefficiency and waste improving productivity, that’s what happens.

 

[Koolau]

I wonder if there's a thing like CAPE for corporate profits.

My bet is that these seemingly outrageous profits will not last. Else, the S&P will grow to the sky like Jack's bean stalk, and investors will be jumping up/down with joy. Are they jumpin' and dancin'?

Everybody will just buy stocks, and nobody needs to work. Nice!

My point over these many moons. If you find a company or sector with outstanding profits that gummint can't seem to dominate or threaten - buy and hold their stock - and FIRE. Can't loose!!

Of course, I've never found such a company or sector. Got burned when the Pharma industry looked bullet proof. Got burned on Oil (twice). Thought I'd found the holy grail of investing, but it turns out "obscene" profits only last a short while. Too bad 'cause I'd love to find a stock (or sector) that could cheat and steal and charge obscene prices - and the gummint couldn't touch 'em. YMMV

 

[Koolau]

I look forward to the newer/better/cleaner but there is no serious effort underway to meaningfully lower worldwide carbon emissions, particularly where it is growing the most (China and India).

So for now, fossil fuels are the only serious game in town and the efforts to reduce supply will continue to drive "record profits".

Especially when we intentionally choke off supplies.

 

[Koolau]

Talking about eating less, instead of going hungry people just do some substitution for less expensive food that provides the same calories. No problem.

And as I was comparing Cisco and Hormel stock performance in the last 20 years for another thread (Hormel beat the pants off Cisco), I looked for news on Hormel to see if I should buy back the shares I sold a couple of years ago.

And I found this article, which is most appropriate in a thread about inflation.

Source: https://finance.yahoo.com/news/inflation-changing-shoppers-tastes-literally-220913780.html

Interesting as Spam is more expensive (by the pound) than ham here in the Islands. Believe it or not, Span is now considered a "delicacy" among many Islanders (not me - I grew up on the stuff when it was cheap.) YMMV