The Market Ticker
Commentary on The Capital Markets- Category [Macro Factors]
Logging in or registering will improve your experience here
Main Navigation
Full-Text Search & Archives
Legal Disclaimer

The content on this site is provided without any warranty, express or implied. All opinions expressed on this site are those of the author and may contain errors or omissions. For investment, legal or other professional advice specific to your situation contact a licensed professional in your jurisdiction.

NO MATERIAL HERE CONSTITUTES "INVESTMENT ADVICE" NOR IS IT A RECOMMENDATION TO BUY OR SELL ANY FINANCIAL INSTRUMENT, INCLUDING BUT NOT LIMITED TO STOCKS, OPTIONS, BONDS OR FUTURES.

The author may have a position in any company or security mentioned herein. Actions you undertake as a consequence of any analysis, opinion or advertisement on this site are your sole responsibility.


Market charts, when present, used with permission of TD Ameritrade/ThinkOrSwim Inc. Neither TD Ameritrade or ThinkOrSwim have reviewed, approved or disapproved any content herein.

The Market Ticker content may be sent unmodified to lawmakers via print or electronic means or excerpted online for non-commercial purposes provided full attribution is given and the original article source is linked to. Please contact Karl Denninger for reprint permission in other media, to republish full articles, or for any commercial use (which includes any site where advertising is displayed.)

Submissions or tips on matters of economic or political interest may be sent "over the transom" to The Editor at any time. To be considered for publication your submission must include full and correct contact information and be related to an economic or political matter of the day. All submissions become the property of The Market Ticker.

Considering sending spam? Read this first.

2022-05-17 08:48 by Karl Denninger
in Macro Factors , 425 references
[Comments enabled]  

I refer to the Monthly Retail Sales Report as MARTS (as does the link, if you follow it), and this month's (April data) is interesting.

Advance estimates of U.S. retail and food services sales for April 2022, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $677.7 billion, an increase of 0.9 percent (±0.5 percent) from the previous month, and 8.2 percent (±0.7 percent) above April 2021.

Note: But not price changes.

Uh huh.

So let's have a look at the unadjusted numbers, since April is a fairly normal month (you know, not one with a holiday like... oh.... Christmas in it.)

The ex vehicles and gasoline is indeed up -- which is interesting, considering the ramping price of fuel (which skews everything if you don't exclude it.)  This is more than absorbed, however, by the consumer credit numbers in the revolving category, which tells you "how"; everyone charged it, basically.  That won't last.

Furniture, electronics, Health and personal care were all down on the month.

Building materials were up (as expected; this is the start of construction season) and clothing was up a bit.

Food and beverage was down on the month; is inflation hitting pocketbooks in the grocery store?  Hmmmm...

Sporting goods were down -- this is usually the start of "outdoor activity" season too, so that's not so good.

Non-store (Spamazon) was up, as were food and drinking places.  The latter is interesting, given what's not.

I'd call this a bit better than expected, I suppose -- especially considering the inflation numbers.

We'll see if it continues into the traditional summer months -- and whether the way its happening is wild-eyed "charge it!" consumerism.

One interesting point: WalMart reported earnings this morning and is out behind the woodshed getting it good, hard and dry.  It's hard to reconcile a "cheery" MARTS report with that, isn't it?

View this entry with comments (opens new window)
 

2022-05-13 07:00 by Karl Denninger
in Macro Factors , 998 references
[Comments enabled]  

All around the news media the latest problem is infant formula.

There are four (count 'em -- four!) factories that make infant formula in the United States.  A few months ago one of them was shut down after it was suspected (but not traced) that they had contaminated some of their batches and two infants died.  That was in February; today it is May and the plant remains offline.

Abbott, for its part, states that while yes, those kids were using that formula and admits that in non-processing areas of the building there was contamination, they deny it was in the formula.   I don't know if that's correct or not, but it doesn't matter because now one plant going offline has resulted in shortages across the United States.

One plant folks.  Think about that for a minute.

Then contemplate two other points: First, that we became so dependent on this in the first place that one plant could threaten the survival of children in this nation and then that the Biden Administration is shipping pallets of formula to the border for illegal immigrants who cross with young children -- and who need food.

Now granted -- babies are babies, and its would be monstrous to deliberately starve them no matter how they got here.  But when supplies are short who gets what they need first?  American citizens and their children or those who deliberately broke the law entering the US illegally and, on top of it, expected the United States to provide for the feeding of their infants?

Clearly the answer isn't American citizens and their children.

At the core of this is our government's belief that "supply chains are ok when stretched all over the place" with no capacity to be self-reliant, and then on top of it we let corporations put people into a situation where they prefer to feed formula instead of the way it has worked to feed babies since the first mammals showed up on this rock.  Certainly there are many women who can't breastfeed for one reason or another but it is also true that a huge percentage of said mothers use formula for convenience and both doctors and mothers are heavily marketed toward with the very intent of making new mothers dependent on said formula.  That crap was going on in the 1990s -- my kid was literally sent home after being born with a "free" sample of formula!

Once that choice is made for a given infant there's not a lot you can do to change it after the fact -- you're stuck with the decision to use formula quite rapidly, as a mother who doesn't breastfeed will soon have no milk to feed with at all.  Of course this suits Abbott and the other makers of formula just fine.

Would you mind explaining to me how this isn't worse than deliberately addicting someone to opiates?  In that case the victim (harmed individual) is the person addicted and as an adult they have agency.  In this case the harmed individual is an infant who most-certainly does not.  How is that not felonious?

There are no simple answers -- especially now.  But this is not the only example; we are, at present, exporting diesel fuel.  What, you might ask?  Yes, and we've been doing it for years.  It used to be that in the summer months diesel was cheaper than gasoline; the reason is that diesel is also heating oil (same thing) and of course you don't use any in the middle of summer.  Never mind that summer months are slower for truck deliveries, at least until we get into fall and the winter stock-up begins for Christmas.  Since a barrel of oil "cracks" to a relatively-fixed mixture of gasoline, diesel, lubricating oil and other components if the demand for diesel is lower then so is price and of course leisure travel by gas-powered cars rises with summer vacations.

But for the last decade or so this relationship, which was very reliable, has disappeared.  Why?  Because we're exporting the diesel.  Now, with the Russia/Ukraine war on those exports are into a bidding frenzy environment over in Europe.  Rather than keep our diesel here and keep its price under control which in turn would suppress inflation we claim there's nothing we can do -- at the same time we cancel leases for new drilling and otherwise obstruct those who would produce oil, driving up their costs.

All of this is intentional policy -- it is not an accident.

The solution to high prices is often high prices; high prices destroy demand.  But how much of that demand is inelastic and can't be destroyed?  There is no elasticity of note in baby formula; that infant needs food, and if you have started them on formula you really have little choice but to find some or else, never mind that switching to a different brand or type can be a problem too due to differences in the ingredients.

The same is true to a significant degree for diesel fuel that powers the last mile of delivery for virtually everything.  Whatever it costs, it costs -- and is reflected immediately into the price on the shelf.  If the trucking becomes uneconomic because firms have contracts and they simply can't operate without going out of business then they go out of business and the products don't get delivered at all.

Again this all comes back to a false promise we've had made to us by politicians and businesses: It's great -- and safe -- to offshore supply chains and not be self-sufficient -- that is, to eschew autarky.  Nothing bad will happen by being dependent on foreign oil, four factories that produce basically all of our infant formula, potash from other nations for fertilizer and similar.

How's that all working out and how do you feel about it when we have both a President and Congress who are willing to sit back and let it all happen, particularly when it comes to energy supplies?

This didn't happen in a week, a month or a year.  It happened over decades but government on both sides of the aisle has not only cheered it on so have you in the form of higher stock prices.  After all if it can be sold here for $4/gal or overseas for $5 then $5 it is even though that will cause the price to be $5 here too.

How wise was that, America?

View this entry with comments (opens new window)
 

2022-05-12 09:35 by Karl Denninger
in Macro Factors , 443 references
[Comments enabled]  

What sort of insanity is this?

The Producer Price Index for final demand increased 0.5 percent in April, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. This rise followed advances of 1.6 percent in March and 1.1 percent in February. (See table A.) On an unadjusted basis, final demand prices moved up 11.0 percent for the 12 months ended in April.

The "final demand" 12 month run rate is stuck at 11.0%.  I remind you that it has been rising radically through that entire table and is well above The Fed's alleged "target."  The claim of "transitory" is proved to be a howling lie by this table, since this is literally a year's worth of "triple the target rate" inflation at the producer level, which then must work its way down to retail.

Food and energy are monsters in everyone's budget, like it or not.  Energy is the hydra that wipes out everyone else because it literally is in everything.  As I have often observed behind every unit of GDP is a unit of energy; this is a fact and no amount of arm-waving will change it, so if you wish to attack energy sources and consumption you are, by definition, attacking economic output and the economic health of the common American person.

It does not matter how you feel about various energy sources.  Mathematics does not care about your feelings, and neither does physics -- and thermodynamics.

What's much worse is that we are seeing 2%+ monthly increases in intermediate demand goods -- and 48% annualized for unprocessed.  That too is a more than a year long trend with 12 month annualized prices in excess of fifty percent.  Folks, that's a doubling in less than two years and these are unprocessed goods, which means they're yet to work their way through the system.

Don't think "services" are ok either -- they're not, with the price increase running three to four times the so-called 2% "inflation target."

No, folks, it's not slowing down -- at all.

View this entry with comments (opens new window)
 

2022-05-11 08:46 by Karl Denninger
in Macro Factors , 955 references
[Comments enabled]  

It might be the dog.... but do check the curtains -- they may be on fire.

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.3 percent in April on a seasonally adjusted basis after rising 1.2 percent in March, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 8.3 percent before seasonal adjustment.

The 900lb Gorilla in the room is the food index, which was up 0.9% on the month, and 1% for food at home.  Much worse, all items less food and energy was up 0.6% which was double the same index for last month.  This is the much-watched "core" inflation number and it is smoking hot, as I expected to both occur and continue since while everyone loves to claim fuel is "transitory" it matters not what you think since everything moves by truck for the last miles, and often for all the miles.  Stick diesel north of $5, in some places materially so, and the price of literally everything rises.

A lot.

Food is up 9.4% for the last 12 months, a figure last eclipsed in April 1981.  We all know what was going on then, right?

Yeah.

50 bips increases?  We should have an emergency 100bips right now, but you know they won't.  And just like it took a year for Trump's Congressional crazy from the pandemic "credit shower" to show up in wild price acceleration it will take 12-18 months for it to stop if and when Congress does stop it, and that is after The Fed stomps it.

Which they have to, because at this rate of acceleration people starve in relatively short order.

Again, to remind you -- you can't give away more welfare of whatever form to "help" because the sequestration mechanism of the last 30 years, which is international trade where the clearing is in dollars, has been permanently shut down by the Russian sanctions related to the Ukraine war.  This is not reversible in the short term and, in all probability, will never be restored at all, with the most-likely outcome over the intermediate term that sanity comes back (that is, international trade clears in the currency of the producing entity) since that is the one the producer ultimately needs to spend for the next order to be produced.

Looking through the table all manner of things completely unrelated to food and energy, and unrelated to Russia/Ukraine, so everyone thinks, are up double-digits.  Floor coverings, curtains, furniture, major appliances, clocks, tools and hardware, outdoor equipment (e.g. lawn mowers and weed whackers), tires, vehicle parts, oil, coolant and other vehicle fluids and even stationary.  Want to take a trip?  Lodging (e.g. motels, hotels and similar) is up 22.6% over the last 12 months.  Maybe a six-pack on the back porch will do instead.

Oh, and lest you think insurance is not in the game, health insurance is up 10% too.  Gee, I wonder why.

The other Gorilla in the room, fuel oil aka diesel fuel, is up 80% from last year.  Until and unless that is stopped and the price comes back downwhich will only happen if and when the government ceases its war on fossil fuels, there is no way for the general upward pressure on prices to be reversed.  Every piece of farm equipment forward to the delivery of the food to your store runs on diesel.  Every single item you buy travels at least the last part of its journey moved by diesel.  I do not care how you "feel" about the issues related to the use of fossil fuels, the simple reality is that without them you have no fertilizer, no food and nothing in the store so all of the claims of virtue you issue will make you broke or even cause you to starve.

That's your choice America.  Either be broke or not, but stop thinking that's not what the cause of this comes down to.  It does, and anyone who fails to appreciate that trade sequestration is why we got away with credit emission for 20 years without it instantly blowing up in our face -- and that this is permanently gone as a direct result of our own actions with regard to the Russia/Ukraine conflict -- adds wild-eyed crazy to go along with being broke.

View this entry with comments (opens new window)
 

2022-04-29 07:00 by Karl Denninger
in Macro Factors , 524 references
[Comments enabled]  

So he has said - it's "the best gwowth eeevaaaahhhh."

Oops.

The decrease in real GDP reflected decreases in private inventory investment, exports, federal government spending, and state and local government spending, while imports, which are a subtraction in the calculation of GDP, increased. Personal consumption expenditures (PCE), nonresidential fixed investment, and residential fixed investment increased (table 2).

That one's bad.

In addition decreases in exports of non-durable goods are not positive either.

The increase in PCE, on the other hand, was led by bad spending, specifically health care, which while additive to GDP is subtractive from productivity generally, since at best it maintains someone's productive output.

The real problem was inflation; the deflator showed that price indices were up 7.8% and the very bad news is that it was not food and energy either; the "all items ex food and energy" was up 5.2% or more than double the alleged "neutral" 2.0% the Fed likes, and accelerating from the last quarter's 5.0%.

People love to say that "well it's Putin's war and the impact on gas" but that's simply not true since the ex food-and-energy number was up wildly as well.

The very bad in this report is that disposable personal income was up 4.8% while total-market inflation was up 7.8%, so the actual net-net loss in spending power in real terms of what you can buy was -3.0%.

This is and will hit discretionary spending.

I have said for the last couple of months that we are entering into a recession now, and that it is likely to be a pretty nasty one in terms of both breadth and depth.  This report shows exactly that; negative 3.0% is a pretty ugly number, and that, net-net, is what you're seeing.  When one considers increases in health spend its even worse of course since while health care spending comes out of allegedly "disposable personal income" most people would not consider what they spend on health care "discretionary."

This is not a good report and more "blow money" games from Washington DC, including "debt forgiveness" for those who went to college (incidentally where's the Congressional authorization for that?) and other forms of handout, no matter what they are, will make it worse.

The four decades of trade sequestering on emitted credit and ever-declining interest rates are over folks.  Further credit emission will only make the inflation problem worse and the "growth" that was fueled by the last 40 years of this nonsense is going to largely come back off as well.

The market seemed to think that the GDP report was "bullish", likely because they think The Fed won't raise rates.

Wrong.

View this entry with comments (opens new window)