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“Everything you can think of is going up”

 

You may have already noticed it, but yes, many things you need or love have gotten more expensive, a lot more expensive.

Consumer prices surged 4.2% in April from the depressed levels of a year earlier when the global economy was hit hard by the coronavirus pandemic, according to the Labor Department on Wednesday.

That was the largest 12-month increase since a 4.9% one in September 2008 in the depths of the global financial crisis, the Labor Department added.

Prices rose 0.8% on a monthly basis.

The accelerating inflation comes as companies have been forced to pay more to secure critical materials such as lumber and steel amid continued disruptions to the global supply chain. And the government also pumped trillions of dollars into the economy in a bid to blunt the impact from the coronavirus, contributing to inflation.

Price increases affected a range of goods from big-ticket items such as used cars to kitchen staples such as bacon. Airfares and hotel prices also jumped as rapid vaccine rollouts are encouraging Americans to travel again.

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The Consumer Price Index Is Not Economic Reality

 

“While figures will not lie, liars will figure.”

(Bloomberg Opinion) — At 8:30 a.m. Eastern Time on Tuesday, the Bureau of Labor Statistics delivered its latest measure of inflation – the Consumer Price Index – with an aura of objectivity akin to the National Weather Service reporting the latest temperatures: U.S. Consumer Prices Increased in March by Most Since 2012 Inflation Accelerated in March Inflation Rate Rises as the Economy Reawakens

Lost in translation from bureaucratic spreadsheet to national talking point is an ugly truth: The CPI is no neutral measurement of economic reality. It has always existed as a creature of politics and power, revised and updated in ways that betray its image. How that came to pass is a cautionary tale told by historians like Thomas A. Stapleford.

In the 1890s, the federal government began collecting data on the cost of living and price levels in order to settle clashes in Washington over one of the era’s most contentious issues: tariffs. Democrats wanted to roll back levies that had succeeded in replenishing national coffers after the Civil War, while Republicans, many of whom represented domestic manufacturers fond of protectionism, succeeded in raising them.

Read more at: https://www.bloombergquint.com/gadfly/consumer-price-index-cpi-history-is-surprisingly-political
Copyright © BloombergQuint

 

Did you know that the price of corn has risen 142 percent in the last 12 months?  Of course corn is used in hundreds of different products we buy at the grocery store, and so everyone is going to feel the pain of this price increase.  But it isn’t just the price of corn that is going crazy.  We are seeing food prices shoot up dramatically all across the industry, and experts are warning that this is just the very beginning.  So if you think that food prices are bad now, just wait, because they are going to get a whole lot worse.

Typically, Americans spend approximately 10 percent of their disposable personal incomes on food.  The following comes directly from the USDA website

In 2019, Americans spent an average of 9.5 percent of their disposable personal incomes on food—divided between food at home (4.9 percent) and food away from home (4.6 percent). Between 1960 and 1998, the average share of disposable personal income spent on total food by Americans, on average, fell from 17.0 to 10.1 percent, driven by a declining share of income spent on food at home.

Needless to say, the poorest Americans spend more of their incomes on food than the richest Americans.

According to the USDA, the poorest households spent an average of 36 percent of their disposable personal incomes on food in 2019…

As their incomes rise, households spend more money on food, but it represents a smaller overall budget share. In 2019, households in the lowest income quintile spent an average of $4,400 on food (representing 36.0 percent of income), while households in the highest income quintile spent an average of $13,987 on food (representing 8.0 percent of income).

Needless to say, the final numbers for 2020 will be quite a bit higher, and many

believe that eventually the percentage of disposable personal income that the average U.S. household spends on food will reach 40 percent.

That would mean that many poor households would end up spending well over 50 percent of their personal disposable incomes just on food.

At one time that would have been unimaginable, but now everything is changing.  As I noted above, the price of corn his increased 142 percent since this time last year…

Corn prices have jumped roughly 142% over the past year to $7.56 per bushel, the highest price seen in eight years for the crop.

A drought in Brazil and increased demand in China have put pressure on global suppliers.

In other areas we are seeing more moderate inflation, but overall we just witnessed the largest increase in food inflation “in almost nine years”

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“If you run out of chips, you are out of the game.”

 

Over the years I have published numerous articles with “investing laws” from some of the great investors in history. These laws, or rules, are born of experience, tested by markets, and survived time.

Here are some of our previous posts:

Throughout history, individuals have been drawn into the more speculative stages of the financial market under the assumption that “this time is different.” Of course, as we now know with the benefit of hindsight, 1929, 1972, 1999, and 2007 were not different. They were just the peak of speculative investing frenzies.

Most importantly, what separates these individuals from all others was their ability to learn from those mistakes, adapt, and capitalize on that knowledge in the future.

Experience is an expensive commodity to acquire, which is why it is always cheaper to learn from the mistakes of others.

Importantly, you will notice that many of the same lessons are not new. This is because there are only a few basic “truths” of investing that all of the great investors have learned over time.

The next major down market cycle is coming, it is just a question of when? These rules can help you navigate those waters more safely, because “you’re different this time.”

 

Doug Kass’ 50-Laws Of Investing

Need an Angel Investor? There’s an App for that……

 

Consider it like Shark Tank on your phone: Every week on Angelhouse, founders make a pitch to a panel of investors as hundreds of people listen in.

STARTUP FUNDRAISING CAN be bloodsport, which also makes it great entertainment. Shark Tank first brought pitch decks to prime time in 2009, spawning an entire genre of investment-as-reality-TV. To name just a few: Meet the Drapers (hosted by venture capitalist Tim Draper), Cleveland Hustles (hosted by basketball legend LeBron James), Entrepreneur Elevator Pitch (exactly what it sounds like), The Profit (weirdly, for investing in failing businesses), Dragon’s Den (like Shark Tank, but British), and Tigers of Money (like Shark Tank, but Japanese).

The latest entree on this theme is not on television but on Clubhouse. Every Wednesday at 3 pm Pacific time, a new handful of founders duke it out before a panel of angel investors in a weekly show called Angelhouse. Hundreds more people listen in. The conversations between founders and investors can be educational, but “the purpose of hearing pitches is not to give advice,” says Geoff Cook, one of the angels. “It’s to decide: Do you want to invest or not?”

From the start, Clubhouse has had a vibrant startup scene, and many of the app’s top users are venture capitalists. It’s not uncommon to stumble into a room full of entrepreneurs practicing their pitches, or investors discussing the latest startup trends. Cook, who founded his first startup as a freshman at Harvard in 1997, has sold several companies and now dabbles in angel investing. After spending some time on Clubhouse earlier this year, he realized it might be a good place to find some new deal flow. He asked a few other angels he knew if they wanted in, and in January, Angelhouse began.

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There is general sense “something wicked this way comes”

 

“When beggars die, there are no comets seen; the heavens themselves blaze forth the death of princes….”

This morning: There is general sense “something wicked this way comes” towards current priced for perfection markets, but trying to define the exact N0-see-um likely to trigger a market correction or meltdown is a notoriously pointless game. However, there are plenty of ways to prepare for whatever comes next….

Lots of news across markets this morning. Football dominates the headlines on the BEEB, so we shall ignore the topic for today – although it’s going to be a developing story. As the teams’ stocks surge on the income boost the theft of football from the insultingly named “legacy fans” will provide, the divide been society and markets is frightening. If anyone has views on football, let me know – I might try to write something for Friday?

More significant is the current vaccine news-flow – and what it means for global reopening, trade and growth. The UK may have done a brilliant job on inoculations, but that won’t particularly help when the rest of the globe is still closed. What I also detect is a growing sense of how much longer markets can stay on this roll….

Predicting the unpredictable

It’s never events you predict or expect that roil markets – it’s the no-see-ums, the unexpected shocks and surprises that snowball and trigger corrections, meltdowns and crashes.

Predicting the exact nature of no-see-ums is like waiting for a meteor thats spent billions of years wandering the solar system to neatly land in your catchers glove – it just ain’t going to happen. Yet, It feels like everyone is watching the heavens for portents of the next/coming crisis… Does the Greensill scandal, or the Archegos conflabulation hint at further scandals rooted in greed set to floor markets?

They are probably wasting their time looking for detail in single stars or constellations. They would be better to pick a big patch of the sky and watch. Meteor showers, which occur as the earth passes through the tails of old comets can pretty much be predicted. It hints that can have an inkling of timing and direction from whatever bas things might be coming towards markets.

Markets are about sentiment – understanding its direction can give a good idea of what may happen. Sure, there are multiple sentiment indices to peruse and ponder, but I prefer asking folk I know about what is bothering them.

Talking to a number of fund managers yesterday, most agreed the market seems due some kind of correction – it is just too perfectly priced for perfection. As prices make lower highs and higher lows, there is a definite feel momentum is slowing. The coronavirus newsflow is anything but perfect – new variants, new nations being added to “no-travel” red-lists, and few real reasons to expect the global travel economy to open as fast as airline stocks are pricing.

Not everyone is panicking. Some think the market is priced for a period of flatline activity, taking a breather before ultra-low interest rates and the sheer volume of money pumping into financial assets triggers a resumption in the stock upside. Global trade is recovering. Supply chains are being re-established.

There are an increasing number of money managers hedging the current market by going back into bonds – extending duration to juice returns and beat inflation at the long-end – taking the view bonds will rally on the back of any equity correction. Others think the trick is to buy bonds ahead of the sell off, expecting central banks will intervene to stabilise markets if stocks slip, and then exit quickly to re-invest in the inevitable stock price recovery. That’s exactly what happened last March.

Other folk are keeping a weather eye on inflationary signals – a good reason to exit any concept of a bond hedge. But what would it mean for stocks? Without the oxygen of ultra-low rates will equities continue to rally? In an inflationary environment driven by growth – stocks are good. But if we see an over-hyped post-pandemic recovery slow into recession plus inflation; Stagflation – a distinct possibility if the recovery gloss wears thin – then where is all that money going to go?

More than a few fund managers believe the correlation between bonds and equities – where bond prices and equity prices rose together as a result of the QE/low rate distortion – is now breaking down. That makes sense as Central Banks look to normalise rates. When we see rates start to rise – it spells massive pain for over-indebted zombie junk, triggering all kinds of consequences for economic growth.

And, Central Banks may not be that concerned about inflation – a few years of modest inflation could inflate away significant amounts of their burgeoning national debt.

So – where to put money instead?

The traditional investment world – listed bonds and stocks – is looking jaded, tired and vulnerable. The consequences of years of distortion as a result of hasty post 2008 regulation, subsequent unnecessary tinkering with market mechanisms, and the pernicious consequences of addicting markets to low rates and flooding liquidity from QE, are becoming clear.

Much of the stock market today looks a lottery – which stocks will be quadruple baggers on the back of mispriced money driving exaggerated hopes? Its driven by FOMO, greed, inequality, and made markets less stable. When market rallies are driven by taxi-drivers and bored marketing executives bigging-up each other on Reddit sites about crypto-currencies and EV makers, we are in serious trouble trying to explain the logic of stock moves.

The answer is to ignore it. Forget about the mistakes others are making.

Fundamentals and logic is out the window. The trick is to ignore the noise. Focus on strategies instead:

  • Prepare for inflation: what assets are less likely to suffer? Assets where their underlying income and returns move in line with inflation – which isn’t just inflation-linked bonds. Most “rents” will move in line with inflation – rents meaning anything from property, leases, contracted payments, and even supply chain financing!
  • Prepare for liquidity crisis: famously there are 27 doors market “entry” in the New York Stock exchange. There is said to be only one marked “exit”. When the rush for the exits starts, don’t get caught in offered-only markets. Stick with liquidity – which in bond terms means US Bonds.
  • Get Real: think about alternative assets that offer returns based on the performance and income garnered by real assets rather than notional financial moves. Asset backed, private debt and equity, and outright ownership.
  • Understand the Zeitgeist and Fashions: some assets will remain deeply unpopular, from smoking to fossil fuels – but critical. Look at where you are sitting, what you are wearing and what you do through today: something will have been dug out the ground, transported around the planet or grown on a farm. We can’t do without them. You can’t make steel without metallurgical coal, you can’t make paints without oil, and won’t get a new fridge without global shipping. There are luxury/stupid anti-environment plays like coin-mining that will get wiped out, but other income streams will survive intact…. Or society wont…
  • In the meantime… lets standby to standby waiting to see where this market goes…