202022.

A grim year is going to get grimmer as it drags on. 

To wit, American farmers can't take advantage of soaring wheat prices because commodity markets are spooked.  

After Russia's invasion of Ukraine sent global wheat futures soaring, U.S. farmer Vance Ehmke was eager to sell his grain.

Local prices shot up roughly 30% to nearly $12 a bushel, about the highest Ehmke could recall in 45 years of farming near the western Kansas town of Healy.

Instead of reaping a windfall, Ehmke found a commodities market turned upside down. He and his wife Louise told Reuters they couldn't sell a nickel of their upcoming summer wheat harvest for future delivery. Futures prices for corn and wheat had rocketed so abruptly that many along the complex chain of grain handling - local farm cooperatives, grain elevators, flour millers and exporters - stopped buying for fear they couldn't resell at a profit.

On the other hand, agricultural profit projections are extra-murky as diesel prices soar into the stratosphere.

First pestilence and death, now another war, perhaps famine? 

 

I have taken to cramming together the last three years into one super-horrible one with six numbers--hence the title. A safe bet I'm going to have 202023 in the hopper.

Fret not, Americans who earn less than $300,000 per year! Mike Bloomberg's digital steno pad has some advice for getting through the latest twist in the anni horribili.

Now, the article itself is not that bad--apart from the "let them eat lentils" bit. But someone at Bloomberg's Twitter account added the tag line of "nobody said this would be fun." 

Hoo, boy. 

And while I like lentils, they are persnickety, requiring hours of careful soaking and repeated washing to avoid the gritty "I just ate a lot of chaff" aftertaste. 

Anyway, it's going to get worse and worse, so prepare as best you can.

 

 

It will be double digits by spring.

Inflation hits highest mark since 1982. 

Energy prices will continue to spike, and with the fourth largest wheat producer on the planet under Russian occupation, that commodity will soar, too. With all the knock-on effects throughout the system.

The plan to address the former is to drain some more out of the strategic reserve, and blame oil producers for gouging. Because going hat in hand to OPEC back in November ended in our envoy being sent on his way.

The blinkered stupidity of our leadership is keeping pace with inflation. Putin sure loves having oil at $92+ to fund his blitzkrieg. Just imagine how different things would have been at $45 per barrel on that point alone.

So, more pain for the working and middle classes, with no end in sight. But Wall Street is set for a big rebound today, cheering spending increases by said classes. Have they ever thought people are trying to pre-empt inflation and "supply chain issues" by making purchases now so they won't have to pay a lot more later? Raises hand.

Well, no, they haven't. That would require them to place themselves in the shoes of the people they regard as human resources.

But the money traders are desperate for anything that looks like good news, so there you go.

A long, miserable year beckons. And no doubt with more unpleasant surprises.

I laughed.

It helps with the wincing tic I have developed in checkout lanes.

"Average used-car price nears $30,000...."

I have never spent more than $12,500 on a car--and that was a two year old 1995 Buick Skylark.

Nice car--all the bells and mid-90s whistles.

Not even close since, and with that in mind, it should {?} be clear I've never bought a new car.

Right now, our family vehicle is a 2005 Expedition XLT--literally totaled, thanks to being t-boned in a rural smash-up over the summer. 

It's still driveable, albeit an embarrassment to be seen in, so we still use it. But for how much longer? We're playing with house money, and it's running out.

However, the current used car market is insane, and it does not appear that we will be able to replace it with anything other than a similar wreck.

 “I’ve never seen anything remotely close to this — it’s craziness,” said Schrier, who has been selling autos for 35 years. “It’s quite frustrating for so many people right now.”

When the government reported that consumer inflation rocketed 6.8% in the 12 months that ended in November — the sharpest jump in nearly 40 years — the biggest factor, apart from energy, was used vehicles. And while the rate of increase is slowing, most experts say the inflated vehicle prices aren't likely to ease for the foreseeable future.

The blame can be traced directly to the pandemic's eruption in March of last year. Auto plants suspended production to try to slow the virus’ spread. As sales of new vehicles sank, fewer people traded in used cars and trucks. At the same time, demand for laptops and monitors from people stuck at home led semiconductor makers to shift production from autos, which depend on such chips, to consumer electronics.

When a swifter-than-expected economic rebound boosted demand for vehicles, auto plants tried to restore full production. But chip makers couldn’t respond fast enough. And rental car companies and other fleet buyers, unable to acquire new vehicles, stopped off-loading older ones, thereby compounding the shortage of used vehicles.

Bleak as the market is for used-car buyers, the computer chip shortage has also driven new-vehicle prices higher. The average new vehicle, Edmunds.com says, is edging toward $46,000.

Even so, prices of used cars are likely to edge closer to new ones. Since the pandemic started, used vehicle prices have jumped 42% — more than double the increase for new ones.

The food price increases are here--and more are on the way.

 As was said on my favorite sci-fi television show:

"The avalanche has started. It is too late for the pebbles to vote."

Yes, you can say "but it's convenience food. Not staples." 

Bagel Bites are not the product of Old World Craftsmanship™: it's all basic food and supply chain inputs.

 

If this is supply-driven inflation, then there's little the central banks can do.

 A good "explainer" from Ramesh Ponnuru, who usually gives me a case of the "mehs."

Essentially, there are two types of inflationary pressure: demand-related and supply-related. The Staggering '70s experienced the former, which was broken through sky-high interest rates.

We, on the other hand, seem to be enjoying the latter.

For a textbook example of demand-side inflation, imagine that a central bank makes a surprise announcement it is going to manage interest rates and undertake asset purchases so as to engineer a doubling of total spending throughout the economy over the next year. If people believe it will hit that target, they should expect that in a year’s time, prices, including wages, will be about double what they are now.

This inflation would transfer money from lenders to borrowers (including most mortgage holders). The real value of a fixed debt will drop in half. Inflation would also raise the effective burden of capital-gains taxes as investors pay taxes on assets that look twice as valuable but aren’t. Restaurants would have to order new menus. And the transition could be rough.

At the end of the process, though, the real value of most people’s wages should be roughly the same as before: They will have twice the take-home pay, but each dollar will go half as far as before.

Supply-side inflation works differently. The economy sees the same amount of dollars spent, but they’re spent on fewer things at higher prices. Companies still have to change their prices as supply conditions fluctuate. But borrowers don’t come out ahead. Wages do not, even over time, adjust so that they are the same in real value. Taxes on capital won’t rise, but only because asset values won’t either. All of the inflation represents a reduction in economic activity. It’s pure loss for the economy overall.

To make matters worse, the central bank can’t do anything about it. If it wants to avoid the dislocations of our hypothetical demand-side inflation, all it has to do is call off its plan to double spending.

If, on the other hand, prices are higher because ports aren’t operating efficiently, what is it to do? Engineering increased spending will raise prices further. Reining it in will reduce output further. Neither loosening nor tightening money will get cargo moving through the ports any faster. The supply issues have to be tackled directly.

Easier said than done, unfortunately. It's not solvable from on high. Executive orders have either (1) not had any impact or (2) are threatening to make it much, much worse through forced layoffs.

The past two years have been far too interesting for my taste.

 

Yeah, I'd noticed.

Inflation spikes to 13 year high.

Here's the basic list. 

Rental cars +43% over last Sept 

Gas 42% 

Used cars 24% 

Bacon 19% 

Hotels 18% 

Beef 18% 

Pork 13% 

Eggs 13% 

TVs 13% 

Kids' shoes 12% 

Furniture 11% 

New cars 9% 

Chicken 8% 

Apples 8% 

Restaurant prices: 5% 

Electricity 5% 

Rent 2.9%

Obviously, those will hit differently for different people. 

I would add that in my experience, even if the price hasn't gone up much, availability has gone down with inventory problems. For example, those shopping for new cars (one of these years, maybe...) will run into continuing microchip-related production issues, leaving the lots a bit lean. 

But yeah...the gas and groceries have been wince-inducing. 

And it's worst for the most vulnerable. Of course. 

Labor: The most important part of the economy.

The primacy of labor has never been more on display than right now--people make the machine run.

And this article from the Atlantic does a nice job of summarizing "supply chain issues" worldwide.

If you look hard enough at the problems plaguing any other part of the supply chain, you eventually find the point at which the people who do the actual work of making and moving things just can’t keep up. Container ships wait offshore, sometimes for months, because ports don’t have the capacity—the longshoremen, the warehouse staff, the customs inspectors, the maintenance crews—to unload ships any faster. 

Truck drivers to distribute those goods were in high demand even before the pandemic, and now there are simply not enough of them to do all the work available. The problem is so bad that some U.S. staffing agencies have started recruiting truckers from abroad, and some experts worry that the Biden administration’s recently announced vaccine mandates for large employers could constrain that labor pool even more, at least for a time. 

Many industry groups and freight companies believe the number of vaccinated truckers to be low, according to FreightWaves, a website that covers the shipping industry. Small trucking companies anticipate that a significant number of drivers will want to jump ship from larger carriers, which will likely be subject to the mandates once they go into effect. Even in a best-case scenario, such upheaval would scramble freight availability for months.

Read further, and you'll see the horrors afflicting our meat-packing industry. Remember the death toll before you gripe about beef prices.

Anecdotally, this labor shortage spills down to the retail level, with local chain restaurants having limited hours, one nearby previously-booming sports bar closing permanently because of a labor shortage it couldn't resolve and all sorts of other employers, small and large, ringing the bell with job offers. A friend of mine in Indiana reported that her big box home improvement store had two cashiers available for an entire Sunday recently. And salary managers worked sixteen hours to help fill in.

My eldest son was virtually insta-hired at Home Depot. He has a 401k and, with the scaling up of hours, health insurance benefits in the offing. But my next-door neighbor, a department manager at another Home Depot, reports that they are still hurting for help. 

I don't have the beginnings of a persuasive answer, but it's clear that this problem--and the attendant consequences--will be with us for a long time.

Got a bit derailed.

I have this habit of reading (or re-reading) multiple books at a time. It's manageable, but it does tend to mash my ADHD "SQUIRREL!" button.

So I picked up Orwell's Homage to Catalonia and here I am. I will still have the other review up. But it may be preceded by a review of Mr. Blair's account of his service with the POUM militia during the Spanish Civil War, the event upon which his intellectual and political worldview pivoted. 

And did you know that Orwell and his wife Eileen adopted a son? Here are the reminiscences of Richard Horatio Blair, who recalls a loving and attentive father, even as that father was clacking away at his masterpiece while dying of tuberculosis.

In any event, that's the story. 

In the meantime, you might want to put aside some of your stimulus money for rocketing gasoline prices this summer.

But remember that energy and food prices aren't "core inflation," so it'll be fine.

 

Stall speed--at best--by Election Day.

Should be a lot of economic fun for the country, and not just this year.

But they'll try putting more on my great-grandchildren's tab first. And when that "works" for only a week, watch out.

Don't make me feel sorry for Mitt Romney.

If you ask, I don't make much of a secret for my disdain for Romney the politician. I think his political commercials should end with "I'm Mitt Romney, and I approve of this message--at this time." But I think some of the attacks on his business experience are overblown.

For example, he's paying a lot more in taxes than is commonly claimed.

And he only makes slightly more per day than Jon Stewart.

Once I had a railroad, made it run...

From the "Things that keep me up at night" File--this would be number 1.

Yet it is some of those very conditions-the slashing of consumer debt (or deleveraging), reticence to spend and general risk aversion-that helps drive Rosenberg's depression case.

"It will take time and shared burden by lenders, households and future generations of taxpayers before we hit bottom in this credit contraction," he wrote. "Time is certainly going to be a big part of the solution, and history tells us that the deleveraging cycles last years."

Indeed, ominous signs abound.

Strategists at Bank of America Merrill Lynch earlier this week published a note with the sub-heading of, "The chart that keeps us up at night." The particular chart in question tracks the bond yield differences, or spreads, in the European financial credit default swaps market .

The instruments are insurance against debt defaults and the spreads, BofAML says, have gone 0.70 percentage points or so beyond their levels at the 2008 financial crisis apex. The same spread for US financials is only about 0.40 percentage points away from late 2008, while high yield spreads are right at the point they were the day before Lehman Brothers went bankrupt.

Scary stuff, even for a firm saying that the chance of a recession remains below 50 percent.

"The experience of 2008 has taught us that once the level of distress in the financial system reaches a certain level, it can become an uncontrollable force, with the potential to push market participants into deleveraging as counterparty exposures are being cut," the firm said.

"We may not be at that point yet, but we believe we might not be too far away from it, and with the markets behaving the way they have over the past few weeks, we could get there quickly."

I strongly doubt Europe is going to get its act together--the way it has handled its debt contagion is reminiscent of the way Russian prisons have handled tuberculosis.

I'm finishing up this solid treatment of the Depression era, and have Amity Shlaes' work in the hopper next. The subject seems to be disturbingly topical, sad to say.

"May you live in interesting times."

It's not financial Doomageddon.

But it's a bit of a personal eye-opener. The price of milk increased $0.13 per gallon over the past week. We buy our milk at Costco, and in bulk to save us multiple stops during the week. Two Saturdays ago, skim and whole milk cost $1.95 a gallon. Last night, it was $2.08.

No, it's not much and our demand is pretty inelastic. But Costco tries to hold off until the last minute on passing increases to the customer, so it's something of a trailing indicator.

Moreover, little increases across the board on staple items start to pinch income, slowly but surely, even if it's not officially considered "inflation" by the government.

That might explain why the Fed has experienced some static of late.

And it might explain why you get less bang for the buck in food purchases even when the price hasn't increased.

About that Chinese economic miracle...

...sure is building a lot of empty places. As in entire cities where no one lives.

Thomas Friedman, call your office.

I guess we won't have to make Costco runs for toilet paper any more.

We'll just go to the nearest ATM instead.

Election Night Special.

I'm neither blissed out nor displeased with the election results. Getting cranked one way or the other is a bad idea generally, and an even worse one with a volatile electorate and another election less than two years away.

Still, I was following some national races with interest (the state/local ones were less compelling for whatever reason), and generally speaking the candidates I was rooting for pulled it out: Marco Rubio, Allen West, Dan Webster, Sean Duffy, and Chip Craavack. The last was especially satisfying, as it resulted in the ouster of the faux-life Jim Oberstar, who deserves a lot more of the blame for the failure of the Stupak amendment than poor Bart Stupak.

But, overall, not particularly giddy--both parties have a lot of work to do to get us out of this mess, and the old bumpersticker sloganeering of the past isn't going to cut it.

Well...

I suppose I should start blogging again. The funny thing is I gained three followers since I stopped almost two months ago, which is kinda hilarious. A hint, maybe?

For the curious: Things are fine, actually. Hectic, but fine. We're trying to get short sale approval for the fridge box we are currently living in. The process is best described as proctological. From the recent market surveys of houses nearby, it seems likely that you can have our home for a few artfully-arranged rolls of nickels. Feng that shui. Hey, it could hypothetically be a future historical landmark, or some kind of Amityville redux, what with the cat skulls in the crawl space.

Heather and the offspring are doing well, with Elizabeth tipping the scales at around 17 pounds at four months.

As to the blog, I'm going to change up slightly, weaving in a lot more book reviews, since that seems to be a fun area of discussion and I have the proverbial buttload o' books from which to choose. Ditto matters historical. I also have a yen for short fiction, but that may stay on the shelf. I have a pending request for a Byzantium post (no, seriously) which I will indulge. I'll still drop the occasional fisk, but they are pretty time intensive, and time is a commodity I don't expect to have in abundance for this year.

Thanks for checking in, and stay tuned.

Happy days are here again.

Someone should have told the recently-shuttered building supply business I passed by this week the good news about the recession being over.

The marquee read:

Thanks for 40 years.

Pray for our families.

Heart-rending doesn't being to say it.

Red skies in the morning, sailors take warning.

How's that residential real estate market holding up?

Uh...

A record 7.58 percent of U.S. homeowners with mortgages were at least 30 days late on payments in August, says Equifax, up from 7.32 percent in July. Delinquencies are not only rising from month to month, but rising at a faster pace. More than 41 percent of subprime mortgages are delinquent. (That's quite an increase from 2007, when I took heart from the fact that only 10 percent of subprime mortgages were in default. But, well, at least the glass is still more than half full, right?)

• About 1.2 million loans out there are in limbo: The borrower is in serious default yet the bank has not started the foreclosure process. Another 1.5 million are in early stages of the foreclosure process but the bank hasn't yet taken possession of the home. Counting these and loans that are highly likely to end up in default, one analyst estimates three million to four million foreclosed homes will come on the market over the next few years. And don't believe the freshwater economists when they tell you there's no such thing as a free lunch: Some 217,000 Americans have not made a mortgage payment in one full calendar year, but their lenders have yet to begin the foreclosure process.

• Option ARM recasts (not resets, as Calculated Risk explains) are as much of a time bomb as ever, with nearly all borrowers in this class making only minimum payments and negatively amortizing their mortgages.

• Something called the National Consumer Law Center criticizes state mortgage-mediation schemes as well as the Obama Administration's Home Affordable Modification Program, which at last count had managed to prevent 235,247 homes from coming onto the market. However, data from the Federal Reserve and the Office of the Comptroller of the Currency indicate that even when these programs succeed, about half of all the renegotiated loans end up back in default soon afterward.

And...

Credit card companies, the next bailout frontier? Of course, that presumes we'll still have a leaky bucket for bailing by then.

Why the "stimulus" was a bust.

It wasn't a stimulus package. It was a spending orgy.

Actually, there was a lot I liked in the legislation, starting with the actual tangible infrastructure benefits. If you're going to run a deficit, have something to show for it at the end of the day. There was also the necessary assistance to those in crisis:

On humanitarian grounds, hardly anyone should object to parts of the stimulus package: longer and (slightly) higher unemployment benefits; subsidies for job losers to extend their health insurance; expanded food stamps. Obama was politically obligated to enact a campaign proposal providing tax cuts to most workers -- up to $400 for individuals and $800 for married couples. But beyond these basics, the stimulus plan became an orgy of politically appealing spending increases and tax breaks.

And, as has been noted, things like food stamps aren't just humanitarian, they are also an immediate boost to the economy as they get spent right away, and locally. Doing the right thing actually does the right thing for the economy.

The result:

More than 50 million retirees and veterans got $250 checks (cost: $14 billion). Businesses received liberalized depreciation allowances ($5 billion). Health-care information technology was promoted ($19 billion). High-speed rail was encouraged ($8 billion). Whatever the virtues of these programs, the effects are diluted and delayed. The CBO estimated that nearly 30 percent of the economic effects would occur after 2010. Ignored was any concerted effort to improve consumer and business confidence by resuscitating the most distressed economic sectors.

Vehicle sales are running 35 percent behind year-earlier levels; frightened consumers recoil from big-ticket purchases. Falling house prices deter home buying. Why buy today if the price will be lower tomorrow? States suffer from steep drops in tax revenue and face legal requirements to balance their budgets. This means raising taxes or cutting spending -- precisely the wrong steps in a severe slump. Yet the stimulus package barely addressed these problems.

To promote car sales and home buying, Congress could have provided temporary but generous tax breaks. It didn't. The housing tax credit applied to a fraction of first-time buyers; the car tax break permitted federal tax deductions for state sales and excise taxes on vehicle purchases. The effects are trivial. The recently signed "cash for clunkers" tax credit is similarly stunted; Macroeconomic Advisers estimates it might advance a mere 130,000 vehicle sales. States fared better. They received $135 billion in largely unfettered funds. But even with this money, economists at Goldman Sachs estimate that states face up to a $100 billion budget gap in the next year. Already, 28 states have increased taxes and 40 have reduced spending, reports the Office of Management and Budget.

There are growing demands for another Obama "stimulus" on the grounds that the first was too small. Wrong. The problem with the first stimulus was more its composition than its size. With budget deficits for 2009 and 2010 estimated by the CBO at $1.8 trillion and $1.4 trillion (respectively, 13 and 9.9 percent of gross domestic product), it's hard to argue they're too tiny. Obama and congressional Democrats sacrificed real economic stimulus to promote parochial political interests. Any new "stimulus" should be financed by culling some of the old.

Exactly--pullback the promised non-stimulating funds that haven't been provided and pour them into infrastructure construction now. It won't happen, but it would constitute an actual, you know, stimulus.

The lessons the administration should have learned from this outsized failure:

(1) Spending cash by the wheelbarrow doesn't equal Keynesianism, and

(2) Don't delegate your responsibilities to Harry and Nan, who are giants of political infighting but lilliputians when it comes to sustained thought beyond soundbites and Pavlovian reward/punish imperatives.