Price LEVELS, Not Deltas
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2023-11-17 07:19 by Karl Denninger
in Consumer , 1464 references Ignore this thread
Price LEVELS, Not Deltas
[Comments enabled]

It seems the market is more than a bit unrealistic the last week or so as it has rocketed higher on alleged-"cooler" inflation figures.

We stand roughly 400 points in the SPX -- or nearly 10% -- higher just in the last couple of weeks, leaving gaps all over the chart on the way up.  But stocks are supposed to represent an income stream from operating profits, so this begs the question: What profits?

When I go to the grocery store the register tape -- and my Quicken -- says I'm spending a lot more money there.  Not a couple of percent over the last 12 months, an obscene increase.  Shelf prices are one thing, but actual paid prices are truth -- and those involve discounts, coupons, BOGOs and similar.  I, like most people, buy pretty much the same things to eat.  Spending over the last 12 months is in fact up more than 30%, not 2%.

Car insurance is claimed to be up about 20% -- and it is.  That's real, and everyone with a car has had to pay it.

But the government also claims that health insurance has been down in price by roughly 30%.  That's nonsense, and we all know it, but there it is.

There are some who think the answer is "higher wages!"  But its not; you can't keep up any more than you can with a "roaring" stock market.

The simple reality is that you cannot have Congress emit eight percent, more or less, of the economy in newly emitted credit and not have prices go up by about 8% unless there is somewhere that absorbs it which you do not have to cover.  For roughly two decades there was -- the increase in global trade, most of which is settled in dollars, buffers that by temporarily capturing the money while goods are in transit.

Note however that a permanent change in trade doesn't result in this remaining captured; it is the change in level of global trade that does that, and only while the change is taking place.  We've offshored basically everything we can offshore at this point and thus the available increase has dwindled to essentially zero.

The problem is that during that 20 year period of time we "trained" Congress (and both political parties) that they can run 30% deficits and not have it show up as 8% inflation on a permanent basis.  That's flat-out false.

This in turn means that either we're going to absorb about 8% inflation (no matter what the government claims), spending must come down by about 30% at the federal level and that is only to stabilize prices, not return them lower, or taxes must go up by about 40% which of course is another expense in the household and reduces disposable income.  The latter is politically impossible.

How does this resolve?

I don't have that answer -- but what I'm seeing on the ground is a profound decrease in consumer activity.  Yes, there are places where everything is "happy time" -- but that's not the country as a whole.

WalMart has noted it, and when it hits WalMart that's the people up to perhaps the top 10% of earners.

That's real.

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Comments on Price LEVELS, Not Deltas
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Jacksonlee 261 posts, incept 2007-11-11
2023-11-17 07:42:18

Might be time to lock in some rates.

It is inaccurate to say that I hate everything. I am strongly in favor of common sense, common honesty, and common decency. This makes me forever ineligible for public office.
H. L. Mencken
Loonster 2k posts, incept 2012-10-28
2023-11-17 07:57:12

Old people pay more in premiums than young people. So if a bunch of old people die off, the average paid may drop even if insurance rises for the young.

A 30% drop is still way larger than can be explained by die off. Must be bullshit.
1crzydmnd 7k posts, incept 2008-03-26
2023-11-17 08:04:10

On the plus side, I can now carry $300 of groceries in two hands. Thanks gubbermint!

Eoinw 189 posts, incept 2021-07-14
2023-11-17 08:15:26

Nice to begin my day reading some good, plain common sense. Thank you.

Everything still feels normal here in southern Ontario. The restaurant I go to every Wednesday for lunch was quite busy this week.

I have to assume everyone is doing this by running up more debt. I don't really know. All I know is that I couldn't live that way. But I was raised when "a penny saved is a penny earned" was common knowledge. Today there are young Canadians who have never even seen a penny!

I'm guessing we have one more holiday season in us that appears normal. Then comes 2024...

I'm curious if people think this will continue gradually or if there will be an event which ends "normal". And what that event might be.
Bkleinhe 23 posts, incept 2021-08-19
2023-11-17 08:48:20

We live in rural NC, where 50% of the kids in my kids class are on free and reduced lunch. Not seeing any consumer pressure at all. Zero. Homes are still selling at record rates. Restuarants are full. Grocery stores are full.

All the lovely remote workers that moved here from Ralegh and Charlotte during covid, I still see them all playing tennis, pickelball, walking, mountain biking. They all have kids, so I know they aren't working at night. Doesn't seem like that have to work, when I ask them about it, they laugh about it as they are sitting in the coffee shops on their computer....productivity just seems to be incredibly low.

My software company isn't losing any clients (vacation rental management)...# of nights booked, REVPAR, all that remains on an upward trajectory. I don't see the consumer stopping travel (yet).

So I don't know what's going on....all I know is I can't eat at Chik-filet for less than $50 for a family of 4. Local hole in the wall Thai place is $100+ easy and my car insurance (adding my kid to it this year) went up $2000 a year. My neighbor who sells freakin consumer packaging just bought his kid a $40K BMW for her 16th...all strange shit which never happened when I was a kid in a middle class family growing up.

I don't know how people are doing it, maybe I am just getting old and can't see the forest through the trees. I finally sold my QQQ and tech index funds and moved 35% into treasuries, gold and crypto. Put my entire NC529 for one high school junior into 5%+ savings account and padded it with some Microstrategy as I use crypto all the time for paying contractors, staking...very low friction way to pay overseas contractors...

anyways, I think when the system breaks, it will break fast.Something just doesn't seem right...then again, I've been known to be a pessimist on economic matters. Biden / Trump... both bad choices. Maybe roll with a Manchin if he were to run? I don't see much hope unless there is a candidate who runs on massive spending cuts and CMS reforms....that I'd be down for...

Ocdawg 527 posts, incept 2019-03-14
2023-11-17 08:49:23

"Health Insurance"smileysmileysmiley

Infection and 6-day hospital stint= $72k
3-month antibiotic and outpatient until hip replacement= $10k
Hip Replacement (1 day)= $99k
Total= $181k

I changed insurance carriers so 2 out-of-pocket co-pays for me= $10k + some meds co-pay

I just put the last of my cash in a 12-mo CD @ 5.25% yesterday. Nothing left (insurance, food, utilities, etc.) that isn't going to the moon.

BRING THE FUCKIN' STORM ON ALREADY... oh wait, it's already here, I was just distracted by Xi visiting CA and Gampy shitting himself while pushing more green ie fiscal destruction of our economy....

29 in a row, but the quest for the Three-peat ends...

Indianarube 1k posts, incept 2020-03-22
2023-11-17 09:52:52

A 30% drop is still way larger than can be explained by die off. Must be bullshit.
They made "improvements" to the CPI Health Insurance Index.
Bureau of Lies and Scams.
Burya_rubenstein 2k posts, incept 2007-08-08
2023-11-17 10:07:20

The answer is more stuff.

Find out what people want/need/go after money in order to buy, and flood the world with that.

The answer becomes crystal clear once one realizes that "money" is just a bookkeeping system.
Tappedout 317 posts, incept 2020-09-21
2023-11-17 11:20:24

I've struggled to grasp the concept of world trade and US inflation. Your article today was very educational for me. Thank You.
Drifter 2k posts, incept 2016-02-11
2023-11-17 11:20:29

One thing is certain: poaching is going to go up dramatically.

Elkad 3k posts, incept 2009-09-04
2023-11-17 11:20:32


Basic cash price, including the hardware - $18k

Now I don't know your exact circumstances, but I bet it would have been close.
And since they don't charge extra for giving you an infection like most hospitals, they don't give you an infection.

Edit - I screenshotted the wrong procedure, replacement is right above it.

Nelstomlinson 1k posts, incept 2011-12-21
2023-11-17 12:05:31

Find out what people want/need/go after money in order to buy...

Food. Energy. Shelter.
... and flood the world with that.

Deliberate government policy is to do the opposite, with all three.
Drifter 2k posts, incept 2016-02-11
2023-11-17 12:05:36

For those of you within travel distance, a Surgery Center of OK style clinic with transparent pricing has opened in Moscow, ID.

I know everyone involved and will use it if ever needed.

FYI-- Not advertising for them as they are already quite busy.

Purebloods all.

Ocdawg 527 posts, incept 2019-03-14
2023-11-17 12:05:55

@ Elkad

Line item on my statement for hip ball and joint was $37k... nice mark-up... better than consulting margins

Who needs malpractice insurance??????

29 in a row, but the quest for the Three-peat ends...

Nelstomlinson 1k posts, incept 2011-12-21
2023-11-17 12:06:02

A substantial amount of dollars has been sloshing back and forth overseas settling trades that don't involve us. That will lessen as countries align with BRICS.

A substantial amount of private wealth has been held as physical $100 bills overseas, estimated at $250B in 1995{1}. I bet that's going to lessen, too.

US dollar share of foreign exchange reserves has fallen from 72% to 60%{2}. Those dollars must be coming home.

All those dollars, physical and otherwise, that have spent decades abroad will be coming home to roost. I'm guessing that a lot of that absorbed inflation is about to get un-absorbed.

{2} Graph A2, part B.
N9lhm 155 posts, incept 2010-01-28
2023-11-17 12:06:13

"Price LEVELS, Not Deltas" exactly. I am so tired of hearing people say "Inflation is coming down!" To which I replay, "Maybe, but the damage has been done, and will be with you until your income rises by the same amount." Idiots.
Raven 16k posts, incept 2017-06-27
2023-11-17 12:21:34

Eoinw -- i don't think that we get even one more holiday season seeming normal. People have told me that they are not shopping or making plans.

What makes everything seem to still be running is that there is a high percentage of people with a lot of cash who are still doing things and assume that the recessions only affect the middle and lower classes. They figure that even major asset declines only require them to wait five to eight years, and they can always mortgage something, whatever, to carry them.

The effect now is that the pain has been moving up the ladder to higher economic levels with each above not aware of the effect just below them. Before i left my old community several decent and frugal middle-class Fathers told me that their equities losses ruined their soon to be college age children's education funding. So, one assumes that they will refi the house, parent borrow or work more with the KEY being that such options are AVAILABLE. Once they are not another tier realizes that they are not insulated from the common man.

Other people see the Euro pensioners and people with money to doing expensive activities and hobbies and assume the world is okay and that they will be fine or should be keeping up. Some depend upon said people with money.

Thus, it is all perceptions coming down. Here is an example.

In my new AO, the food service industry is running on fumes, fucked is a delicate way to put it. And, prices here are very reasonable and quality high. So, the other night i decided to go to an Outback with a friend. It was very busy and extremely expensive as opposed to what i remember at such a place elsewhere, recently elsewhere. Great food, but never again spending that. Why was it busy? People visiting from out of town have the money for said travel and seek out places which are known and familiar which has been a selling point of corporate food since people started to travel great distances.

Thus, if you work at this Outback or own it, the economy is great for you. If you own another establishment or are the services and goods provider to the owners or workers at the other dying establishments, you are thinking like the folks here at TF.

The greatest difficulty for those attempting to expand their understanding and knowledge is to separate from their personal perspective. Studying Cultural Anthropology teaches this early on, however how many learn this discipline as intended.

Mission Complete
Raven 16k posts, incept 2017-06-27
2023-11-17 12:25:47

Thanks @Drifter -- appreciate the heads-up. Curious though, perhaps Karl can chime in, as i thought that Obamacare slammed the lid on new iterations of the concept.

Mission Complete
Tickerguy 200k posts, incept 2007-06-26
2023-11-17 12:26:21

They had to be grandfathered in some way as yes, it did. So something already existed they were able to exploit.

"Anyone wearing a mask will be presumed to be intending armed robbery and immediately shot in the face. Govern yourself accordingly."
Ingar 697 posts, incept 2017-02-14
2023-11-17 12:31:35

Not everyone is worried about inflation. I read on wikipedia where my congresscritter was worth $47 million when he took office several years ago and is now worth $80 million. He has done an excellent job of representing himself. Everyone's favorite nutso-marxist Ocasio-Cortez went from slinging booze a few years ago to now being worth $2 1/2 million on a $175k per year federal salary. Maybe our congresscritters grasp some concepts of maffs that escape the understanding of us mere deplorables.
Unwashed 161 posts, incept 2023-06-23
2023-11-17 13:05:51

Couple of thoughts;

I've always subscribe to the market as anticipation, looking ahead if you will, Technical analyses. Fundamentals always failed me in markets because behavior drives the market.

Flight to quality, lol, never understood running into bonds is quality but anyway with the Gov't imploding people no longer views bonds as quality/safe any longer. So Equities benefit for the must invest community. At least companies are an asset and even if they go under you get something. Govt, fat chance. Asset inflation.

Raven 16k posts, incept 2017-06-27
2023-11-17 13:05:58

Thanks for the clarification Karl.

Aside, how the fuck was that even Constitutional?

Means that they could do it to any business or profession.

Oh yea, they have...

Mission Complete
Dwva68 62 posts, incept 2022-03-27
2023-11-17 13:36:18

... and there are plenty of other countries where you can go get a hip replacement at a reasonable price. Even in the UK, which is relatively expensive, there is an excellent private practice charging $17k for the robot-assisted surgery including hospital stay (up to 5 days), all meds, follow-up physio, follow-up consults etc. Anywhere in Eastern Europe is going to be about half that. Some Asian countries too.
Ostriches 347 posts, incept 2009-10-28
2023-11-17 13:37:45

Remember shopping at the "upscale" mall or department store, or a nice grocery store such as Wegmans?

Remember when the Aldi's were all located in the bad sections of town and pretty much their only shoppers were illegals or welfare recipients, and you gave people grief because they bought Clancey's instead of Doritos?

Remember when people wore actual clothes when they went out in public and not "juicy" or "pink" sweatpants?

I genuinely cannot recall the last time I was at an actual department store. The last time I shopped at an actual grocery store such as Wegmans was probably 10 or so years ago. I Haven't been to a Target in 15 years and I haven't bought Doritos in about 5 years -$5.50 for a bag of tortilla chips?

I can't recall ever wearing sweat pants out in public because it has simply never happened. Other than my US Army PT sweats that I wore over 30 years ago, I don't think I have ever owned another pair.

In sum, its just the ever increasing suck that has been going on for just about my entire life - few, however, ever seem to even notice it.

Remember when people lamented that Walmart would destroy the mom and pops on mainstreet and/or that our trade policies would destroy our manufacturing base and good paying jobs, and that, eventually, there would be no good jobs and people wouldn't even be able to afford to shop at Walmart?

You are here.

Chickens and roosting and such.

But, if we bring in millions upon millions of illegals, or send billions to foreign countries to secure their borders that will surely help.

It has to be either a massive general strike or worse.

I wish reducing the amount of income I generated to reduce the income tax I paid would work, but they just print or borrow and fuck me anyway.
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