sic transit gloria inflationi

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Submitted by gzz on June 16, 2022 - 12:16pm

Retail sales in May: WAY DOWN

Retail inventories: WAY WAY UP (30-40% at stores like Target)

Used Car Prices: Impossible to maintain 40% YoY increases. Some of that crazy runup may have been VC-funded insanity buying by Carvana and Shift, which are spiraling downward towards insolvency

Consumer purchase intention surveys: At deep recession levels.

Wage Pressure: Weak as tech and interest rate sensitive sectors move to layoffs

Wealth Effect: Now in full reverse mode

Energy and basic materials, plus declining skilled work force size, will lead to mild inflationary pressures over the level we saw in 2000-2020, but we'll be back to 2.5-3% inflation very soon IMO.

Submitted by spdrun on June 16, 2022 - 12:35pm.

Return to the mean.

The Dow is basically at its pre-COVID level and so's the NASDAQ. Basically, assets that were artificially inflated by herd speculation during COVID are starting to return to their normal values, and items that are necessary (housing, transportation devices, food, clothing) are likely to follow.

It will actually be a good thing to have a slightly higher unemployment rate -- right now, employers that provide public services but tend to have average pay (schools, universities, research, government, public transit, airlines, transportation, food stores) are having trouble finding workers. Being north of full employment is actually worsening many of the supply chain headaches that we're suffering.

Submitted by gzz on June 16, 2022 - 4:38pm.

Goldman Sachs now estimates used car inflation will be -7% for the end of 2022 and -18% in 12/23.

Probably lots of similar stories of supply-chain-disruption inflation going into reverse.

My graphics card that I got for $280 in 2020 on Amazon was selling used on ebay for $700 a year later. Should have flipped it!

Submitted by Coronita on June 16, 2022 - 5:41pm.

I don't think we would be in this situation if it wasn't for the pressure on energy costs from a ukraine war and also the constraints from a supply chain.

The supply chain would have worked itself out once the covid got better and things started reopening overseas again.

The ukraine war thing, however, is the big unknown. It's going to be a long drawn out war, and energy prices will stay high in the meantime until those that demand it find alternatives.

Energy prices have a big influence on costs of goods and services, just from transportation alone, so does supply chain issues.

Example...Domestically produced rice is currently selling for a lot less than rice imported from Asia. Go to any asian supermarket to confirm. it's about $10-15/bag difference if you want Thai imported rice versus stuff grown here such as Calrose.

There's many examples of this where right now imports cost near the same or more than domestically produced or North American producted goods and services... That also makes a case for bringing work back here.

Submitted by gzz on June 30, 2022 - 8:46pm.

Has inflation and rates peaked already?

Certainly looks possible.

On the benchmark 10Y treasury rate front, as of right now we are down more than half a point from the recent high of 3.48, down to 2.94 now.

For inflation, lots of price spikes seems to be receding. The first was actually lumbar, which peaked first in 2021 and is now down more than half.

Used cars appear to be on their way down after at one point being up 40% YoY.

Graphics cards are back to MSRP after selling for 2.5x MSRP for a while. Graphics cards are about 1/3 the cost of video game consoles and upper-midrange PCs, so these too will lose inflation pressure.

As I noted here, I got lucky and purchased a card for $300 right before the spike. The used value of that card peaked around $850 on ebay, probably ~$1000 new. I ended up getting a new PC on ebay that a bitcoin miner purchased solely for its graphics card, which he removed from the PC and then resold without the card. I combined the stripped grey marketish new PC with my existing card and am happy with the result.

While rents and energy will continue to rise in my view, I highly doubt their increases will be as fast as in 2021, though as a landlord with a lot of oil stocks, this is a real statement against interest.

Also relevant to inflation are retail margins. Retailers keep reporting they are completely overstuffed with inventory, having over-ordered in reaction to supply chain disruption shortages they had in 2020 and early 2021. They will be discounting much more than normal going forward. Consumer spending is dropping too.

So retailers will have to lower prices, and will be more selective and stingy in purchasing new inventory. Sounds deflationary!

Tech layoffs are gearing up and should put a lid on tech salaries.

In terms of market expectations, amazing the long-term market expectations of inflation via TIPS is about 2.5% going far into the future. That's not a bad guess in my view. I think we'll be above that for a couple years, but very long term I see Japan-style demographic changes in the USA leading to Japan-style 0-1.5% long term inflation.

Submitted by gzz on June 30, 2022 - 8:56pm.

Flu, I don't eat rice, except maybe a bite or two with curry on rare occasions.

When I lived in Thailand I said "no rice please" an average of twice a day. Probably low carb diets have spread over there by now, but not in 2005. Thais gave me shocked, unbelieving faces. "It comes with rice!" About a third of the time they ignored me and gave me the rice anyway.

I visited rice farms, shrimp farms, and palm oil plantations, all interesting. Other than the heat and tropical plants, it wasn't too different than rural Ohio: pick up trucks, manure smells, and giant bigbox stores.

Submitted by gzz on July 1, 2022 - 7:40pm.

Mortgage rates now down 0.75% from their mid-June peak.

6.25 to 5.5.

Will we look back at June 2022 as a great time to buy, a brief respite in the relentless rise in the increasingly scarce, secure, upscale, amenitied, lightly-taxed, high-and-growing yielding trophy investment known as the San Diego Single Family Home?

I can’t say for sure, but I do feel good about my future here as a gentleman-rentier.

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