Connect with us

Economics

Peter Schiff: Transitory Permanence

Peter Schiff: Transitory Permanence

Via SchiffGold.com,

The inflation that we were emphatically told would be transitory and unmoored continues to persist and entrench. As the troubles gather momentum Washington is doing its best to ignore..

Published

on

Peter Schiff: Transitory Permanence

Via SchiffGold.com,

The inflation that we were emphatically told would be transitory and unmoored continues to persist and entrench. As the troubles gather momentum Washington is doing its best to ignore the problem or actively make it worse.

The latest batch of data shows that the Consumer Price Index rose 5.4% in September, the 5th consecutive month that year over year inflation came in at more than 5%. The figure rises to 6.5% if we project the inflation levels of the first 9 months of 2021 to the entire calendar year. The last time we had to contend with numbers like these, Jimmy Carter was telling us all to put on our sweaters.

Recent developments should be sounding the alarms. Whereas earlier in the year inflation was largely driven by supercharged price increases in narrow sectors, such as used cars and hotel rooms, it’s now occurring in a much wider spectrum of goods and services.

In September, the cost of used autos fell month over month (but are still up 24% year over year), but that didn’t help the overall CPI, which saw increases just about everywhere else. Over the past 12 months: beef prices are up 17.6%, seafood prices up 10.6%, home appliances up 10.5%, furniture and bedding up 11.2%, and new cars up 8.7%.

Even more alarming is that oil is up over $80 per barrel for the first time in almost 10 years and many analysts see $100 in the near future. That has translated to more than a $1 increase in per gallon gasoline prices, a 50% increase in a year. Home heating oil prices are already up 42% year over year and are expected to spike up again when winter demand peaks.  For many low-income residents of the North and Upper Midwest, these types of increases could be very hard to bear, particularly if we have a cold winter.

As I have said many times before, the biggest flaw in the way we measure inflation (and there are many of them) is how the government deals with housing. While the Case Shiller Home Price Index is up more than 20% year over year, and national rents are up more than 12% over the same time frame, the CPI has largely ignored these increases in housing costs. Instead, the government relies on the dubious and amorphous concept of “Owners Equivalent Rent” which asks homeowners to guess how much they would have to pay to rent a house of similar quality to the one they to the one they own. Conveniently, that meaningless figure, which constitutes almost 30% of the total CPI, is only up 3% year over year. If actual rent increases were used instead, the CPI would be almost three full percentage points higher.

In fact, relying on the government to tell us the truth about inflation is a bit like asking high school students to grade their own report cards. There are countless incentives that exist institutionally for the government to underreport inflation. It allows them to make stealth cuts to Social Security, to create higher nominal incomes and capital “gains” to tax, and to minimize the interest rates it pays on over $28 trillion in debt as inflation. But since GDP is adjusted for inflation, it also makes economic growth appear higher than it really is.  The methodology for computing the CPI index was specifically designed to minimize the impact of rising prices. But I don’t believe that this is a conspiracy. Once you understand how institutional bias works, how careers are made by finding new plausible ways to underreport inflation, and how they are ruined by claiming the opposite, you can see how the numbers get farther away from reality with each passing year.

But the disconnect has become so obvious that top officials at the Federal Reserve and the Treasury Department have begun warning the public to prepare for higher prices. In her latest exercise of goal post moving, Treasury Secretary Janet Yellen said, “I believe that price increases are transitory, but that doesn’t mean they’ll go away over the next several months.” We can expect that months will soon turn into years, as the definition of “transitory,” gets ever more elastic.

This week the government announced that the inflation-adjusted cost of living increases for Social Security payments in 2022 will be 5.9%, the highest such increase since 1982. In addition to throwing yet another log on the government deficit fire, the increase is a direct admission that inflation is not going away.

Despite the marginal increase in wages that the Biden Administration likes to talk about, or the cost of living increases for our seniors, the average American makes less money. After adjusting for inflation real hourly earnings in the United States have dropped 1.9% so far this year. This is the stagflation that I have been warning about. Welcome back to the Carter Administration. We can expect Joe Biden to break out our sweaters if home heating bills get too high this winter.

Team Biden has been working overtime to suggest that the price increases and supply shortages are resulting from temporary bottlenecks at port facilities. Imports are particularly sensitive as our trade deficit has widened to record levels in recent months, making Americans ever more reliant on overseas goods. To combat the problem the Administration has ordered that some ports begin to operate 24 hours a day. (Left unsaid was the very fact that American ports – due to the strength of the Longshoreman’s Union – operate at very spare schedules versus foreign counterparts).

But the effect of this order will be far milder than the Administration hopes. Firstly, it is unclear how many port facilities will comply. Some have noted for instance that the Port of Los Angeles agreed to go 24 hours at only one of its six docks. (Currently, the wait time to enter that port is approaching three weeks). And secondly, most industry analysts note that the problem is not the hours of the dock facilities themselves but the shortfalls of the domestic trucking industry to move the goods once they arrive. Not only are we struggling with a lack of drivers, who struggle with government regulations that sharply limit the number of hours they are allowed to drive, but a lack of shipping containers to put back on the ships. Since many ships refuse to leave unloaded, which greatly reduces their profitability, America needs to first solve a host of problems to get the ports in better order.

But what we are seeing in a larger sense are the fruits of 15 years of bad investments in things that we don’t need and very little investment in the things we do. The ultra-low interest rates that have become the bedrock of our bubble economy have channeled investment capital into the wrong places. These low rates have encouraged corporations to borrow recklessly to buy back shares and inflate stock prices. Such moves have enriched shareholders but have done little to expand productive capacity.

Low rates have also led to runaway speculation in untested and unneeded industries. We have seen massive investments in social media, e-commerce, entertainment, cryptocurrencies, financial technology, and most recently Non-Fungible Tokens (NFT’s). As a result, we have really built out our capacity to post videos, buy things online, and pay for them in new ways. But we have invested comparatively little in boring industries like manufacturing, energy, transportation, and agriculture. As a result, we have all sorts of ways to buy stuff, and gimmicks for how to pay for it later, but we lack the capacity to produce and distribute all the goods we want to buy in the first place.

What’s worse is that given the current policies of the Biden Administration, none of that is going to change anytime soon. His expanded social safety net programs, overly generous unemployment benefits, higher taxes and regulation, and unneeded vaccine mandates are discouraging workers from working and employers from hiring. The American workforce is more than five million workers smaller than it was before the pandemic. That is not an accident. If the Democrats get their caucus together long enough to pass even a slimmed-down version of Biden’s Build Back Better plan look for all these problems to get worse.

With fewer workers working, supplies of goods and services have diminished. Government will look to replace the lost production with even more monetary and fiscal stimulus, which just leads to more inflation, financial speculation, and rising asset prices, largely benefiting the wealthy, and falling the hardest on the poor who have no appreciating assets to compensate for the rising cost of living.

But rather than fixing the problem, our current leaders are mostly worried about equity and diversity. The five leading candidates to replace Jerome Powell, if he is not renominated, all are either female or African American. Now I have no problems with hiring women or minorities in key positions. But if all your candidates come exclusively from those groups, then it’s clear that identity is more important than competency at this moment in time. But if there was ever a time that we needed competence, it’s now.

Tyler Durden Fri, 10/22/2021 - 09:10

Read More

Continue Reading

Economics

Coffee price prediction: where to next after hitting a 10-year high?

Coffee price has been on a months-long uptrend; hitting a 10-year high on Thursday. Tight supplies are the key driver of the commodity’s bull run. Unfavorable weather conditions and the ongoing shipping snarl-ups have contributed to the shortage. Based…

Published

on

Coffee price has been on a months-long uptrend; hitting a 10-year high on Thursday. Tight supplies are the key driver of the commodity’s bull run. Unfavorable weather conditions and the ongoing shipping snarl-ups have contributed to the shortage.

Based on the prevailing weather patterns in different coffee-growing regions, the bullish market may linger on in the coming weeks. The effects of the frost and drought that hit Brazil in the past year are still being felt. Besides, Minas Gerais, which is a key coffee-producing area in Northern Brazil, is experiencing heavy summer rains. The subsequent floods have heightened disease concerns. The La Nina phenomenon in Colombia and wet weather in Vietnam has further boosted coffee price.   

Coffee price outlook

Coffee C futures, which are the benchmark for the Arabica variety, have been on a months-long uptrend following a recovery in demand. In the past year, the coronavirus pandemic placed 1.50 at an evasive level. Interestingly, that has turned into a steady support zone since coffee price surged above it in mid-July.

Since then, it has been on an uptrend as shown via the trendline highlighted in red. Since the beginning of the year, the commodity has had its price surge by about 94.12%. On Thursday, it extended its previous gains to trade at the highest level since October 2011. Besides, since mid-September, it has been in the green for nine out of ten weeks.

In the US Intercontinental Exchange (ICE), coffee price ended the week at 2.42; down by 1%. On a daily chart, it is trading above the 25 and 50-day exponential moving averages. Based on both the fundamentals and technicals, I expect the commodity to remain in an uptrend in the coming week.

With an RSI of 73, it entered the overbought territory on Thursday after reaching a 10-year high. While it has since pulled back, it is still at the border of this zone with an RSI of 70. As such, it may start the coming week on a low before rebounding.

From this perspective, the support levels to look out for are 2.33 and the 25-day EMA at 2.20. On the upside, it will likely find some resistance along last week’s high of 2.48. Above that level, the bulls will be eyeing the psychological 2.50 and 2011’s high of 2.60. For as long as coffee price is above the resistance-turn-support zone of 2.00, the bulls will remain in control.

coffee price
coffee price

The post Coffee price prediction: where to next after hitting a 10-year high? appeared first on Invezz.

Read More

Continue Reading

Government

Bureaucrat’s False Promise: Take Two COVID Shots And We Will Reopen

Bureaucrat’s False Promise: Take Two COVID Shots And We Will Reopen

Authored by Mike Shedlock via MishTalk.com,

More lockdowns are underway in Europe. What happened to reopen promises?

Fury Over Lockdowns 

Global markets are reeling…

Published

on

Bureaucrat's False Promise: Take Two COVID Shots And We Will Reopen

Authored by Mike Shedlock via MishTalk.com,

More lockdowns are underway in Europe. What happened to reopen promises?

Fury Over Lockdowns 

Global markets are reeling in the wake of more lockdowns and threats of them.

The Economist (paywall) notes surge of deadly covid cases in Europe is met by popular fury over lockdowns.

The sight of 40,000 unvaccinated Austrians marching through their capital, Vienna, in recent days was troubling twice over. The tightly packed opponents of lockdown measures were at risk of spreading the coronavirus. They also threatened to stir up an already tense political situation. Karl Nehammer, Austria’s interior minister, warned that anti-vaxxers in the Alpine republic are growing more radicalised. He called the demonstration’s mood “incensed” and “aggressive”. Some protesters were extremely provocative, carrying placards likening Alexander Schallenberg, Austria’s new chancellor, to Josef Mengele, the sadistic physician at the Nazi concentration camp in Auschwitz.

The protesters were marching against Austria’s increasingly tough measures against anti-vaxxers. On November 22nd the government imposed a full lockdown once again, to last for at least ten days. That compels Austria’s 9m people to hunker down at home, leaving only for work, essential shopping and exercise. Austria is also the first Western democracy to make covid-19 vaccinations mandatory for all, starting on February 1st 2022. “For a long time—maybe too long—I and others assumed that it must be possible to convince people in Austria to get vaccinated voluntarily,” said Mr Schallenberg when he announced his “very difficult” decision.

Let Our Guard Down

The Washington Post (paywalled) reports ‘We let our guard down’: Frustrated Europe heads into second pandemic winter

Life was finally starting to feel normal. An online flier for an October party in this Belgian beach town cursed the coronavirus and invited people to dance and drink again, to “get your clacker back from the attic” and kick off Carnival season.

Hundreds attended that event and another Carnival party the next night. Most of the town is vaccinated, and people were required to show proof, or a recent negative test, to enter. But it wasn’t enough. Coronavirus cases spiked the week after. Officials worried about pressure on the local hospital. And soon the town found itself under semi-lockdown once more.

As Americans catch up with family and friends this holiday week, with some trepidation about enduring risk, Europe is facing another wave of the virus — and a gloomy and frustrating second pandemic winter.

New Heavily Mutated Covid Variant

CNBC reports Belgium Confirms Case of New, Heavily Mutated Covid Variant.

The emerging variant arrives in Europe amid an already devastating Covid surge linked to the delta strain. Europe saw more than 2.4 million new Covid cases over the week ended Nov. 21, an increase of 11% from the previous seven days, according to the WHO’s most recent epidemiological update.

Europe represented 67% of all Covid cases reported globally during that span, the WHO measured.

Belgium tightened restrictions this week to stop the spread of the virus, requiring people to work from home four days a week through the middle of December. Austria started its fourth lockdown of the pandemic on Monday, with a nationwide vaccine mandate scheduled to take effect on Feb. 1. Chancellor Alexander Schallenberg has said that the lockdown will last for at most 20 days.

New Lockdowns and Restrictions

  • Slovakia declared a two-week lockdown on Wednesday. People can leave home for a limited number of reasons, including buying groceries, going to work and to school, and getting vaccinated. And starting next week, all workers will have to show they’ve been vaccinated, recovered from the coronavirus or had a recent negative test.

  • Austria, imposed a lockdown that will last at least 10 days and up to 20. 

  • The Netherlands ordered bars and restaurants to close at 8 p.m.

  • Belgium has mandated that all but essential employees work from home four days a week. Belgium also reinstituted an indoor mask mandate this month.

  • Merkel pushed for a German lockdown as its death toll passed 100,000.

  • The U.K.  halted flights from six countries in the region, and European Union member states have collectively agree to pause travel to and from southern Africa.

  • Singapore banned flights from southern Africa

  • Japan is increasing border controls for travelers from the region.

  • Italy requires proof of vaccination or recovery for access to many parts of public life. Vaccination restrictions fcome into effect on December 6 and last until January 15.

Mess in Germany 

Eurointelligence comments on Germany's Federal Virus.

The massive outbreak in Covid-19 hospitalizations and fatalities in Germany raises disturbing questions about who is in charge. Having failed to achieve the right levels of vaccine procurement early on during the pandemic, the German authorities have repeated the same mistake. They did not procure the booster shots they needed. They have not set up a network of vaccination centres to deliver them rapidly.

As of this weekend, only 11.4% of the population has received booster shots. It is very difficult to get an appointment. Only doctor's surgeries are allowed to deliver them. The network has not been expanded to pharmacies. 

So why is this happening again? The answer is that the German healthcare system, well-funded as it is, is not set up for a pandemic, or indeed for public health emergencies in general. This is a publicly-funded, but privately run, healthcare system. The states are in charge of the local healthcare administrations and hospitals. Health insurance is a matter for the federal government, but states supervise the health insurance companies. What can possibly go wrong?

Message From German Stats

In Germany, over 45% of people hospitalized for Covid-19 are fully vaccinated.

That last stat sounds more shocking than it really is. Germany is 68% fully vaccinated. Thus 55% of the hospitalizations cases come from 32% of the population.

Only 11% of Germany received a booster. Given vaccinations wear off, the proper take away is get a booster, not flout the stats. 

Vaccine Mandate US

In the US, the Biden administration imposed a vaccine mandate vis OSHA on companies with more than 100 employees.

On November 15, I noted Appeals Court Blocks Biden's Vaccine Mandate in a Blistering Rebuke

The rebuke was a huge attack on the competence of Biden's mandate. My position, upfront was the mandate was unconstitutional. 

Given multiple attacks on the mandate, jurisdiction, the case moved from the 5th Circuit to the 6th Circuit, where Biden doubled down. 

On November 23, I commented Biden Doubles Down on Vaccine Mandate With Another Circuit Court

The justice department files an emergency motion with the 6th circuit court arguing the 5th circuit's postponement of the OSHA vaccine mandate was unjustified

I strongly suspect the 6th Circuit will reaffirm the previous ruling.

Meanwhile, protests or not, mutations go on and on. 

What Covid Lockdowns and Disruptions in Europe Signal to the U.S.

False Promise

"Take two shots and we will reopen society. That turned out to be a false promise."

It's been one false promise after another, by Dr. Fauci, by Trump, by Biden, by Merkel, globally everywhere.

Trust is essentially gone and rising protests are proof.

*  *  *

Like these reports? If so, please Subscribe to MishTalk Email Alerts.

Tyler Durden Sat, 11/27/2021 - 13:45

Read More

Continue Reading

Economics

How Did Friday’s Selling Compare To March 2020 Selling? My Takeaways

News that a new COVID-19 variant has surfaced in South Africa spooked global equity markets on Friday. Was it an overreaction and an opportunity to buy some of your favorite stocks cheaper? Or is the start of a much deeper, panic-driven selloff. Unless…

Published

on

News that a new COVID-19 variant has surfaced in South Africa spooked global equity markets on Friday. Was it an overreaction and an opportunity to buy some of your favorite stocks cheaper? Or is the start of a much deeper, panic-driven selloff. Unless you're a scientist with inside knowledge, I don't think it's possible to know. There are so many questions right now that haven't been adequately answered and may not be answered for several days or weeks. Among those questions would be (1) rate of transmissibility, (2) efficacy of current vaccines against the new variant, (3) the new variant's infection fatality rate (IFR), and so forth. Without this information, it's impossible to try to determine what steps countries around the globe may need to take.

When the delta variant was first studied, it was found to be much more contagious and now the World Health Organization (WHO) estimates that 99% of the world's COVID cases are the delta variant. The worst case obviously would be that this new variant is even more contagious and that vaccines are proven to be ineffective protecting against it. But if global markets continue to panic and selloff as they did on Friday and the new variant poses less risk than first thought, clearly a major global rally could follow.

So what do we do?

Well, rather than search media outlets looking for financial advice, which proved to be absolutely worthless during the height of the 2020 pandemic (remember the Great Depression 2.0 forecasts?), I'd suggest we focus instead on what Wall Street is doing with their money. What sectors and industries are performing poorly on a relative basis (suggesting more exposure to an extended selloff)? Also, which sectors and industries actually performed better during the day on Friday, which would impact their respective AD lines. If you recall, the AD lines were, in my opinion, the best technical indicator throughout 2020 as they helped us identify which areas were being accumulated vs. distributed during the pandemic.

So let's take that approach again as we analyze Friday's action.

It's Deja Vu All Over Again

When I looked at major index and sector performance on Friday, the ranking was nearly identical to the period from February 19, 2020 (market top before panicked selling began) through March 23, 2020 (subsequent low on the S&P 500).

Energy (XLE), financials (XLF), industrials (XLI), and real estate (XLRE) were the bottom 4 sectors during the panicked selloff in 2020 and those 4 were again among the weakest on Friday. Meanwhile, consumer staples (XLP) and health care (XLV) were first and second (though reversed) both during the initial crisis in 2020 and again on Friday.

The order of performance on our major indices were almost identical.

Based on this quick analysis, if we continue to see a COVID-related selloff, I'd most definitely be expecting those bottom groups to continue to lead the selloff. If you have significant exposure in Friday's weakest sectors and industry groups, then I believe your risk is higher as we move into next week.

The Outliers

Not all industry groups conformed with last year's performance ranking. Those that remained relatively strong on Friday (key word here is relative as it wasn't a good day for many groups) and were also relatively strong back in March 2020 included the following industry groups:

  • Gold mining ($DJUSPM): #1 in March 2020 and #2 on Friday, or 1 and 2 (out of 104 industry groups)
  • Mining ($DJUSMG): 3 and 3
  • Mobile telecom ($DJUSWC): 4 and 6
  • Biotechnology ($DJUSBT): 8 and 1
  • Toys ($DJUSTY): 9 and 4

These were the only 5 groups that were in the Top 10 in March 2020 and on Friday.

Then there's the flip side - those industry groups that were weak in both periods:

  • Recreational Services ($DJUSRQ): 103 and 104
  • Oil equipment & services ($DJUSOI): 101 and 96
  • Coal ($DWCCOA): 100 and 98
  • Airlines ($DJUSAR): 99 and 103
  • Aerospace ($DJUSAS): 97 and 97

These were the industries that were in the Bottom 10 in both periods. I'd definitely avoid all of these groups in the very near-term until we get more clarity. It may mean you miss some upside, but steering clear will eliminate the significant risk that exists if this new COVID variant proves to be more problematic than the delta variant.

What About Accumulation/Distribution (AD Lines)?

We saw very weak futures overnight on Thursday and our major indices gapped down significantly. But where did Wall Street see opportunity to accumulate? Well, one way to gauge that is to compare Friday's closing price to its opening price. It makes common sense that a higher close means there were more buyers than sellers throughout the day. The opposite is true if the close was below the open.

I'll be honest. I wasn't expecting the results that we actually saw. For instance, energy (XLE) was clearly the worst performing sector on Friday, but it rallied strongly in the afternoon and its AD line neared a 3-month high:

I have to say that energy behaved quite well during the day on Friday after a rather inauspicious start. The hammer at support, along with that rising AD line provides hope for a group that I said to avoid earlier in this article. We can't ignore that volume because it came on extremely heavy volume. Nearly 45 million shares changed hands, which wasn't the biggest volume day of the year. But we need to keep one thing in mind. The market closed early at 1pm ET on Friday. Had we been open a full day I believe the XLE may have traded its heaviest volume of the year. That, combined with the huge reversal, could signal a major bottom here. We'll have more days ahead that will provide us more clues, but based on my AD analysis, I'd turn bullish the group if I knew we weren't going to wake up to more negative COVID news on Monday morning. But that's the world we live in right now and the uncertainty is almost paralyzing.

There was one industry group on Friday that showed even greater signs of accumulation, gaining roughly 3.5% in the final 90 minutes of trading. The S&P 500 was flat during this same 90-minute period and the NASDAQ actually lost some ground, making this industry group's recovery stand out even more. I'm featuring the group and one of its component stocks to keep an eye on in my FREE EB Digest newsletter on Monday morning. If you're not already a free EB Digest subscriber, you can subscribe HERE by providing us your name and email address. There's no credit card required and you may unsubscribe at any time.

Happy trading!

Tom


Read More

Continue Reading

Trending