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The next recession: Here’s when the ‘everything bubble’ will burst

The next recession: Here’s when the ‘everything bubble’ will burst

In October 20XX. That’s not a typo. To reach the best guesstimate of when the next recession will begin, we need to understand how the Federal Reserve creates unsustainable booms and why the next bust may be just around the corner.

A caveat is in order. As physicist Niels Bohr exclaimed, “Prediction is very difficult, especially if it’s about the future.” Nevertheless, I will weigh in fearlessly with my 10 cents. The Fed’s inflationary policies have increased my two cents fivefold. Maybe the next cryptocurrency is on the horizon: My 10 Cents.

If a dog can have a crypto, why can’t a retired finance professor who warned the public that prices were about to accelerate due to the Fed’s inflationary policies in the spring of 1976 have one?

Consumer prices rose 5.7% in 1976, 6.5% in 1977, 7.6% in 1978, 11.3% in 1979 and 13.5% in 1980. Talk about being right on the money!

As inflation was galloping throughout his presidency, then President Jimmy Carter appointed Paul Volcker, a former banker and U.S. Treasury official, in 1979 to halt the multiyear price spiral. Volcker succeeded spectacularly. Consumer prices rose 10.3% in 1981, revealing how inflation momentum can continue for a while before the Fed’s tight money policies slay the inflation dragon. In 1982, prices rose 6.1%, 3.2% in 1983, and (miracle of miracles) only 1.9% in 1986, a year before Volcker stepped down as Fed chairman and was replaced by Alan Greenspan.

To accomplish what was considered at the time improbable due to high inflation expectations, the Volcker-led Fed raised the Fed Funds Rate–the rate banks borrow from each other for overnight loans–to 22% by December 1980. The cost of Volcker’s tight monetary policies necessary to halt the dollar’s slide was back-to-back recessions: a short downturn 1980 and then another one, 1981-1982. A case can be made that one long recession occurred that in effect lasted three years, from January 1980 to November 1982.

…click on the above link to read the rest of the article…

Eurozone Inflation at a Record High

Inflation in the doomed Eurozone increased 4.9% in November, marking the highest level of inflation since the creation of the euro. The larger economies within the bloc experienced a significant rise in inflation, with Germany posting a 6% increase and France experiencing a 3.4% rise. Other nations saw extreme spikes such as Estonia and Lithuania that reported increases of 8.4% and 9.3%.

Artificially lowering rates has backfired; the inverse relationship between reducing rates and increased inflation is now extremely apparent. Like the Federal Reserve, the European Central Bank (ECB) is aiming for a 2% inflation target. The ECB does not see anything wrong with its current policy. ECB President Christine Lagarde said that the bank will not raise rates in 2022, although they anticipate inflation to continue into the new year. “We still see inflation moderating in the next year, but it will take longer to decline than originally expected,” Lagarde stated in mid-November. Instead of changing the policy, Lagarde will simply revise inflation forecasts at the December meeting, marking the sixth consecutive time the ECB has done so. She should take a page from Powell’s book and retire the term “transitory” when discussing inflation.

OPEC+ Reportedly Threatening Response To Global Coordinated SPR Release

OPEC+ Reportedly Threatening Response To Global Coordinated SPR Release

In an apparent ‘threat’ response to headlines suggesting the Biden administration is attempting to coordinate a global SPR release to push down oil prices (and following reports from Japanese media that the government is preparing to release crude from its strategic stockpiles), the Riyadh-based International Energy Forum said OPEC+ may change its plan for raising oil output if consuming nations sell petroleum reserves or the coronavirus pandemic worsens.

“I anticipate OPEC+ energy ministers will maintain their current plan of adding more supplies to the market gradually,” IEF Secretary-General Joseph McMonigle said in a statement Monday after a meeting with a Japanese foreign ministry official about recent volatility in energy markets.

“However, certain unforeseen external factors such as a release of strategic reserves or new lockdowns in Europe may prompt a reassessment of market conditions.”

Critically, this confirms much of what we have written about how any coordinated SPR release (however unlikely that is in and of itself) that any increase in supply will be met by action from OPEC+ moving to not hike outputs as previously planned – thus perhaps helping prices in the short-term, but raising them longer-term.

For now, oil traders are undecided at what this news means…

For now we expect gas prices to drop in the short-term as the lag in the supply-chain from crude to the pump implies some built-in reduction…

But, if OPEC+’s threat response plays out with higher prices, those lower gas prices will prove ‘transitory’.

…click on the above link to read the rest of the article…

Relief from High Prices Unlikely, Analysts Say Ahead of Consumer Inflation Data Release

Relief from High Prices Unlikely, Analysts Say Ahead of Consumer Inflation Data Release

With investors closely eyeing two major data releases this week on inflation—one on producer input costs and the other on consumer prices—Wells Fargo analysts say it’s unlikely sticker-shock-weary consumers will see relief as the persistent supply-side crunch will “keep fanning the flames on inflation in the near term.”

On Tuesday, the Labor Department will release data for October’s producer price index (PPI), which tends to front-run consumer inflation data as at least some production costs get passed on to consumers. Economists expect a year-over-year rise of 8.7 percent in the PPI inflation measure, which would be the highest reading in the history of the series. Last month’s PPI came in at 8.6 percent, a record high.

And on Wednesday, the Labor Department will issue figures for October’s consumer price index (CPI), a key measure of inflation from the perspective of end consumers of goods and services. Consensus forecasts predict a year-over-rise of 5.3 percent in the CPI inflation gauge for October, with the prior month’s rise amounting to 5.4 percent, near a 30-year high.

On a month-over-month basis, CPI is expected to clock in at 0.5 percent, according to consensus forecasts released by FXStreet, though Wells Fargo analysts expect inflation was running hotter.

“Consumer Price Index report for the month of October is unlikely to offer much of a reprieve on the inflation front,” Wells Fargo analysts wrote in a note, in which they predict a 0.6 percent month-over-month increase in the CPI index. “If realized, this would put headline CPI inflation at 5.9 percent year-over-year.”

…click on the above link to read the rest of the article…

Inflationary Storm Forces Unilever To Raise Prices Fastest In Seven Years 

Inflationary Storm Forces Unilever To Raise Prices Fastest In Seven Years 

Rising consumer prices are not going away. The latest example of this is from British multinational consumer goods company Unilever PLC who announced Thursday soaring commodity prices had forced it to raise prices the most in years.

The multinational consumer goods company that produces food, beverages, cleaning agents, and personal care products said it raised prices 4.1% in the third quarter, the fastest in seven years, pushing soaring material costs onto consumers, which compensated for a drop in shipments to Southeast Asia during COVID outbreaks.

Unilever CEO Alan Jope said inflationary pressures would linger for at least another 12 months:

“Our current view of the future is that peak inflation will be in the first half of 2022, and it will moderate as we move towards the second half,” Jope said in a Bloomberg Television interview.

“We continue to take pricing responsibly, and that’s in relation to the very high levels of inflation we’re seeing,” CFO Graeme Pitkethly told reporters. He said that inflation in the consumer goods industry is in the “high teens,” with Unilever mitigating some of the inflationary impacts due to its negotiating power.

Pitkethly warned inflation could surge even higher next year, and the company would have to deal with spot prices as its hedges expire. He said 20 billion euros in raw materials and packaging costs and 3 billion euros worth of logistical costs had been impacted inflation.

Rivals, such as Nestlé warned Wednesday that “inflation costs are rising faster than we can roll forward through pricing . . . The situation has not improved. If anything, we are seeing further downsides compared to what we told you in the summer.”

…click on the above link to read the rest of the article…

Stagflation is Here

QUESTION: When do we talk about stagflation?


ANSWER: We are already experiencing it. Normally, the standard definition of “stagflation” has been explained as slow economic growth with relatively high unemployment/or economic stagnation that takes place with rising prices. Some have also defined it as a period of inflation combined with a decline in the gross domestic product (GDP).

Stagflation became a term that defined the 1970s because economic growth was still positive, but the rate of inflation was far greater due to the price shock of the OPEC embargo. Because of the Democrats constantly pushing to raise taxes, they sent corporations fleeing offshore, and it was NOT merely because of the tax rate. I testified before the House Ways & Means Committee on taxation and they wanted to know why NO American company got a contract from China like constructing the Yellow River Dam. I explained that German companies were NOT taxed on worldwide income, and as such, they were already 40% less than an American company because Americans pay taxes on worldwide income, and the ONLY other country to that was Japan. Thus, American companies moved offshore, NOT because labor was cheaper, but so they could complete.

As a result, I provided our analysis that showed when we allocated trade according to the flag of the company instead of where something was manufactured, then the US had a trade surplus instead of a trade deficit. Trump understood that and offered a one-time tax deal to bring their profits home. The Democrats screamed because they wanted 40% in taxes. But they would not bring the money home and so they got 0%.

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Prices Surge Broadly Across the Massive Service Sector and Companies Are Able to Pass On these Higher Prices

Prices Surge Broadly Across the Massive Service Sector and Companies Are Able to Pass On these Higher Prices

The entire mindset has changed.

Services are about two-thirds of the economy. During the Pandemic, discretionary services such as travel and entertainment have been hard hit, and consumer spending on services in February was still down 5.2% from a year ago. But the services sector is enormous, ranging from healthcare to tech, and demand has been strong in many segments, and is coming back in others. Amid backlogs and shortages, input prices are soaring and companies are able to pass on those higher prices. The Fed might refuse to acknowledge it, but everyone else is seeing it.

“The biggest concern is inflation, with price gauges hitting new survey highs in March as demand often exceeded supply for a wide variety of goods and services,” reported IHS Markit in its Services PMI today.

“On the price front, input costs soared in March. The rate of inflation accelerated to the fastest since data collection for the services survey began in October 2009,” the report said.

“Subsequently, firms sought to pass on higher costs to clients through a sharper rise in selling prices,” the report said.

“A number of companies also stated that stronger client demand allowed a greater proportion of the hike in costs to be passed through. The resulting rate of charge inflation was the quickest on record,” the report said.

These types of price pressures in the services sector were also reported today by the Institute of Supply Management’s broad ISM Services Report on Business, whose index for prices paid for materials and services increased in March at the steepest rate since 2008.

…click on the above link to read the rest of the article…

wolfstreet, wolf richter, inflation, consumer prices

Look to Prices, Not Official Metrics, for Inflation’s “Smoking Gun”

Look to consumer prices to see where gold and silver are headed

As worries about currency erosion and inflation abound, the question of how to measure these crucial benchmarks has become a cornerstone of the debate. The Federal Reserve’s insistence that inflation is being kept in check and below its annual targeted rate of 2% seems impossible considering the oceans of money poured into the economy. Economics 101 teaches us that, when money supply goes up without a corresponding increase in goods for sale, prices must rise. It’s virtually a law of nature.

Statements by officials have given rise to even more red flags, whether one refers to the Fed’s willingness to let inflation run rampant or former U.S. Treasury Secretary Lawrence Summers’s warning that the Fed would “set off inflationary pressures of a kind we have not seen in a generation.”

But how can the average citizen know whether there has been a sudden spike in inflation, and just how quickly their purchasing power is wasting away?

FAO Food Price Index

The FAO Food Price Index (FFPI) averaged 116.0 points in February 2021, 2.8 points (2.4 percent) higher than in January, marking the ninth month of consecutive rise and reaching its highest level since July 2014. source


…click on the above link to read the rest of the article…

birch gold group, inflation, price inflation, food price inflation, fed, us federal reserve, consumer prices

Inflation Is Spreading Broadly into the Economy. Amid Surging Costs, Companies Raise Prices, and Customers Pay them, Despite Weak Economy, 10 Million Missing Jobs

Inflation Is Spreading Broadly into the Economy. Amid Surging Costs, Companies Raise Prices, and Customers Pay them, Despite Weak Economy, 10 Million Missing Jobs

“Not only have the last two months seen supply shortages develop at a pace not previously seen in the survey’s history, but prices have also risen due to the imbalance of supply and demand.”

The signs of inflation building up in the economy are now everywhere. IHS Markit, in its release of the Flash PMI with data from companies in the services and manufacturing sectors, added to that pile of evidence.

For companies, inflation happens on two sides: what they are having to pay their suppliers, and what they can get away with charging their own customers, which may be consumers, governments, or other companies.

And increasingly, companies are able to pass higher input prices on to their customers – meaning, their customers are not totally balking at paying higher prices and they’re not switching to other sources to dodge those price increases. That’s a mindset that nurtures inflation.

This PMI data is based on what executives said about their own companies (names are not disclosed) and the conditions they face in the current month. No quantitative measures or dollar amounts are involved.

And this is what they said about their two aspects of inflation, according to Markit:

On surging input prices:

  • “Inflationary pressures intensified as supplier delays and shortages pushed input prices higher.”
  • “The rate of input cost inflation [in January] was the fastest on record (since data collection began in October 2009), as soaring transportation and PPE costs were also noted.”
  • Amid stronger expansions in output and new orders, manufacturers experienced “significant supply chain delays, raw material shortages, and evidence of stockpiling at goods producers” that “pushed input prices up.”

…click on the above link to read the rest of the article…

Consumer Prices Soar By Most In 11 Years In June On Rebound In Fuel Costs

Consumer Prices Soar By Most In 11 Years In June On Rebound In Fuel Costs

After three months of ‘deflation’, consumer prices were expected to rebound strongly in June and it did, with headline CPI beating expectations (+0.6% MoM vs 0.5% exp). That is the biggest monthly jump since June 2019

Source: Bloomberg

Both Goods (Ex-Energy) and Services (ex-Energy) CPI growth slowed on a YoY basis…

Source: Bloomberg

The driver of the headline beat and surge in CPI was soaring motor fuel costs – up 12% MoM…

Source: Bloomberg

Will The Fed shrug this off as ‘transitory’?

Inflation Surges In October; Media Blames Gas Prices

Inflation Surges In October; Media Blames Gas Prices

A key measurement of inflation, The Consumer Price Index, rose 2.5% in October from a year earlier.  The inflation was linked to rising gas prices by the media, but there’s more to it than just the cost of fuel. Rising inflation is actually also likely tied to the deficit, rising interest rates, and the national debt.

According to a report by Market Watch, Americans paid more in October for gas, rent and used vehicles, triggering the biggest increase in consumer inflation in nine months. There was an increase in the cost of living over the past 12 months as well.  That jumped to 2.5% from 2.3%. The rate of inflation is still below a six-year high of 2.9% set three months ago, however.

Even though the price of gasoline played a role on the rising inflation, the cost of rent, used cars and trucks, medical care, home furnishings, and car insurance also increased and all of these are major household expenses. The worst news, perhaps, is that after adjusting for inflation, hourly wages slipped 0.1% in October. Wages are up a mild 0.7% in the past year, according to CNBC.

This rise in inflation will likely keep the Federal Reserve on their current path of increasing interest rates as well.  The United States’ central bank left interest rates unchanged last Thursday, but it is still expected to increase borrowing costs in December for a fourth time this year. In its statement after last week’s policy meeting, the Fed noted that annual inflation measures “remain near 2 percent.”

Even though most prices rose, prices for new motor vehicles dropped 0.2 percent last month and communications costs fell too. Prices for recreation and personal care products also decreased slightly. However, the minuscule decrease in vehicle prices won’t last long as the trade war with China is still in effect.

…click on the above link to read the rest of the article…

Venezuela Knocks Three Zeros Off Its Currency to Halt Hyperinflation

Redenomination is Venezuela’s sorry story of the day. It won’t work.

In a worthless attempt to halt hyperinflation, Venezuela Deletes Three Zeros From Its Failing Currency.

Socialist Venezuela is going through a crisis that has left people struggling to pay for food and find medicines. Prices are being influenced by a black-market exchange rate that rises by the day and is currently five times the nearly inaccessible official rate.

President Nicolás Maduro late Thursday briefly outlined his monetary rescue plan. In a country where a dozen eggs can cost 250,000 bolivars ($5) amid worsening inflation, he would chop three zeros off the currency — arguably bringing the price for those eggs down to 250.

By June 2, under Maduro’s plan, new bolivars with lower denominations would be circulated — but old ones, with denominations as high as 100,000, would remain valid. It would leave vendors charging two prices — one for old bills, the other for the redenominated bolivar.

Empty Shelves

Merchants are arrested if they charge too much for food. The result is no food.

Loot or Die

The Guardian reports ‘We loot or we die of hunger’: food shortages fuel unrest in Venezuela.

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Mnuchin’s Wrong: Here’s Why Investors Should Be Very Worried About Inflation

Despite Treasury Secretary Steven Mnuchin’s bizarre insistence that there’s no connection between consumer-price inflation and rising energy prices and wages, these factors – plus a spate of others – are forcing some food companies to consider raising prices on goods from chicken to cereal, according to Reuters.

One of these factors, as Reuters explores in a wide-ranging feature published on Monday, involves US trucking and railroad operators foisting higher shipping rates on customers like General Mills Inc. and Hormel Foods Corp.

According to Reuters, transportation costs are climbing at double the rate of inflation.

These increases are catching food companies off guard. Struggling railroads and trucking companies haven’t expanded their capacity, choosing instead to focus on cost cuts – much to Wall Street’s delight.

Interviews with executives at 10 companies across the food, consumer goods and commodities sectors reveal that many are grappling with how to defend their profit margins as transportation costs climb at nearly double the inflation rate.

Two executives told Reuters their companies do plan to raise prices, though they would not divulge by how much. A third said it was discussing prospective price increases with retailers.

The prospect of higher prices on chicken, cereal and snacks costs comes as inflation emerged as a more distinct threat in recent weeks. The U.S. Labor Department reported earlier this month that underlying consumer prices in January posted their biggest gain in more than a year.

As US economic growth has revved up, railroads and truck fleets have not expanded capacity to keep pace – a decision applauded by Wall Street. Shares of CSX Corp, Norfolk Southern, and Union Pacific Corp have risen an average 22 percent over the past year as they cut headcount, locomotives and rail cars, and lengthened trains to lower expenses and raise margins.

…click on the above link to read the rest of the article…

Inflation Coming? How About Deflation?

Economists expect higher inflation based on rising producer prices. But will producer prices feed consumer prices? When?

Do producer prices eventually feed into consumer prices? If so, what’s the lead or lag time?

The Wall Street Journal article Why the Inflation Picture Looks Starkly Different for Businesses and Consumers got me thinking about these questions and I do not believe they came up with the correct answer.

This month consumers said they expected a 2.7% rise in inflation over the next year, a level unchanged since December, according to the University of Michigan’s latest sentiment survey.

Other survey data indicate businesses are feeling inflationary pressures. Take, for instance, the rising percentage of executives in the Institute for Supply Management’s manufacturing survey who say they’re paying higher prices for materials: In January, 46.6% reported higher prices, up from 42% a year earlier.

Households’ inflation expectations tend to lag behind the behavior of inflation itself, which means as consumer prices rise, inflation expectations for this group should rise, too, said Michael Pearce, economist at Capital Economics.

“We’ve seen pickups in producer-price inflation before that haven’t really fed through to higher consumer prices, but there are good reasons to expect that the story this time around could be a bit different,” Mr. Pearce said. This, he said, is because a whole slew of factors are converging to put pressure on business prices and ultimately consumer inflation, a divergence from some past patterns when oil was the main driver.

Lagging the Leader or Noise?

The above chart is easily creatable in Fred. Here is a longer term view.

Cope PPI vs Core CPI

The overall correlation seems easy to spot but it was far stronger prior to 1988. Since then movement seems somewhat random.

I expected the divergences to be oil-related but they do not all seem to be.

…click on the above link to read the rest of the article…

Fed Warns Inflation Has Arrived: Philadelphia, New York Fed Prices Paid Soar

Just in case the economic data appeared to be coming in as too hot in recent days, today’s two key regional Fed manufacturing indicators sent conflicting signals, with the New York Fed survey sliding from 17.70 to 13.1, and missing expectations of 17.50, while the Philadelphia Fed rose from 22.2 to 25.8, beating exp. of a dip to 21.6

The commentary from both regional Feds was optimistic, although NY conceded a slowdown in January:

Business activity continued to expand in New York State, according to firms responding to the February 2018 Empire State Manufacturing Survey. The headline general business conditions index fell five points to 13.1, suggesting a somewhat slower pace of growth than in January.

The New York internals, however, were good, especially when it comes to labor: number of employees rose to 10.9 vs 3.8, while work hours rose to 4.6 vs 0.8. Meanwhile, inventory fell to 4.9 vs 13.8. Unlike current conditions, optimism rose with six-month general business conditions up to 50.5 vs 48.6. A potential bottleneck was noted in future delivery times at a record high in Feb, up from 10.9 to 15.3

The Philly Fed meanwhile was stronger across the board:

Results from the Manufacturing Business Outlook Survey suggest that the region’s manufacturing sector continues to expand in February. The indexes for general activity, new orders, and employment were all positive this month and increased from their readings last month. Price increases for inputs were more widespread this month, according to the respondents. The survey’s future indexes, reflecting expectations for the next six months, suggest continued optimism.

Here, too, the internals were strong:

  • New orders rose to 24.5 vs 10.1
  • Employment rose to 25.2 vs 16.8
  • Unfilled orders rose to 14.5 vs -1.8
  • Shipments fell to 15.5 vs 30.3
  • Delivery time fell to 4.5 vs 6.1

There were some declines:

  • Inventories fell to -0.9 vs 9.4
  • Prices received fell to 23.9 vs 25.1
  • Average workweek fell to 13.7 vs 16.7

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Olduvai IV: Courage
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Olduvai II: Exodus
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