Posted on 11/18/2021 8:35:24 AM PST by aquila48
It’s common knowledge that inflation is eating away at consumers' ability to spend, as the most basic necessities like groceries and energy extend a relentless spike.
Less understood, however, is exactly why consumers keep opening their wallets as prices climb, even though sentiment indicators show them in a rather glum mood. Growth is slowing and the supply chain crisis has made goods and services increasingly scarce (even if demand and available jobs are certainly not).
This week, Deutsche Bank analysts dissected the management commentary from a range of third quarter earnings calls. And while corporate America clearly voiced concerns over inflation, the transcripts revealed something that’s arguably more compelling — and a point the Morning Brief touched on in Tuesday’s edition.
Binky Chadha canvassed Q3 remarks and found that not only companies are comfortable hiking prices, but consumers appear to be rather placidly paying for them. For example, both UPS (UPS) and FedEx (FDX) boasted of a “very favorable pricing environment” amid implacable demand.
More tellingly, Pepsi (PEP) executives told investors that “elasticity to pricing has been better than we had initially [estimated] in our models,” while McDonald’s (MCD) found higher prices “have been pretty well received by customers.”
Which leads us to today’s $64,000 question: Why do consumers appear so comfortable with high prices?
One answer is they’re clearly earning more: Data from the Economic Policy Institute shows a "V-shaped" wage curve that began in April 2021 has translated into a near 5% year-over-year jump in average hourly earnings. But most, if not all, of that money is being eaten up by spiking prices (over 6%, as per the latest consumer price index figures) across sectors and products.
(Excerpt) Read more at newsletters.yahoo.net ...
I keep opening my wallet because I have children to clothe and feed and you know, pay my fair share to Uncle Joe.
“namely consumer debt, which Federal Reserve data showed skyrocketed by 8.3% in September.”
This is going to come back and bite both the economy and individuals in the ass.
People tend to realize that higher oil prices make up a large part of the cost of food.
I have to eat, but I don’t have to eat overpriced beef.
As for many other consumer goods, the prices have often become absurd. I buy what I must and not more than that.
Unless my stomach won’t wait, I do without McDonald’s.
I remember saying to my father back in the Carter stag-flation days. “If you want it you might as well buy in now. Because it’ll be more expensive in a couple months.”
And if you think about it, credit for something you buy now will be paid back with $$$ of lesser value, especially if your pay increases.
Many people nowadays have that credit card mentality. So even if the prices have gone up, they buy those items anyway. Then when the Visa and Master Card bills come, they make minimal payments instead of paying it off.
Bingo. And that's why people are continuing to buy. But it won't last for long.
I buy more largely because my investments performed yugely while Trump was prez.
And if you think about it, credit for something you buy now will be paid back with $$$ of lesser value, especially if your pay increases.
This works even when you are retired.
Yesterday, I did the fresh shopping for veggies, meats and frozen stuff at a local chain. I charged it on a credit card what was paid in full 2 days ago. Now I have about 30 days before that was due.
Later this morning we will via computer order our monthly order from Costco. Sale items are on the computer and others will be added. We charge those to my wife’s credit card which was paid in full earlier this week. With the exception of hamburger, we have not ordered any beef since Biden came in and beef prices went up. This bill will be paid automatically via my wife’s bank card on the due date in December.
Pork and chicken thighs not breasts have been our main proteins besides salmon and game fish from sons and sons who adopted us.
Pork and chicken thighs not breasts have been our main proteins besides salmon and game fish from sons and sons who adopted us.
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“...sons and sons who adopted us”. I like the sound of that!
“I buy more largely because my investments performed yugely while Trump was prez.”
But let’s be honest - if you stayed in the stock market your investments have so far done pretty damn good under Brandon as well. Whether they’ll continue to do so is the 64k question.
Are you selling your stocks? Or buying puts?
One thing about plastic that is not mentioned in the article, probably because it is baked into the modern banking system.
A plastic become the largest part of our economy, everything we do has that surcharge of about 2.5% (plus 0.25 per transaction).
What is the cost of modern credit card processing? Well under 1%.
Add to that the interest that many Americans pay each month and we see who really builds those big skyscrapers in the financial districts.
We do.
That's not so much a Brandon thing or a Fed-is-saying-they're-removing-the-punch-bowl thing. Although I do pay attention to stuff like that. It's really about the S&P 500 and many other indexes having a PE of 40+. I see much more reason to fear catalysts that can tank the market with much room to fall, than be optimistic about catalysts that can boost the market with little room left to grow.
How about you?
The comments on these threads are much much wiser than the opinion of the mass media quoted “experts”.
Every time.
“Why do consumers appear so comfortable with high prices?” Because you have on blinders. People are buying what they must have. I bought a car at MSRP because my last one bit the dust after 16 years. I was not comfortable at all. I am not comfortable with 25% and more price increases at the grocery store and a 47% increase at the gas pump. I am not comfortable that my natural gas company tells me to expect higher prices this winter and has no idea how high that price will be. I am not comfortable that social security goes up 6% and Medicare goes up 22%. I am hunkering down.
Because they are either spending OPM, or rich.
Middle class not represented in this fluffy article.
Thanks. We are fortunate.
I’m slowly increasing my cash position by selling some of my losers, but I’m not much into market timing.
And unless one needs the money within a year or two, my experience has been that just riding out the occasional rough spots works out best. Take a look at the most recent “crash” the Covid crash, when some of the indexes fell over 30%. In retrospect it looks like a minor blip and it only took a couple of months to regain what was lost.
So since I don’t need the money anytime soon, I’m mostly going to ride it out and look for major dips to invest a bit more.
Also, I’ve been mostly investing with options. I’m using a scheme where I get to participate on the upside up to around 30%, but not lose a penny unless the stock drops 20-30%, and even then you can increase that protection even more. And if you happen to get assigned, that may well be your best investment. You got the stock at over 30% discount from where it is now.
Regarding the PE of the S&P. Right now it’s “only” around 25 (trailing earnings), not 40+. The average over the past 30 years is about 23, not too out of whack.
Take a look.
https://www.stockmarketperatio.com/
And by the way, with inflation roaring, I expect interest rate to go up, and in that environment the last thing I would want to be in is long term treasuries. Higher interest rates sends long term treasuries (or any other long term bond) crashing, even more than stocks.
I expect some correction in the market some time soon because it seems to be setting records everyday. But that’s been the case for the past 2 years and if I had gotten out I would have missed one of the biggest rally in history. So I plan on sitting tight - if there is a correction, I’ll ride it out.
As for LT treasury funds go, I respectfully disagree. I made about 10% in my LT treasury funds last year in from Feb to March 2020 while the s&p 500 crashed— even with the Fed doing all they could it seem like to tank Trump’s economy. I jumped back into equities in the first week of March when I saw the S&P 500 go down 30% in a month — something we haven’t seen since 1987: That’s why I quit expecting a 1.5 to 2.5 years long bear market dropping the s&p 49% to 56% like the 2000 crash or the 2007 crash, and went ahead and jumped back in after a rapid 30% crash.
In all 3 crashes I just listed, LT treasury funds made a nice return even with the Fed monkeying with the market.
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