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2018-03-13 08:54 by Karl Denninger
in Macro Factors , 140 references Ignore this thread
[Comments enabled]

The market loved the CPI report with the S&P futures taking an immediate 10 point spike higher on the release.

I don't know why severe and persistent inflation in things that most people have to buy would be considered "bullish", but it was.  Specifically, as I've commented on before, the trend of insane ramps in the cost of car insurance continue apace -- up 1.7% this month alone, and nearly 10% annually.

This appears to be understated; I've been raising hell on these pages about insurance costs generally for a long time, and car insurance in particular has been rising at stratospheric rates over the last few years.  I suspect the BLS is playing it's "hedonic adjustment" games here as well; I'm seeing increases closer to 20% in some years across multiple markets, which would imply they may well be adjusting pricing downward as a car ages and people drop things like collision or comprehensive coverage!

That of course is not "like-for-like" but then again the BLS does this all the time -- substituting hamburger for steak, for example, when steak gets too expensive.

In any event a huge percentage of the population has car insurance as a necessary expense -- not an optional one -- given mandatory car insurance laws.  The companies all say this is a function of loss rates and cost-to-repair and not a function of the financial repression of the Fed that has made it nearly impossible to earn any sort of return in the bond market utilizing safe investments.

(For those who are unaware insurance companies must "duration match" expected actuarial payouts with duration in their investment portfolios; when rates are forced low that return goes down and thus premiums have to rise to make up the difference.)

Note that new and used vehicles are claimed to have fallen in price.  This is either a bald lie or it's a function of the back-end loading of financing; that is, it's a similar distortion to "Owners Equivalent Rent" in housing.  If car crash repair costs are going up then either the rate of wrecks is going up dramatically or the cost of actual vehicles and parts are -- because insurance is a regulated business, with operating margins capped.

Well, ok, unless you're playing games like the health insurance companies are... oh wait, they don't do that, do they?  Uh, what incentive does either company have to promote lower loss rates -- that means less revenue flows through said company, and that means less money.

The perversions in the market all point toward the means of "profiting" being to take policies and positions that cause more losses, and thus more revenue, since you obviously would prefer to make 10% of $1,000,000 rather than 10% of $500,000 -- right?

In any event the BLS says that "car insurance" is only 2.368% of the total spent by an "average" consumer in a year.  I don't know where they get that number from, just like I don't know where they get the idea that health insurance is only 1.063% of what the "average" person spends..... but this is, indeed, what The Bureau of Lies and Scams claims.

Good luck.

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