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Three Inflationary Case Studies: Coke, Pasta And Rent
Following what appears to be just the beginning of a major market flush which could well bring the S&P to triple digits in order to serve as a catalyst for QE3, the word inflation has become taboo: after all, it is expected that Bernanke will have snapped his fingers, and the 15 minute count down to deflation will start. Alas, no. There are at least three products in which inflation has proven to be particularly stubborn, all due to a unique set of factors. The first one is Coke (the drink, although probably not isolated thereto), which just announced plans to hike prices 3 yo 4% due to still surging commodity costs. The second is pasta, whose prices are also set to soar, this time due to adverse climatic conditions. Per Bloomberg, "Unrelenting rainfall may have slashed U.S. planting of durum wheat to the lowest level in more than 50 years, fueling a surge in the price of pasta and noodles as mills scramble for supply of the grain." And the last, and possibly most perverse price spike, is the one which will actually hike the CPI, due to an increase in the shelter, or rents, component, as more and more Americans forgo owning a home in exchange for renting, in the process pushing up the one component that accounts for 41% of core CPI. In this way we see three completely unrelated channels in which inflation will continue to push through even as stocks plunge: an event which most MMT theorists always perceive as inherently deflationary.
First, on the Coke price hike:
Coca-Cola Co. (KO) plans to raise prices 3% to 4% on drinks beginning July 31 to combat rising commodity costs.
The price increase, reported by trade publication Beverage Digest and confirmed by a Coke spokesman Friday, will vary across different sizes and drink brands, and will result in prices being 5% to 6% higher than they were a year ago. The magnitude of the announce price increases is in line with Coke's announced pricing plans.
The report cited a letter from Coca-Cola Refreshments, Coke's company-owned bottling business in North America, to retailers.
Another independent Coke bottler, Coke Consolidated, plans to raise prices 3% to 5% in early July, according to the report, which also noted that most other Coke bottlers will likely raise prices by similar amounts.
Next, the reason to start warehousing pasta:
Unrelenting rainfall may have slashed U.S. planting of durum wheat to the lowest level in more than 50 years, fueling a surge in the price of pasta and noodles as mills scramble for supply of the grain.
Farmers who normally are finished planting by now had completed just 44 percent as of June 19 in North Dakota, which produces more than two-thirds of U.S. durum, government data show. It’s too late to sow more without delaying the harvest to the winter-frost period, said Frayne Olson, an agricultural economist at North Dakota State University in Fargo.
Planting may drop 47 percent this year to 1.365 million acres, the lowest since 1959, Olson said. In the past month, parts of North Dakota and Montana, the second-biggest grower, had triple the normal rainfall, National Weather Service data show. North Dakota durum prices are up 52 percent in the past month, and U.S. pasta in May was the most-expensive on record.
“Basically, the selling has shut off in the U.S., because if you’re a holder of durum, there’s no point in selling it,” said Jim Kulp, a general manager at Philadelphia Macaroni, which makes pasta including the Alphabet Soup noodles for Campbell Soup Co. “If you’re holding durum wheat, it’s like gold. So why would you sell it?”
Durum futures:
Grain elevators in North Dakota are paying farmers about $14.40 a bushel for durum on average, up from $9.50 a month ago, North Dakota State’s Olson said. The price may top the record of $23 reached in February 2008 if additional weather problems hurt crops this growing season, he said.
The price of durum is rising faster than wheat futures on the Chicago Board of Trade, which primarily track the soft-red winter variety grown in the Midwest. Wheat futures are up 41 percent in the past year to $6.6925 a bushel yesterday.
“Higher durum prices are going to work their way through the system to higher pasta prices,” Olson said. “The cost of durum in the total cost of manufacturing pasta is fairly significant. There’s a limited amount the pasta manufacturer can do to absorb that cost differential. This will eventually have to be passed on to consumers.”
And the third iteration of inflation comes in the form of product substitution, in this case one which will actually hike the very metric used to measure inflation. Greed and Fear's Chris Wood explains:
One technical problem for the Fed is that core CPI inflation is rising because the so-called “shelter” component, which measures rents, is rising. Thus, core CPI inflation rose from 0.6%YoY in October 2010 to 1.5%YoY in May. While the shelter CPI, which accounts for 41% of the core CPI basket, rose by 1.1%YoY in May, up sharply from a 0.7%YoY decline in August 2010 (see Figure 1). GREED & fear is not surprised to see shelter rising. For the one segment of the American housing market GREED & fear is long-term bullish on is rental housing. This is because Americans will now want to rent not buy, as they are fast learning to appreciate the flexibility that comes with not being trapped in negative equity. Remember that 22.7% of American mortgage holders are now in negative equity, with another 5% of borrowers having less than 5% equity, according to real-estate research firm CoreLogic. It is also the case that there are good deals for tenants in rentals because of the continuing excess supply of housing.
Ironically as the Obama administration has realized this urgency to move from home purchases to rents, his latest action will be one of further stimulus, this time one which will however blow the Core CPI inflation out of the water due to the heavy weighing of rents in the Core CPI basket. From Reuters:
The Obama administration is exploring ways to support rental housing as the troubled U.S. real estate sector has kept potential buyers on the sidelines, a top U.S. Treasury official said on Friday.
"We support a housing finance market that provides liquidity and capital to support affordable rental options and help alleviate the burdens that many low-income households face," Treasury Under Secretary Jeffrey Goldstein told a housing conference.
"We are also exploring how private channels can finance affordable multi-family housing, perhaps with limited, targeted governmental support," he said.
Goldstein said the administration's range of options to expand support for lending for multifamily rental properties include reforms such as risk-sharing with private institutions.
It would be very paradoxical if the Fed will soon be willing and able to commence QE3 due to "deflationary" concerns, better known as plunging stocks, only to see artificially stimulated Core CPI prohibit this overture courtesy of increasing Obama efforts to pander to voters as the presidential race picks up in earnest.
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This is not inflationary. People will stop eating pasta and start eating dandelions. They will stop drinking coke and start drinking rainwater. Living under a tarp will replace rent all together. Yup, bullish.
Yeah really, who NEEDS Coke anyway? Its poison....
So is the rainwater. Let it sit for a few weeks to let the Iodine-131 decay.
How many will die because they forgot chlorine for the rain barrel?
If you can stand the horrific pain, it makes a good topical antibiotic, as well.
Bleach is cheaper.
I'm thinking Coke will lose market share as some consumers decide to go with cheaper brands. Soda choice is somewhat elastic.
Coke and Soda eh?
+1 yen ( I was thinking RUM and White sand.)
Gold Seeker Weekly Wrap-Up: Gold and Silver Fall Over 2% on the Week
this is priced @ 4PM eastern. silver is @ 34.30 right now: the nasdaq, the USD, and the mining ETFs were up on the week.
goose pile! COT Gold, Silver and US Dollar Index Report - June 24, 2011
in the silver pits, the options open interest increased abt 2X what the futures open interest increased.
Good call Slewie. Don't know how deep your pockets are, but that trend line just above (XAG) 32.45 looks attractive! Best to your family! YEN
and the landlord never lowers your rent, until of course you move out, and he can't find anyone to pay his rates. one suspects that the hidden cost of rental property, maintenance, taxes, etc is going up. anecdotally i see a number of homes with for rent signs, which is to say the signs have been up for a while.
Well not sure about the CPI, but I can tell you about the Amsterdam vice index. Every year a friend comes to town and we make the track into the Porno Disneyland known as the red light district.
From 2007
The price of weed has gone up 20%
A suck and fjuk has dropped 15%
Coke and ex, no thanks, but ex seems to have disappeared with dropping club attendance
surely they'll want the 'new' cpi to have a much smaller rent component, otherwise someone might get the odd idea that things we need are actually increasing in cost.
You can't have your ponzi and eat it too.
How much does it cost to make a bottle of Coke? The bottle is probably the most valuable part of the beverage.
The transporation adds quite a bit of cost, too.
All these inflation analogies kill me. granted alot of you probably live in NY and a lot probably shop at Whole Foods - but that's your problem. In the rest of the country its a buyers bonanza. Sure we have periodic spikes in consumer goods due to a rigged market (Fed/PDs) but come on! I can buy a really nice suit for $200. A major retailer just had a buy one for 50% off get the next one free - are you kidding me. I go to Ross and Walmart and nice T's are $2! I buy shorts for $10-20. I just bought some real nice GUESS leather dress shoes reg $129 for $29! I shop at Safeway and everything is 2 for 1. I pay about $1 for a dozen eggs $2-3 for milk. I go to the dollar store and get canned goods, tomatoes, frozen vegetables and its about fuc&*ing FREE. If you guys want to live in a big city and whine or shop at Whole Foods and wax poetically about rising prices that's your prob. In the real world if you want to watch your spending the cost of food/clothing is going DOWN, DOWN, DOWN! Coke! I go to Burger King sit there for 30 minutes and re-fill about a gallon for $1.89. rent is trending up but that's only because housing is artificially propped - dump the 2 million unoccupied units on the market and rent would be down to. Go ahead read the headline inflation news but dam I'm a happy buyer. DEFLATIONARY forces (debt contraction, unemployment, rising savings) are HUGE - INFLATIONARY forces are weak (just pumping a monetary base that never shows up in M1/M2/M3). Granted the MB expansion and looting of our currency is setting up a scenario for hyper-inflation but dam that's a long way off - wake me up when real rates are over 2%, unemployment is under 7% and private debt to gdp is half of what it is now. We're talking a LONG, LONG time from now - years or decades. BTW I'm sipping a pretty good wine while I write this - Retail $10.99 dropped to $6.99 - then an extra 30% off this week - and 10% for club member and 10% off buying 6 or more - $3.96!!!! Wow if this is inflation why is what I buy "PLEASE buy more than one" and 70% off. Do you guys know how idiotic your inflation argument is when every other ad is buy one get another for less? How many inflationary environments in history had a surplus of goods? NONE.
there is some truth in what you wrote. Wally tried to raise the price of a lb of bacon from $3.50 all the way up to $5 a month ago. I was in shock and didn't buy any. A week went by and another grocer had a sale for the same brand that was $3/lb so I loaded up. As time went by the refrigerator where wally keeps the bacon kept getting fuller and fuller. Finally they lowered the price to $4/lb. I notice CVS pharmacy is really a neighborhood grocery store. Very convenient but prices are high unless there is a sale. If people are careful to use coupons and buy right their quality of life would improve.
nice rant and some good points. that said, quality food produce (organic) is off the charts unless one buys the low end processed produce. lean ny strips etc ... are very expensive. gasoline and health care are way up. taxes are high, too, especially for home owners. your take on wine is a good one. ditto for nice suits at jos a banks. btw: i'm about to buy another banks suit i don't need. and there are some excellent wines sub $10, at least for my palate. but the overarching point is that to keep one's overhead down ya gotta really cut and sacrifice, which is what folks have done i guess throughout history.
Whole Foods Epicness, bitchez:
Whole Foods Parking Lot - Music Videolieutenantjohnchard
"quality food produce (organic)"
One of the greatest scams ever invented, pay more for wording.
https://secure.wikimedia.org/wikipedia/en/wiki/Organic_food
According to the UK's Food Standards Agency, "Consumers may choose to buy organic fruit, vegetables and meat because they believe them to be more nutritious than other food. However, the balance of current scientific evidence does not support this view."[31] A 12-month systematic review commissioned by the FSA in 2009 and conducted at the London School of Hygiene & Tropical Medicine based on 50 years' worth of collected evidence concluded that "there is no good evidence that consumption of organic food is beneficial to health in relation to nutrient content."[32] Other studies have found no proof that organic food offers greater nutritional values, more consumer safety or any distinguishable difference in taste.[33][34][35][36] A recent review of nutrition claims showed that organic food proponents are unreliable information sources which harm consumers, and that consumers are wasting their money if they buy organic food believing that that it contains better nutrients.[37]
Regarding taste, a 2001 study concluded that organic apples were sweeter by blind taste test. Firmness of the apples was also rated higher than those grown conventionally.[38] Current studies have not found differences in the amounts of natural biotoxins between organic and conventional foods.[39]
Penn and Teller have disproven that organic foods taste better. Penn & Teller: Bullshit - Organic Taste Testhttp://www.youtube.com/watch?v=8Zqe4ZV9LDs
I have no problem with gmo and commercial food production in general.
I buy organic or local or pastured products to support small business, and some organic products have lower pesticide residue.
We have observed organic milk lasts at least twice as long in the refrigerator before going bad...very strange.....
Also if you have never had a real free range chicken (not cage free but truly free range) fed a vegetarian feed and picking up extra protein from bugs and worms, then you dont know the huge difference in taste.
It's my opinion and free, so treat it accordingly, but if you ever ate non-GMO seeded food, and truly organically raised meat, sourced from places with high quality soil and clean groundwater, not only would you notice better health given enough time, but you'd notice a big improvement in the taste of the food, also (I'm talking about in a non or minimally processed preparation).
TruthInSunshine
I doubt any defender of organic products has ever participated in a blind taste test. Check the Penn and Teller link where they proved, with their sample, none of the organic sycophants could actually taste the organic products as being superior.
It's just bias. Like those people who buy a can of shit and consider it art. Meanwhile the "artist" is laughing all the way to the bank.
A 12-month systematic review commissioned by the FSA in 2009 and conducted at the London School of Hygiene & Tropical Medicine based on 50 years' worth of collected evidence concluded that "there is no good evidence that consumption of organic food is beneficial to health in relation to nutrient content."[32] Other studies have found no proof that organic food offers greater nutritional values, more consumer safety or any distinguishable difference in taste.[33][34][35][36] A recent review of nutrition claims showed that organic food proponents are unreliable information sources which harm consumers, and that consumers are wasting their money if they buy organic food believing that that it contains better nutrients.[37]
gully, just went to a talk given by an ex-"organic" farmer of 20 years that made the same argument as you. fact is: there's no minerals left in the soil, they've all been farmed out. and even compost is not replenishing fast enough to stave off further depletion, because the inputs are already nutrient lacking. and the only way you can really determine the nutrients in any food for sure is to get yourself a near-infared spectrometer. labels mean squat, except to mask the real problem.
someone wrote once somewhere of the positive correlation between soil depletion and empires falling. seems like it's happening again.
Dammit, Quit That!!
I clicked on the link and spent the next hour and a half watching Penn and Teller.
Thanks for that report.
If you didn't spend all your time drinking gallons of soda at BK, maybe you wouldn't be so fat that you live in the entire "rest of the country."
bad blunderdog! is that any way to treat our guests? keep this up and you will get a rolled up newspaper across the snout.
I was amused by the provincialism. But you know me, I bark at everybody.
http://www.youtube.com/watch?v=kHmvkRoEowc&feature=related
Then you're in luck, for now.
I'm not in New York, and have no idea what a Whole Foods is- I'm in rural Wisconsin, and around here, we've seen the cost of dairy products and flour double, and soda has gone through the roof.
My fiancee is a manager in the local grocery store, and she's been getting price hikes every week for the last eight or nine months from vendors.
I would venture a guess that you eat pretty low quality processed food- Actually, not a guess as you describe just that above. But what you should understand is that a lot of those sales are to clear the shelves to make way for "hidden inflation." If you put a 13.5 oz can next to a 16 oz. can on the shelf, people will notice- but if you clear the shelf and replace all the cans with the smaller size, most people won't notice.
The underlaying commodities have risen, and it takes a little while to trickle into the general goods in the supermarket. If you haven't seen it yet, you will soon.
Exaggerations and half-truths.
Where in the hell do you consistently buy $1 eggs and $3 milk? Give me a break. Maybe some country store that gets away with selling them after expiration. Or maybe you lucked out with some coupons or a sale lately. Or maybe they were damaged. Or maybe some store loses money to get you in the door. No matter, I guarantee it's the lowest quality you can possible find.
Next you're going to claim cheese is cheap because all you buy is government cheese sauce. Substituting imitation for real whenever possible. I guess we can do that now that we have a magnificent health-care system. /sarcasm
Even if you're dumb enough to believe fire sales will balance inflation, what happens when the retail industry can no longer support those deep discounts? Never mind, I guess we subsidize them like we do every other industry. Dumb me.
I thought I was getting a real bargain on individually-wrapped cheese slices a few years back--only $0.99 for 24.
Boy you can imagine my surprise when I got home and discovered that whatever "sandwich slices" are, they SURELY aren't cheese.
They are cheesy, though.
genuine erzatz cheese-food product; it's on the lable, even, isn't it? "cheese-food" or some such
I lost my appetite for them when I found some that didn't require refrigeration. Makes you wonder what's really in them, it sure as hell isn't 'cheese'.
Well, if you actually enjoy the $3.96 bottle of wine, more power to you.
Unfortunately (well, maybe not) I have gotten used to the "good stuff". Actually you'd be surprised how big the markdowns are on even the very best wines.
I just opened a Valdicava 2004 Brunello, list price $119 (it is still breathing, haven't tasted it yet). Bought via internet (no tax, shhh!) in a flat case sale for $75/btl with free shipping. Similar deals available all over the place for top-notch Italian wines. Apparently da boyzz at Goldman and Morgan Stanley don't fancy fine Italian wine or the prices would be twice as high.
Not many of the non-elite could afford to pay $75./bottle for the "good stuff". Are you married?
You shouldn't be surprised to learn that the wine industry is a ginormous racket.
Yes, there are differences between the truly crappy and good wines, but the distinction between what are held out to be crappy and good wines is nothing more than an incredible marketing con job by Wine, Inc.
Megapurple, bitchez.
The Great Wine Cover-upDisagree that the differences aren't fairly pronounced. But agree that the price difference is pure marketing. Wine is one of those few products for which people will pay exhorbitant prices simply to say they can.
But a really good wine can be had for $20 if you know your stuff. Spectacular wines almost never get under the radar, and for me I can't justify buying 'em.
As to the haughty chap above, I'm perplexed with his fascination of Italian wines. About the last place I'd expect someone to i.d. a really good brew. I'd take Chile, Argentina, some Cal, and France over Italy any day.
Chilean wine is some of the most underrated and consequently best value wines in the world.
The soil, elevation, atmosphere...or something like that.
Chilean beef is pretty excellent, too.
BamMan if you're sipping $100 bottles of wine you don't have to worry about the price of cheese. More power to your bad self. As for deals on "canned goods and frozen vegetables" if anyone can eat that stuff along with Sodas -- you won't be posting on here for long you'll be posting on "living with diabetes" chat board. My neck of the woods the dollar stores all sell same type of "made for dollar store" proprietary mini-bag dreck. Only idea I can come up with is victory gardens if they're not illegal yet.
Plus- How can the price of food be going up when the price of silver is going down that confuses me.
Oh yes. Coca-Cola and all the other sodas (and the `sugar-free` varieties) will crank up your diabetes risk, as well as eating crappy processed food and weight gain.
One white potato of average size (Idaho be damned) produces a faster and higher glucose reaction, requiring the body to produce a higher and faster dose of insulin to regulate blood sugar, than downing an entire can of Coke or any soda.
Probably, but as I avoid potatoes and Coca-Cola I don`t have too much to worry about (pineapples and grapefuit are also off the list). Just because a food is `natural` doesn`t mean it`s totally safe to eat for diabetics. Avoid strachy rice and go for the basmati variety too. Even if I wasn`t diabetic I still wouldn`t drink shit like Coke / Pepsi/ 7-Up etc...
This is technically accurate but not worth making a big deal of. The glycemic index of "typical" American soda is only slightly lower than that of a potato (65 vs. 76) and the potato contains more calories than a can of Coke.
The potato, though, actually contains useful nutrition, whereas the soda contains only empty calories.
Further, on the off-chance you come across a sugar-sweetened soda, the relationship would reverse. The only advantage the soda has in terms of GI is the use of high-fructose corn syrup as a sweetener.
When choosing food I go for the `three stage` approach: can I see, in three stages or less from being grown or slaughtered, how the food ends up on my plate? For example, pasta is harvested wheat, processed to flour, then added with water (maybe egg too), to become pasta which then boiled and served (it could be argued that that is four stages, but you get the idea). Of course, I couldn`t say the same about a doner kebab. Needless to say, there are some meals that are within the `three stages` and I still wouldn`t eat it (e.g McDonalds burger).
I go to the dollar store and get canned goods, tomatoes, frozen vegetables and its about fuc&*ing FREE.
Yeah, but the supply choices suck,Dollar General are as high as Kroger/Tom Thumb,WalMart is higher on MOST foodstuffs than either K or TT.
You have to hit several places to get decent foods at decent prices.
Most of the Buy one get one Free's are one marked up, and you pay for both.
Or your hitting LOST leaders.
And we are talking mostly FOOD here.Sounds like we shop basic same area's.........I guress it depends on what state you live in what you pay.
I live in a city that is in the top 3 counties in Texas, and I can hit the local "NEW"Super WalMart almost anytime for the day during the week, and it's almost empty.
2-3 cashiers almost drag you to their register to get to DO something.
You are totally right!
I have the same experience when it comes to consumer goods and I live north of the boarder.
Somewhere, though, someone is taking a fucking enormous ass kicking as there is no doubt lots of dough has been printed.
Still think we do not feel these forces because credit is contracting and the supply chain must absorb a shitload of non transferable costs.
It is the real recover that will get us.
The inflation mongers are hiliarious. The bond market saw through this inflation all the time. Yields never exceeded 4% and now we're back down BELOW 3%. 10y breakeven inflation is freaking 2.2% -- the bond guys are laughing their asses off over all this inflation hocus pocus.
Where is John "Hyperinflation in 2010" Williams? Where is Nicolas "Every man should be short Treasuries" Taleb? What about Peter "Hyperinflationary Depression" Schiff?
LOL
the "short treasuries" people simply do not understand the mentality of modern day bond buyers. They are incapable of reasoning. The "fast money" quacks simply cannot fathom that some people just want their money back, all of it.
Is your moniker pre-modern theist? What is your effective tax rate?
Is your moniker paradoxical post-modern atheist? What is your zodiac sign?
Lay the wood buzz! I'll do my best. You are one slick poster.
The best of the best " I recon".
Buzz you are absolutely right! Most people don't! Most people don't understand yield curves, and ponzi schemes! You are spot on! YEN
Your remark on tnotes is born of ignorance or deliberate obfuscation (you decide and let us know).
The only reason tnote yields aren't significantly higher is because Bernanke has seriously distorted yields, as the Fed has essentially has been the bulk buyer of U.S. debt at artificially low yields, by ensuring the primary dealers that they can flip their purchases to Bernanke, and capture the easy, guaranteed spread (their low, low Bernanke subsidized [taxpayer/saver subsidized] borrowing costs allow them a profit even on shitty ass treasuries thanks to the other major avenues of pillaging the Bernanke has bestowed on the inner circle jerkers).
I'm not in the hyperinflation camp, but real inflation is running 7% easily in the U.S. right now. Let it run close to that level or higher for two years or longer, and that spells disaster. Will it? We're going to find out.
This isn't the late 70s or early 80s, where job losses were temporary (mega factories hadn't yet been moved to Mexico or China), and laid off workers returned to their jobs quickly with real wage increases to offset inflation.
This is Bernanke doing policy that's forcing most of the country and world to take a big bite out of the shit sandwich he's crafted, and we're also going to find out how much more Bernanke is going to be tolerated.
Wow...things have changed at zero hedge.
I used to be the only one pointing out that deflation is our biggest fear and that the deflation monster would come back at the end of qe2.
Ol' Kondrietef calls it... "deflation!"
I don't get this. If the midwest is flooded and they can't grow wheat, which makes it scarce, and demand reamins high, so prices go up...is this inflation? Or is it just what my high school track coach cum econ teacher said would happen, something called, uh, 'the law of supply and demand"??
I always thought inflation was something along the lines of 1) oversupply of fiat money from central bank, or 2) a scarcity of labor, which drives up wages, and in turn drives up prices.
Neither of these can really happen in todays economy. Because beneath the seemingly dry surface of the banks balance sheets, there lies a bottomless pit of worthless derivatives quicksand. Uncle be can print money until Jesus comes back, and he won't be ab;e to cover the losses. And, because of continual asset deflation, we have pernicious unemployment, which drives down wages. The spectre of asset deflation drives investors into commodities, which drives up the price, which beggars (and buggars) us po' folk, thus, in the end, making the deflationary monster all the more ravenous.
I'm tired of hearing, like you Mr. TCT, about inflation. It simply will not happen.
The loss is covered when the risk is transferred
And, yes he can print enough to cover them. It is the side effects he cannot control.
Ol' Kondrietef calls it... "deflation!"
I don't get this. If the midwest is flooded and they can't grow wheat, which makes it scarce, and demand remains high, so prices go up...is this inflation? Or is it just what my high school track coach-cum-econ teacher said would happen, something called, uh, 'the law of supply and demand"??
I always thought inflation was something along the lines of 1) oversupply of fiat money from central bank, or 2) a scarcity of labor, which drives up wages, and in turn drives up prices.
Neither of these can really happen in today's economy. Because beneath the seemingly dry surface of the banks balance sheets, there lies a bottomless pit of worthless derivatives quicksand. Uncle Ben can print money until Jesus comes back, and he won't be ab;e to cover the losses. And, because of continual asset deflation, we have pernicious unemployment, which drives down wages, etc. The spectre of asset deflation drives investors into commodities, which drives up the price, which beggars (and buggars) us po' folk, thus, in the end, making the deflationary monster all the more ravenous.
I'm tired of hearing, like you Mr. TCT, about inflation. It simply will not happen.
Wrong. There are two types of inflation. You're stuck on the type that is driven by "supply and demand" and full employment. That's the so-called "good" inflation, where rising productivity and wages leads to an overflow of discretionary money that chases prices higher. Euphoric and generally short lived until inventory cycles normalize.
You're correct that that type of inflation cannot take hold in this environment.
But that's not what's going to happen. The "bad" inflation occurs when there is a loss of confidence in the fiat currency, leading to a run to convert the fiat into anything else, but primarily commodities and basic needs. This is hyperinflation, and it runs parallel with asset deflation (because dollars chase needs instead of real estate and other durable assets).
Everything that is transpiring is consistent with a hyperinflationary episode transforming into a deflationary depression.
Here's the key - what is the solution to the debt crisis - outright default or print? When you realize that "print" is the only viable answer for those who have the ability to choose here, you will see clearly how the dollar will be devalued and the price of everything will rise rapidly.
The game going on right now is creating the illusion that things are OK. But the Bernank cannot both ensure money shuttles to equities (to keep consumer confidence afloat) and shuttle money to Treasuries (to keep yields low enough to postpone the crushing weight of debt service on the Fed budget).
Whether you choose to see the reality or not, it is going to happen.
I have my eye on you. Closed markets are inconsequential.
The inflation mongers are hiliarious. The bond market saw through this inflation all the time. Yields never exceeded 4% and now we're back down BELOW 3%. 10y breakeven inflation is freaking 2.2% -- the bond guys are laughing their asses off over all this inflation hocus pocus.
Where is John "Hyperinflation in 2010" Williams? Where is Nicolas "Every man should be short Treasuries" Taleb? What about Peter "Hyperinflationary Depression" Schiff?
There's nothing surprising going on here...and the game hasn't played itself out yet. The t yields are mutant at this point. Turn the spigot off, and everything must deflate. No surprise. Problem is, Bernank and the complex will not allow a deflationary collapse. They cannot ward off climbing yields forever because of the weight of the debt.
So this is the last gasp down before the inkjets go into hyperdrive. And then the dollar will tank. Wealth stores will stand, while paper securities and real estate will migrate to their intrinsic values.
Gravity is on the side of those who can wait it out. I can.
Clearly, using Treasury Department logic: we must "refactor" the CPI to reflect changes in consumer behavior. As rents go up, people start living in their cars and on park benches.
Thus we must modify the CPI to underweight "shelter" since living in your car or in an old washing machine box isn't properly reflected in the current CPI.
Even a couple years ago, this might be a joke. Not in today's batshitfucktardcrazygovernment environment.
First they ignore you, then they take cheap shots...
Hey Tyler, shutup!!! There is no inflation!#!!
Told the wife. She added another 20 lbs of pasta to the stock pile. Still $0.69 a pound. No price increase yet.
freeze it overnight before putting it in your stockpile. kills the critter eggs.
I don't know how often Coke bottling business has changed prices in the last 3.5 years, but the price of a 2 Liter Coke bottle has slowly deflated over that time, if you buy on sale in Northern California (CRV not included).
2008: Rarely a sale for 99¢ (most sales for $1.13)
2009: A number of sales for 99¢
2010: Regularly sales for 99¢
2011: Two times sale for 89¢, regularly sales for 99¢
But! Have the ingredients changed? Are you sure that bottle is still actually 2L? There has been plenty of stealth inflation in foods for a couple of years.
No, not that I can determine or sense, and yes!
are hookers included in new CPI?
Probably. There is an oversupply, so the price is down.
Rock on brotha! YEN!
When sombody tells me that my tax dollars are not being spent to abort babies, I might give a Fuck.
Utill then I am hanging out in the party cove doing thought experiments with Al Gore, Muhhamed and zerohedge.
Not for nothn' but the good stuff (Coke~with pure cane sugar~the formula before that hideous Coke Classic) has dropped in price to below $17/case of 24. In bottles.
Glass Bottles.
The nice thing about glass bottles, is you can recycle them as molotovs.
Coke bottles are terrible Molotovs, actually--they often fail to break.
Er...so I've heard...
UK custom = glass in face.
"Nothing but the Real Thing" eh
Where is the 'Big Mac' index? First ever "Mac" to go bankrupt = Serbia (where you can get half a cow, minced, with fresh salad presented in fresh bread 'buns' (the size of a plate) for the awful price (quality stuff) of Euro 1.5 (max).
A Big Mac with no real meat or salad, bread that is not fit for humans: you need 4 to satisfy; is euro 3.5 each!
Ha ha ha - screw fat USA and the fat food: Serbia has better, healthier and cheaper!
It was a democratic vote: we all agreed F U Mac!
Mac is not in any of Serbia except cities (where stupid people go). And not one 'Mac' in Montenegro - where smart people go. We hate 'Coka-cola' and most of such we would never give to our kids - we have seen yours!
We had our problems - and thanks for showing us how NOT TO. We will recover, without your fat (fast) food and drink.
If you need four big macs to fill up you will soon be joining us.
That statement itself tells me you are just a dumb country boy living in a poor primitive country who is still pissed that it took two weeks for nato to make you cowards run away and beg for a ceasefire in kosovo.
Doctors are capable of delivering abortions if the tax code will fund it.
I'm loving it!
What are you on about with this abortion thing, man? You watching teevee or something?
Hey lighten up on the slav. Considering the source of the serbian inbred, he should probably be running for president of the country. Anybody who scores above above 30 on the Terman-Binet is thought a genius there.
http://video.yandex.ru/users/pooshking/view/193/
"I must be hard up to be working for a group with a name like that."
http://www.youtube.com/watch?v=pk5du6e2q5E
"1980's shit... turn it down....Tone it down."
Why did you change the avatar? Damn, that made you GOOD! in the right way!
Just because you get hammered, doesn't mean you need to change your CORE values!
I always respected that in you! YEN CROSS!
We posted this Ellipse of Doom months back, and thought the "Egg" dead when that overthrow occurred, now it is back in play. For a number of reasons, thinking to go long ES next Sunday/Monday.
Keep in mind, the banksters don't want anyone else to profit in this nearly zero sum game. That is why the big moves come at night and on weekends.
As per prior theory, rally into July 4th weekend, and then Kansas Go Bye-Bye (KGB)
http://oahutrading.blogspot.com/2011/06/fibonacci-time-relation-to-fear-factor.html
http://oahutrading.blogspot.com/2011/06/zoom-on-egg-of-doom.html
One thing comes to mind.
They always say, "inflation is always and everywhere a monetary phenomenon".
Is it?
The world has always had the capacity to increase production, so lasting inflation has "always" been a monetary phenomenon.
What if the world can't increase production to meet the demand of all the mouths to feed?
Will inflation still, necessarily be a "monetary phenomenon"?
No matter what happens to the money supply, if the land can't produce, the cost/ value of food or energy for that matter, will continue to rise.
Won't it??
gh
Is rising prices inflation, or is it just, uhhhhhhhhhh... things getting expensive?
Seems to me, with everyone buying expensive needed commodieties, like food and oil, there isn't any money left over for ETF's and Florida condos. These things then LOSE value, and the entire money supply, as an index of what has worth, CONTRACTS!
...I think, but you guys all seem so bright, I almost begin to doubt my common sense.
Or am I just f-ing stupid? 'Cause the law of supply and demand is not the same as inflatio, except in the catacombs of ZH.
Trust your common sense
A lack of money does not reduce value.
Watch the Oliver Stone documentary "South of the Border"
As South America units!
Well they're still waffling on Biflation like a deer caught in the headlights. But the SPR release was a clear sign that they're beginning to make their move. They are starting to see inflation. But they won't admit that. There's only one problem: they also see house price declines accelerating (hence the new new mortgage rescue program), real wage declines, threats and actions to cut social security, medicare and state pensions, and a bump in new unemployment claims. And what makes it more scary: Q1 GDP was only 1.9% before things began to sour. Again.
What is a girl to do?
The Fed is really in a jam now. More stimulus (QE etc) and they might just blow the lid off inflation. But with the economy sagging from stall-speed levels they can't tighten. T-Bill rates are already negative.
That's why you hear a Fed governor today saying that perhaps the Fed should drop the second mandate: employment. In other words, they're admitting that unemployment isn't "Transitory" but rather "Structural". That's a helluv an admission they didn't ever officially make! America downsized!
They'll be resorting to increasingly political solutions like drawing down the SPR. And price controls will be rolling out soon. But political solutions will be gradually losing their teeth as more and more nations that used to cooperate with the Fed go rogue.
We got troubles.
It's called a "coffin corner",(referring to getting stuck in the corner of an engineering envelope graph) from the early lear jets. At transonic speeds above 50k feet, the lear's wings would begin a mach buffet, and start to stall. This pushed the nose down. If the pilot began pulling the nose up, the stall would propigate all along the wing, and the airplane would tumble uncontrollably. If he pushed the nose down, the extra speed would also cause a stall. Damned if he does and damned if he doesn't.
The only way out of this was to "back out". The wise pilot would s l o w l y reduce power, and let the sirplane drift down to a lower (thicker air) altitude, while maintaining pitch position and speed.
Analogy: Steady write off of derivatives debt, phased, with federal programs of direct food assistance for those who would be made hungry, (prevents riots) (not anyone in a bank), until the debt was brought to a safe level. The cranage among banks and wall st would be more cathartic than systemically dangerous, and then we could start over.
Wil they do it? F**k no. They are throttles to the firewall and aiming straight for outer space. The tumble has alrewady begun, and just because we are in free fall does NOT mean we have grown wings and learned to fly.
Nice work! YEN
All you smart z-hedgers always blacken my "EYES" from lack of sleep!
Can't we just call it a Mc Donies Kangaroo Burger, (Then make even of it?)
Shukkens. {sp; intended] TYLER kicks ASS!!!!!!!!!!!!!!!!!
lets be clear, you look for rationale in the bernanke. the rationale is to say something to justify doing what they want, and what they want is to always help the banks. the other stuff is talk for the masses. the numbers are made up and the metod usedto generate the numbers is designed to give the numbers the bankers want. It's rather simple.
Well it's official. xau and xag are 1:1 on OTC. CME is what 4:1 right now.
The United States of ass clowns has officially. Cluster FUCKED it's self. China on steriods comes to mind!?
I don't say the f-word very often.
Interesting
Obama is MONITORING the situation...
Otool is nothing to me. I care about my Mother! The worthless liberals are trying to call in markers! BURN NOTICE STYLE!
...i.e. yanking his pud
He`s got one?
The street sings will be written in Japanese.
http://www.youtube.com/watch?v=5s3yCN9UnTA&feature=related
Hit that California dreaming ( Mamas Papas) Youtube thread.! I'll listen after my workout Rusty! PROMISE!
3:10 Sdyney time. 1941 was a Great Flick! I love both Belushi's. I haven't even opened side2 of the thread!
I'm taking a shower, going for a run, then doing some HOME WORK!
Guess it's time to start drinking Pepsi, eating rice and buy a house!
The Bernank has got you covered already.
1) Puddle water.
2) Flour paste.
3) Shipping container.
Actually, have you seen these shipping container homes... not to shabby, but I'd never own one...
http://green.yahoo.com/blog/daily_green_news/8/twelve-amazing-shipping-container-houses.html
My friends? You forgot the last ingredient. { RADIATION }
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Hellodoctornamecontinueyesterdaytomorrow hellodoctornamecontinueyesterdaytomorrow hellodoctornamecontinueyesterdaytomorrow hellodoctornamecontinueyesterdaytomorrow hellodoctornamecontinueyesterdaytomorrow
Predators say:
Falling stocks are deflationary.
Rising stocks are not inflationary.
Throw everyone in the federal reserve into jail.
I (look forward] Like a HONEY BEE!) LOOKS for a BLOSSUM!
Pasta????????????????????
Lagging italian pig?
=cheap bankster+MSM spin
Water is still fairly cheap, even if you buy the bottled kind. Better for you too. Coke is good for cleaning the corrosion off your cars battery terminals.
I'm hoping Texas continues to challenge the power of the Feds, as all the states who spent themselves into a massive debt hole try to spread the stink. 49 stars and counting.
I do too, Texas is our biggest welfare state. They suck way more money out of the treasury that they have ever put in. Time to give it back to Mexico
To get rid of the fascist EPA, DOE etc.., it would be worth it.
Texas conquers Mexico and the two nations combine to be the most powerful petro state on the face of the Earth.
I am totally good with that.
Then we can kick all the corrupt Yankee groupthink fucks out.
Ya just sold your trailer. Nice job I'm invested! I'm Bakken!
Anyone saying "inflation" instead of "rising prices" needs to take Econ 101.
"Inflation" has to do with the money supply. If the money supply is growing relative to GDP, that's inflation. If the money supply is shrinking relative to GDP, that's deflation.
Inflation is a statistical fact. The money supply is growing relative to GDP. When Bernokio creates money out of thin air and buys a billion in treasuries, the money supply has increased a billion dollars.
Inflation dilutes the value of the dollar. It's called "dollar debasement" or "currency debasement". Bernokio is debasing the currency with all his money printing.
Inflation is one factor in rising prices. Another factor is supply and demand.
The dollar is losing value yet real estate prices are not rising. They're falling. This is because demand for real estate is collapsing 30% per year while inflation is 10% per year, yielding a net 20% drop in real estate prices (more or less).
Contrast that with food prices where demand is more or less steady. Inflation is 10% per year, food prices rise 10% per year.
Treasury yields are below inflation because Bernokio is buying treasuries, keeping demand high, prices high, and yields low.
People buying treasuries in this climate are taking a loss over time as 1% - 3% yields are far below 10% inflation (dollar losing 10% value per year).
If Bernokio stopped buying treasuries, demand would fall off, prices would drop, and yields would rise.
If QE (money printing) stops, the money supply will remain where it is (not shrink), therefore cessation of QE is neither inflationary nor deflationary. Prices will generally stabilize in response.
However, areas where QE money printing has been directed to keep demand high, like stocks and treasuries, will see falling prices as that artificial demand is removed.
We won't have deflation in stocks. We'll have falling prices in stocks. Let's use the correct terminology.
Note: Inflation is stated at 10% merely for illustration purposes. It's actually higher than 10% these days.
Anyone saying "money" instead of "debt" needs to forget the Keynesian ridiculousness they teach in Econ 101.
We are the Central Planners my friend
we'll keep on papering to the end
Thanks for pointing out another misunderstood concept.
FRNs are not debt per-se. Printing more FRNs doesn't create a debt.
If FRNs are loaned out, a debt is created.
If FRNs are used to purchase securities, no debt is created.
And calling FRNs "money" is practical. They're used all over the world as money, a medium of exchange.
Would that be Econ 101 with or without the book written by Bernanke?
http://www.amazon.com/Principles-Macroeconomics-Robert-H-Frank/dp/007255410X
There's better ways to learn about economics than sitting in the average college classroom.
It doesn't matter what book Bernanke may have written nor what he said in it.
That was then. This is now. What he's doing now is debasing the currency with all his QE crap, causing prices to rise in response.
And yes a college classroom is a good way to learn fundamentals of economics ...which many here on ZH apparently don't have.
No, that's the very heart of the problem. The solution [QEn] would generally be the same if you substituted any mainstream economist for Bernanke.
orthless stoch Ok It's saturday lets discuss trend lines and RISK. Can anyone on this thread give a RISK/Reward Theory? After we work Stochastics/and Rsi
I personally like a short term cross over. 20/50 ON A H4 CHART.
Parabolics are good on short term charts.
I would be very surprised to see that owners equivalent rents are contributing to rising CPI. When they (BLS) measure prices for the CPI they do not measure rents at all. The category called owners equivalent rents in fact is just a question they ask of home OWNERS in a telephone survey. They ask the owner what do you think it would cost you to rent your current residence if you had to pay a landlord rent for it rather than owning it yourself, and that of course is not verbatim but is the meat of how BLS determines the shelter portion of CPI.
In the current market if you randomly dial phone numbers and ask the person on the other end if they own a house and should they say yes you ask them this question, I would think they would perceive house prices falling as a lowering of rents. Lower prices (P&I) should logically mean lower rents can be charged. But, no matter the answers it is still a survey. Any well designed survey will give the surveyors the ability to get the results they were looking for before any calls were made.
The point is that "rents" are not included in the CPI at all, homeowner perceptions of what rents might be are. If like me you rent and moved in 2010 then again in 2011 you see what is really happening to rents. They are up in this region, partly due to demand from former householders that owned and now do not, and according to landlords I have spoken with partly due to cost push. Everything related to the business of letting housing has risen they say and so then must rents also rise. But, so much of the housing stock was owned by people as a long-term investment with a negative cash flow (for those that do not understand that, rental housing has always been considered a long-term investment with negative cash flow because the owners got their profits from tax considerations and capital appreciation NOT from rent collection) now that capital appreciation is not happening in residential RE, and you have to have other robust income in order to gain from those RE related tax breaks, it is more and more up to rents to fund the cost of ownership not to mention the returns, on residential rentals.
Example, when I gave notice at my rental in early 2008 because I was buying a house my landlord offered to make me a special price on the unit I was in, which was very nice, but he asked $289,000 which with almost 7% interest would have been a monthly payment of $2,300 (roughly) for a house I rented at $850 per month. He was a bit desprit because most of his money had been in laddered CD's and money market funds which supplemented his social security income. I turned the deal down and just saw one of his units on the market for $160,000 last week. When I was looking to move a couple months ago I looked in that condo subdivision and identical units are renting now for $1,100, there was one for 950 but it was HUD which has invaded that neighborhood and is busy destroying it.
Core CPI 2.0 will be linked to Obamas popularity figures. Queue deflationary depression.
I have been on the fence about which way it could go, so many here adamantly insist it is going to be hyperinflation, and that could be made to happen, but first they would have to get some of that enormous liquidity into the hands of you and me in the general public. I don't care how much they print or electronically make up and hand over to Goldman and others in the financial sector, till it hits main street in a big way we don't get hyperinflation.
Deflating real estate and low LOW interest rates (negative real i rates) on savings, coupled with falling real wages, high unemployment, and the hollowing out of the economy mean we already do see a lot of deflation in the economy, aside from some hot spots in some prices, like food, fuel, and at least here rents. But, I think most of the CPI rise we have seen since the collapse in 2008 has been commodity speculation driven by the bailouts to bankers. What else can they do with all that free money to leverage it or make returns? Equities? Yeah, they manipulate the equity markets and in the process churn them sideways, but that is just an operating profit that is relatively risky, for real fat profit they need bigger fish to fry, like ForEx and commodities. You know how much they have made by sending the euro up and down between 1.39 and 1.45 over and over in the last year? Probably more than the GDP of half the nations in the eurozone.
Timing is always tricky, I am not immune, I think (TPTB) they will do anything to prevent their equity in the assets they have liens on or have already stolen from the people from being hyperinflated away, they can and will crash the commodities and equities, even debt if need be, to prevent it. So, we stuble along around this economic region for now, if it ever does change it will be a deflationary depression. And last I would like to add, even a real hyperinflation burns itself out in months until there is nothing left. Like some stars which burn hydrogen in their core fusing it into helium, eventually the hydrogen runs out and the star fuses heavier and heavier elements until it gets to carbon and the game is up, nova. All hyperinflations end in deflation eventually, or at least lower revaluations in a new currency.