Companies adding surcharges due to material shortages

[dvcgirl67]

A lot of very smart people have been warning that inflation is not going away any time soon, and may get much worse than the Federal Reserve is expecting. By smart people, I'm talking about Paul Tudor Jones, Carl Ichan, Jeffrey Gundlach, David Einhorn, and even Twitter CEO Jack Dorsey...

https://www.cnbc.com/2021/10/21/ban...ds-a-new-playbook.html?&qsearchterm=inflation

https://www.cnbc.com/2021/10/22/jef...cent-through-2022.html?&qsearchterm=inflation

https://www.cnbc.com/2021/10/20/pau...rkets-and-society.html?&qsearchterm=inflation

https://www.cnbc.com/video/2021/10/...o-hope-it-goes-away.html?&qsearchterm=einhorn

https://www.cnbc.com/2021/10/23/twi...he-us-and-the-world.html?&qsearchterm=twitter

And all of this is before the $4-$5 TRILLION in new stimulus Congress is poised to try to approve.

I agree....inflation is getting away from the Fed. I had hopes several months back that it was possibly transitory...just a bit longer than the Fed was predicting. Now it's getting more worrisome. I'm a little more skeptical of some of those guys though....they're big bitcoin guys and crypto seems to be becoming the new safe haven that gold once was. Dorsey made those comments about hyperinflation at a crypto conference.

 

[JimMIA]

I agree....inflation is getting away from the Fed. I had hopes several months back that it was possibly transitory...just a bit longer than the Fed was predicting. Now it's getting more worrisome. I'm a little more skeptical of some of those guys though....they're big bitcoin guys and crypto seems to be becoming the new safe haven that gold once was. Dorsey made those comments about hyperinflation at a crypto conference.

Yeah, I don't pay a lot of attention to Dorsey on anything -- and he's like Elon Musk in promoting things he has investments in.

To me, the scariest comment was Paul Tudor Jones talking about the $3.5 Trillion M2 -- money just sitting in bank accounts. That's going to continue to fuel inflation, no matter what happens in supply chains, or what Congress and the Fed do or don't do. That's pure money in consumers pockets.

I also loved Jeffrey Gundlach's description of "money spray," lol.

 

[hopemax]

Is demand significantly and permanently more than 2019? Do people have significantly and permanently more money than 2019?

My feeling is that a lot of this is still temporary but longer windows than we are used to. Between our government checks and the money not spent on travel, dining out some income groups who didn’t suffer from job insecurity were able to direct a lot more money into industries that weren’t prepared to meet such a sudden increase in demand. Certainly not all at once after the huge throttle down in early 2020. Eventually, the world will reopen and people will return to spending in the categories they are used to. People who got new kitchens in 2020 & 2021 aren’t going to be getting new kitchens in 2022 and into the future. It may be a bad thing for big ticket things that seem hot now because people who were planning on purchasing X within “the next 5 years” all did it within a 2 year period.

Other income groups have seen potentially more permanent salary increases but this money feels more modest in comparison to the first group. A $5000 per year salary increase is not as much as people who were sitting on $15K of unused travel budgets. And if larger paychecks among lower income workers were going to paying off debt or into small savings accounts, they aren’t the ones driving all the increased demand.

What has been eye raising to me is that the few times we’ve eaten out it’s been very slow and very empty. It’s hard to see how this will work for restaurants for long. The experience as a diner is worse and approaching not being worth the hassle. What restaurants have to do to make the experience better is what they can’t afford (better food and labor). Now in classic free market, this pressure is supposed to lead to innovation because old ways aren’t working. Let’s see if the restaurant industry is up to the challenge of reinventing themselves.

 

[JimMIA]

Do people have significantly and permanently more money than 2019?

YES, 20% more.



https://www.cnbc.com/2020/08/05/the...the-key-to-unlocking-inflation-in-the-us.html

 

[hopemax]

I meant most individual households. We don't have 20% more money permanently. DH is actually being paid less than he was in 2016. We have more money in savings today, because of expenditures we aren't doing (mostly travel).

Edit: The question I guess I'm asking is that M2 increase actually evenly distributed or weighted with some elements of the economy experiencing a windfall while in other areas the increase is more modest or not at all.

 

[dvcgirl67]

YES, 20% more.

View attachment 615993

https://www.cnbc.com/2020/08/05/the...the-key-to-unlocking-inflation-in-the-us.html

This is that pesky part of inflation....the "TOO MUCH MONEY.....chasing too few goods". Factor in the supply chain issues, energy shortages and labor shortfalls and you've got a really tough problem. But remember what Einhorn said in that clip...the Fed had the chance to rein in inflation in late 2018 when the stock market correction happened. But...a certain someone was shouting from the rooftops that not only should the Fed *not* raise rates.....but rather, they should take it *below* zero. Powell folded then, when it would have been much easier to deal with....but....the stock market. That's the bellwether of success for most administrations and it was certainly no different then, I'd argue more than it ever had been. With core inflation running hot through this year and likely through next year...it's going to feel super painful to Americans to not only have to deal with that pinch in their pocketbooks, but if the Fed goes after it too hard, we'll see the markets really come down hard, and likely kick us into a recession.

 

[dvcgirl67]

I meant most individual households. We don't have 20% more money permanently. DH is actually being paid less than he was in 2016. We have more money in savings today, because of expenditures we aren't doing (mostly travel).

Edit: The question I guess I'm asking is that M2 increase actually evenly distributed or weighted with some elements of the economy experiencing a windfall while in other areas the increase is more modest or not at all.

I know what you mean. But think of it not just as money that went directly in the bank accounts of Americans through Covid stimulus checks, greatly expanded and extended unemployment, childcare tax credit checks....etc. It's also it the form of debt that is issued by the US government....mostly in this form by the Federal Reserve who has *doubled* their balance sheet from Four Trillion dollars to Eight Trillion....and counting. They're busy buying treasuries, mortgage debt and other much more risky debt. They're doling out the cash in an unprecedented manner to keep the party going if you will. So in other words, it's not just for Americans who received direct funds from the government, but also invested in anything from US treasuries (say through their 401K plan), or by buying a house....etc. Also, the money supply is spread around more evenly because Congress invested in programs like mortgage/rent moratoriums and a very long period where federal student loan debt does not need to be paid. In the student loan situation, there's no interest accruing either. And so those are programs that we're paying for, but are benefitting individuals who are taking advantage of this programs. If you don't have to pay say...$2,000 in rent and an $800 student loan debt, that's money that can be spent elsewhere....or saved.

But...is everyone holding 20% more cash....no. I just wanted to point out some ways that people are indeed receiving some of that money without directly receiving a check in the mail.

 

[JimMIA]

Edit: The question I guess I'm asking is that M2 increase actually evenly distributed or weighted with some elements of the economy experiencing a windfall while in other areas the increase is more modest or not at all.

First of all, here's a pretty good definition of M2 from Investopedia:

"What is M2?
M2 is a calculation of the money supply that includes all elements of M1 as well as "near money." M1 includes cash and checking deposits, while "near money" refers to savings deposits, money market securities, mutual funds, and other time deposits. These assets are less liquid than M1 and not as suitable as exchange mediums, but they can be quickly converted into cash or checking deposits."

Is the increase in M2 over the last couple of years "evenly distributed?" That's probably unknowable, but my guess would be NO. Both wealthy and not so wealthy people have probably benefited, but in different ways.

The pandemic stimulus benefited working class and non-working people through the direct cash payments of various types and enhanced unemployment. Those stimulus payments were never intended to benefit wealthy people, and they didn't.

People with more income/wealth did not receive any of that money, but benefited by increased valuations in many of their investments (stocks, real estate, etc). A good bit of that increased valuation was due to the overall increase in M2 due to various types of stimulus, because many people put their excess cash into savings or investments of different types.

But don't forget that only about half of the actual government help during the pandemic went to people and local/state governments -- that's the half passed by Congress.

As @dvcgirl67 explained above, $4 TRILLION of the actual federal stimulus was generated by the Federal Reserve pumping extra cash into the economy. They did that by purchasing bonds (both government and corporate) -- which is what @dvcgirl67 means by "doubling their balance sheet" with a whopping $4 Trillion in purchases. Those bond purchases are what Jeffrey Gundlach was referring to as "money spray" in one of the videos.

 

[LuvOrlando]

Yeah, I don't pay a lot of attention to Dorsey on anything -- and he's like Elon Musk in promoting things he has investments in.

To me, the scariest comment was Paul Tudor Jones talking about the $3.5 Trillion M2 -- money just sitting in bank accounts. That's going to continue to fuel inflation, no matter what happens in supply chains, or what Congress and the Fed do or don't do. That's pure money in consumers pockets.

I also loved Jeffrey Gundlach's description of "money spray," lol.

So is there actually an argument taking shape that the only thing good for American's is empty bank accounts? Doesn't that seem a smidge sketchy to you?

How anyone could convince us, as a nation, that we are better off in debt is beyond me and yet I keep seeing it all over the place. Where is this coming from and who is benefiting?

 

[dvcgirl67]

So is there actually an argument taking shape that the only thing good for American's is empty bank accounts? Doesn't that seem a smidge sketchy to you?

No, that's not the argument. It's simply that we have a lot of money floating around and not enough goods....due to supply constraints...etc. That's causing prices to spike. I saw Mohammed El-Arian this week, a brilliant guy who downplayed these "hyperinflation" comments. He said that we're going to see core inflation rise a bit more, into next year. But he also said if we got near double digit inflation that the problem is going to self-correct....with massive demand destruction. We're not Zimbabwe or Venezuela. Hyperinflation isn't going to happen here. Those kinds of comments get a lot of "bro investors" super excited about buying more crypto.

 

[JimMIA]

So is there actually an argument taking shape that the only thing good for American's is empty bank accounts?

No, that's not the argument at all. The money is a result of the vast amount of money the government has pumped into the economy over the last two years...and it's a very real potential source of future demand. Nobody is advocating emptying of bank accounts (a higher savings rate would be beneficial). But realistically people have been constrained in their spending and a natural expectation is that once the constraints are gone, a good bit of that money in savings accounts will be spent in the consumer economy.

 

[LuvOrlando]

No, that's not the argument. It's simply that we have a lot of money floating around and not enough goods....due to supply constraints...etc. That's causing prices to spike. I saw Mohammed El-Arian this week, a brilliant guy who downplayed these "hyperinflation" comments. He said that we're going to see core inflation rise a bit more, into next year. But he also said if we got near double digit inflation that the problem is going to self-correct....with massive demand destruction. We're not Zimbabwe or Venezuela. Hyperinflation isn't going to happen here. Those kinds of comments get a lot of "bro investors" super excited about buying more crypto.

I would agree with what you are saying. I think the indicators are being twisted and it almost seems like we are being intentionally shaken because most of what I am reading is just silly.
Prices rising will trigger a flag in the price of the market basket of goods and services, but if manufacturers raise prices that could trigger the warning flag but not necessarily indicate extra money in the supply. Honestly, the machine could easily be hacked to trigger a result that isn't necessarily true. People being willing to absorb price increases in things like gas and food staples just indicates an items inelasticity, not necessarily too much money supply. Also, money in savings doesn't indicate too much supply either, not in a country of 330 million people. Maybe people are just holding cash until the bigger ticket stuff is back in play (cars, furniture & houses) or maybe they just don't want to put it into twitchy investments and 401K's because they just want it in hand because the world seems a bit twitchy right now?

 

[LuvOrlando]

No, that's not the argument at all. The money is a result of the vast amount of money the government has pumped into the economy over the last two years...and it's a very real potential source of future demand. Nobody is advocating emptying of bank accounts (a higher savings rate would be beneficial). But realistically people have been constrained in their spending and a natural expectation is that once the constraints are gone, a good bit of that money in savings accounts will be spent in the consumer economy.

I hear that but think it is just a natural bit of retraction as we move back to a new equilibrium, this recent event likely triggered a whole bunch of shifts. Maybe the markets are used to a particular level of debt tolerance in the population and now people have been shocked into wanting to have have healthy savings accounts to absorb uncertainty, so a less debt tolerant population. Certain items that enjoyed inelasticity for decades may now be more elastic as people learned they can do without. Truth is we were all taught how little we need and many are fearful of not having a financial buffer and so anyone expecting restoration to 2019 is probably underestimating the cultural shift triggered. Aren't we all supposed to have 3 months in savings, lets just say a reasonable amount of people are doing that now, in a country of 330 million that is a whole lot of money that isn't necessarily in play.