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2021 - Is inflation finally back in the conversation?


Reagan1k

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https://www.marinelink.com/news/record-cargo-ships-wait-unload-los-490661

Spoiler

A record 60 container vessels are at anchor or adrift in the San Pedro Bay, waiting to be unloaded at the Port of Los Angeles/Long Beach seaports and another 20 are due to arrive in coming days, a port executive said on Wednesday.

With the pandemic still raging around the world, U.S. consumers have not fully resumed previous spending on restaurants and travel, yet they continue to splurge on goods ranging from appliances and home exercise equipment to sweatpants and toys.

Volume at the Port of Los Angeles - the busiest U.S. gateway for trade with Asia - is up 30.3% so far this calendar year.

The global supply chain has been reeling due to overwhelming demand for cargo;, temporary COVID-19 closures of ports and factories in Asia; shortages of shipping containers and key products like resin and computer chips; and severe weather. Transportation costs have spiked, exacerbating delays and fueling product shortages.

“Disruptions continue at every node in the supply chain,” said Gene Seroka, executive director at the Port of Los Angeles.

Containers are waiting on Port of Los Angeles docks a peak of six days for truck pickup, Seroka said. Containers on chassis are waiting 8.5 days “on the street” for warehouse space or to be returned empty to the port. There are nearly 8,000 containers ready to be whisked away by train, with the wait clocking in at 11.7 days, Seroka said.

Ports around the United States are opening gates on weekends to give truckers more time to pick up goods - and companies like Walmart Inc are investing millions of dollars to beef up their near-port operations.

August cargo volumes at the Port of Los Angeles nearly matched the year-earlier surge, when businesses raced to restock pandemic-depleted supplies and retailers rushed in holiday goods.

Total volume at the Port of Los Angeles reached 954,377 20-foot equivalent units (TEU) in August, down 0.8% from a year earlier, port authorities said. Loaded imports were down 5.9%, at 485,672 TEU.

The port sent 367,413 TEU of empty containers to factories in China and elsewhere - a 17% rise from last year. That far outstripped loaded exports which fell 22.9% to 101,292 TEU.

 

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Fed Speak:

Spoiler

The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. With inflation having run persistently below this longer-run goal, the Committee will aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longer‑term inflation expectations remain well anchored at 2 percent. The Committee expects to maintain an accommodative stance of monetary policy until these outcomes are achieved. The Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee’s assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time. Last December, the Committee indicated that it would continue to increase its holdings of Treasury securities by at least $80 billion per month and of agency mortgage‑backed securities by at least $40 billion per month until substantial further progress has been made toward its maximum employment and price stability goals. Since then, the economy has made progress toward these goals. If progress continues broadly as expected, the Committee judges that a moderation in the pace of asset purchases may soon be warranted. These asset purchases help foster smooth market functioning and accommodative financial conditions, thereby supporting the flow of credit to households and businesses.

In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals. The Committee’s assessments will take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments.

Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Thomas I. Barkin; Raphael W. Bostic; Michelle W. Bowman; Lael Brainard; Richard H. Clarida; Mary C. Daly; Charles L. Evans; Randal K. Quarles; and Christopher J. Waller.

https://www.reuters.com/business/full-federal-reserve-policy-statement-sept-22-2021-2021-09-22/

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19 minutes ago, washparkhorn said:

World energy crisis emerging. Demand destruction. 

Going to be a shit show. Gas is 3.35 in Michigan yesterday. UK is having shortages. China is having power rationing that is pushing more shockwaves in the supply chain. Major problems with chip manufacturing and it is creating a lagged market impact for all sorts of commercial and industrial electronics. Massive bottlenecks at all ports are further hammering shipping costs. 
 

Food costs continue to climb and now we are seeing retail shortages common.

Im not a doomsday naysayer, but I would strongly recommend purchasing your Christmas gifts now before we see further chaos as all of these issues roll into the holiday retail season. Best case we just see a 5-10% bump in various retail goods, worst case massive shortages and price increases.

 

 

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1 hour ago, Trey3216 said:

Meh, just go with smaller packaging for the same price.  Then it doesn't count  

Scary enough, I’ve been noticing this at the grocery store since last winter.

Latest is now Ecright Sasuge. Easy grilling sausage that goes well with cheese and beer that the kids will eat. Price has increased by about 10%, but package size has also reduced by 1.5 oz.

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the thing about transitory inflation is that there is no defined endpoint.  so who's going to win out?  the narrative that this is temporary and supply shock driven by a pandemic, or the reality that it's more than that and trouble's looming?  historically, the fed's been able to shape reality to their narrative.  can it continue?  

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4 hours ago, gsoda3 said:

the thing about transitory inflation is that there is no defined endpoint.  so who's going to win out?  the narrative that this is temporary and supply shock driven by a pandemic, or the reality that it's more than that and trouble's looming?  historically, the fed's been able to shape reality to their narrative.  can it continue?  

depends on whether it sticks around once the supply issues get worked out. 

the developed world has seen generally low inflation rates for 40 years.  will the new normal's fundamentals have changed enough that that is no longer the case?  guess we'll find out. 

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Just now, Incredulity said:

Even though his voice affects are like nails on a chalk board to me, he is often spot on.

He’s a brilliant mind.   I remember listening to he and Bill Gross quite a bit for years, and always liked Gross earlier on.  But then El-Erian’s ideas and reasoning began to sound and become  more and more spot on economically and philosophically.   Then they had the big break up, and you could tell why.   I like him because he doesn’t feign praise and is not one to be hyperbolic.  When he gives grave analysis, it’s because he truly has convictions about things.   

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On 10/2/2021 at 9:29 PM, Satoshi said:

302-F81-B8-16-F5-43-FB-BA35-795120-DFCE0

 

Must be nice. Wages have been frozen  at our company last 2 cycles (we don’t do raises until April, so Covid started just in time to fuck up 2020). We’re crossing our fingers at this point that it isn’t 3 in a row. I will probably be looking if that happens, even as much as I don’t want to 

Edited by UT_OB1
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2 hours ago, Satoshi said:

Economy slowing underneath the hood.

 

That GDP forecast has fallen off a cliff...

Part inflation, part resource scarcity due to supply chain chaos, part reduced consumer spending due to the other 2....

If the 3Q GDP print ends up being that bad, it may start the big implosion in the market that everyone has been seeing us slowly moving towards.

Bad 3Q GDP prints, plus bad 3Q earnings, plus retail supply chain disruptions looking to mute the big retail cash cow of the holiday season, and the impending fear of potential new tax rregualtions and you will see a lot of people decide it might be the time to cash out now before it gets worse.

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2 hours ago, Laxtonto said:

That GDP forecast has fallen off a cliff...

Part inflation, part resource scarcity due to supply chain chaos, part reduced consumer spending due to the other 2....

If the 3Q GDP print ends up being that bad, it may start the big implosion in the market that everyone has been seeing us slowly moving towards.

Bad 3Q GDP prints, plus bad 3Q earnings, plus retail supply chain disruptions looking to mute the big retail cash cow of the holiday season, and the impending fear of potential new tax rregualtions and you will see a lot of people decide it might be the time to cash out now before it gets worse.

Yep.  We could see a 20+% selloff with that kind of print.  

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Consumer expectations for inflation can cause inflation. If the expectations are in-line with actual conditions, they are "anchored."  If the consumer expectations are inconsistent with data, they are "unanchored."  Unanchored expectations can drive actual inflation. 

Here’s how then-Fed Chair Ben Bernanke explained the importance of anchoring inflation expectations in a 2007 speech:

“[T]the extent to which [inflation expectations] are anchored can change, depending on economic developments and (most important) the current and past conduct of monetary policy.

In this context, I use the term ‘anchored’ to mean relatively insensitive to incoming data.

So, for example, if the public experiences a spell of inflation higher than their long-run expectation, but their long-run expectation of inflation changes little as a result, then inflation expectations are well anchored.

If, on the other hand, the public reacts to a short period of higher-than-expected inflation by marking up their long-run expectation considerably, then expectations are poorly anchored.”

https://www.brookings.edu/blog/up-front/2020/11/30/what-are-inflation-expectations-why-do-they-matter/

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On 10/1/2021 at 9:36 AM, Trey3216 said:

El Erian is one I definitely pay attention to    

Good choice. It's good to hear his words from him, not through an interpreter with his or her own agenda. El Erian says no stagflation expected, unless the Fed makes a policy mistake in the future. I agree.

https://www.bloomberg.com/news/videos/2021-10-08/el-erian-only-a-policy-mistake-would-cause-stagflation

Edited by washparkhorn
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12 minutes ago, washparkhorn said:

Good choice. It's good to hear his words from him, not through an interpreter with his or her own agenda. El Erian says no stagflation expected, unless the Fed makes a policy mistake in the future. I agree.

https://www.bloomberg.com/news/videos/2021-10-08/el-erian-only-a-policy-mistake-would-cause-stagflation

Too me it’s a bit unclear what the policy mistake would be. He says if the Fed delays delays delays then slams the brakes that would be it. 
 

I think he means prolonged delay toward tapering and then halting asset purchases fairly quickly? So, essentially hurting the economy by tapering and tightening too much when it’s too late causing contraction after feeding further inflation? I feel like that’s more than a tail risk given the importance of market prices to the Fed, but he’s smarter than me. 
 

20 minutes ago, washparkhorn said:

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spacer.png

 

Consumer expectations for inflation can cause inflation. If the expectations are in-line with actual conditions, they are "anchored."  If the consumer expectations are inconsistent with data, they are "unanchored."  Unanchored expectations can drive actual inflation. 

Here’s how then-Fed Chair Ben Bernanke explained the importance of anchoring inflation expectations in a 2007 speech:

“[T]the extent to which [inflation expectations] are anchored can change, depending on economic developments and (most important) the current and past conduct of monetary policy.

In this context, I use the term ‘anchored’ to mean relatively insensitive to incoming data.

So, for example, if the public experiences a spell of inflation higher than their long-run expectation, but their long-run expectation of inflation changes little as a result, then inflation expectations are well anchored.

If, on the other hand, the public reacts to a short period of higher-than-expected inflation by marking up their long-run expectation considerably, then expectations are poorly anchored.”

https://www.brookings.edu/blog/up-front/2020/11/30/what-are-inflation-expectations-why-do-they-matter/

The impending shortages of goods and services admitted by Yellen threaten to goose expectations imo. That is the kind of thing that changes mass psychology. Better buy while you can etc. 

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The good news (?) - structurally - on inflation is most of the excess wealth created went to people who have too much money already, so they just save it. 

The wealth inequality in the US and much of the world is actually a structural buffer against demand-side inflation:

https://heisenbergreport.com/2021/10/12/stagflation-echo-chamber/

"Paradoxically, spiraling inequality in the US could help keep inflation in check. “Inflation fears driven by excess consumer savings look less urgent once the distribution of cash is accounted for,” BofA’s Research Investment Committee wrote, in a Tuesday note.

The bank observed that “70% of the $3.8 trillion increase in liquid assets since 2019 went to the top 20% of households.”

That matters, BofA said, because those households typically spend less than 50 cents of every extra dollar, which means “the extra liquidity will likely flow back into financial assets… not adding to demand for real goods and services.

-----------------------------

All of that comes into focus when the Fed begins slowing its $120 BILLION monthly ($1.4 Trillion yearly) injections into the financial markets. 

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13 minutes ago, Satoshi said:

Too me it’s a bit unclear what the policy mistake would be. He says if the Fed delays delays delays then slams the brakes that would be it. 
 

I think he means prolonged delay toward tapering and then halting asset purchases fairly quickly? So, essentially hurting the economy by tapering and tightening too much when it’s too late causing contraction after feeding further inflation? I feel like that’s more than a tail risk given the importance of market prices to the Fed, but he’s smarter than me. 
 

The impending shortages of goods and services admitted by Yellen threaten to goose expectations imo. That is the kind of thing that changes mass psychology. Better buy while you can etc. 

the Atlanta Fed GDP watch deal is getting pretty ugly.   From 6% GDP Q3 down to 1.3 and in free fall.  Could literally see a 0 growth 3rd quarter this year.   Next Thursday should be fun.   

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27 minutes ago, washparkhorn said:

The good news (?) - structurally - on inflation is most of the excess wealth created went to people who have too much money already, so they just save it. 

The wealth inequality in the US and much of the world is actually a structural buffer against demand-side inflation:

https://heisenbergreport.com/2021/10/12/stagflation-echo-chamber/

"Paradoxically, spiraling inequality in the US could help keep inflation in check. “Inflation fears driven by excess consumer savings look less urgent once the distribution of cash is accounted for,” BofA’s Research Investment Committee wrote, in a Tuesday note.

The bank observed that “70% of the $3.8 trillion increase in liquid assets since 2019 went to the top 20% of households.”

That matters, BofA said, because those households typically spend less than 50 cents of every extra dollar, which means “the extra liquidity will likely flow back into financial assets… not adding to demand for real goods and services.

-----------------------------

All of that comes into focus when the Fed begins slowing its $120 BILLION monthly ($1.4 Trillion yearly) injections into the financial markets. 

So what about the middle class and poors?  Or don't we care?

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