What To Think About Inflation?

 The Turkey Conundrum

 

A few days ago, many of us either had the pleasure of hosting or the gift of attending a Thanksgiving get together. We caught up with friends and family, laughed, maybe watched a little football, and probably had a front-row ticket to a heated debate. At some point though we all gathered around a table and tried to figure out how we could find an angle to get the drumstick, and until science figures out how to make a turkey with more than two drumsticks, there will always be a large demand chasing a limited supply.

 

This scenario is one of the main reasons that we see quick increases in inflation numbers. There is a large amount of dollars chasing after a limited supply of goods and services. Inflation numbers are most often quoted as a year-over-year number comparing the cost of a basket of goods last year to the cost of the same basket of goods this year, and as we know from the discussion around the Thanksgiving table, last year was anything but normal.

 

In fact, the most apt parallel that can be drawn to inflation today in our opinion is what the U.S. experienced after World War II.  We had soldiers returning home, industries retooling back to providing goods for the consumer instead of the war effort, a housing boom, and a high demand for consumer goods and services. After two to three years the supply and demand sides of the inflation equation normalized and even flirted with deflation as supply overshot demand.

 So, What’s Transitory and What’s Not?

 We believe that most of the inflation we are seeing now will be transitory. There are some areas that might be a little “stickier” like finished products and services. Raw (think oil) and semi-finished goods (think lumber) will tend to be more transitory than inflation we see in finished products and services (houses, vehicles, airfares, consumer goods).

 Oil, for example, traded negative on the exchanges early on during the pandemic as there was an oversupply from producers and no one to take physical delivery of the crude oil.  Oil producers scaled back production, laid-off workers, and idled rigs as production became unprofitable. As the world got closer to normalcy and demand picked up, there was a lagging supply of oil and prices increased. Eventually, production will surpass demand as producers overproduce and we will see prices decrease and reach an equilibrium again.

 These stories will play out in countless industries as disruptions get corrected and bottlenecks cleared. It’s important to remember that after these severe disruptions that global supply chains handle like a Freightliner and not a Formula 1 car. They can neither stop or start on a dime, but given enough road and time, they are efficient. We believe that with time and a prudent hand at the wheel (Federal Reserve policy) that inflation will normalize in the future.

 

The Titanic People

They went down with the ship. Incompetence and poor planning doomed them. On April 15, 1912, around 1,500 passengers and crew died ghastly deaths in the freezing North Atlantic Ocean.

The Titanic hit an iceberg and there were only 20 lifeboats secured on the vessel - room for 1,178 people. That was the lethal problem as there were an estimated 2,224 on board.

Criminal negligence. The lack of planning led to horror.

Today, the United States of America lacks planning in any meaningful way because its President simply is not able to do his job. You know the list, humiliation in Afghanistan, no preparation for supply chain problems, disastrous energy decisions, damaging inflation. While the confused Attorney General threatens parents at school board meetings, thousands are murdered in big-city streets. Putin is massing Russian troops on the Polish border, China is salivating over the "Build Back Better" bill knowing it will reap billions of dollars in "green" product buys. 

Question for the Day. Will Americans sit at home and watch their nation become Titanic II?

The Bargain Is Broken!

 The Bargain Is Broken!

Lately, I've been hammering on the reality that the Biden administration is disrespecting American taxpayers. The legal contract is clear: we give the federal government our hard-earned money, we expect the powers-that-be to spend it responsibly.

But that is not happening, and the bargain is broken.

Is it responsible for the Biden administration to seek six trillion dollars to fund theories like wind turbines and other green energy projects - knowing that much of the US money will be sent to China, which dominates the green manufacturing industry?

Is it responsible to pay migrants who illegally breached our border for alleged injustice?  Is each case going to be investigated before the check goes out? No. There will be no vetting if the ACLU wins a settlement.

Is it responsible to create massive welfare programs that have no personal responsibility component? You just get tax money. Shouldn't some public service be required? After all, the kids are getting free daycare.

The question for each of us, is what are we going to do. We must take action! The bargain was broken and we are no longer than beholding to it!!