Will price inflation puncture the stock bubble?

“There was a complete defeat of clearly favorable opinions about purchasing conditions: durable goods for the home fell to the lowest level since 1980, vehicles fell to the lowest level since 1974 and households to the lowest level since 1982. All of these record drops were due to complaints “ – Richard Curtain, Director of the University of Michigan Consumer Sentiment Survey

The chart above does a great job of conveying the non-transitory nature of price inflation – price inflation resulting from the substantial and ongoing devaluation of the dollar by the Fed’s money printing and the issuance of government debt. The charts show the prices paid and received by manufacturing companies in DC, Virginia, North / South Carolina, Maryland and Virginia. Price inflation at the production level will be displayed at the retail level for the next 3-6 months. This, in turn, will cause a further slowdown in consumer spending.

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The graph above shows consumer perception of purchasing conditions for large household durable goods based on the UMich consumer sentiment survey released on Friday. The opinion is that conditions are the worst since 1980. The reason is price inflation. Median household incomes don’t even come close to keeping up with price inflation. This is especially true for retired households that rely on Social Security. This will affect the entire economy and cause a severe economic contraction, a contraction that will be masked in the main figures by price inflation.

When adjusted for inflation and annualized, the cost of food is higher than almost any time in the past six decades, according to data from the Food and Agriculture Organization of the United Nations. Alastair Smith, Senior Researcher in Global Sustainable Development at the University of Warwick in the UK, recently noted: “Food is more expensive today than it has been for the vast majority of recorded modern history.” In the United States, instead of raising prices, many food processors are reducing package sizes.

“Price inflation” is a product of the devaluation of the currency by the printing of money in excess of the production of systemic wealth. When end-user prices are rising, the currency devaluation has already occurred. The Fed is printing money and devaluing the currency on a weekly basis, the currency devaluation “nuclear bomb” was released in March 2020 when the Fed printed $ 3 trillion to bail out banks and continue to fund public spending without causing a big spike. . in interest rates. As long as the Fed continues to print more money, inflation is unequivocally non-transitory. In fact, the price inflation we are seeing now is in the early stages of a much larger escalation.

This is not going to end well. Over time, price inflation will sink the economy, as households are forced by budgetary considerations to stop spending money on anything else that is not absolutely essential. And the ESG movement will send the price of energy to Pluto and beyond.

At some point, as experienced in a similar setup with the German stock market in November 1923, money printing and the resulting price inflation will undermine the stock market. As legendary investor Jeremy Grantham recently commented: “I believe this event will register as one of the great bubbles in financial history,” Grantham wrote, “along with the South Sea bubble, 1929 and 2000.”

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Most of the comments above come from the September 19 issue of the Short Seller’s Journal. Recently, subscribers who played the recommendations have made small fortunes with ideas like Toll Brothers (TOL), Microstrategy (MSTR), and Penn Gaming (PENN), among others. For more information about this newsletter, follow this link: SHORT SELLERS DIARY

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