Inflation Surprise!

Consumer Prices have just been released by the Labor Department.  Here’s the summary of data to be mindful of:

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.2 percent in
May on a seasonally adjusted basis after rising 0.2 percent in April, the U.S.
Bureau of Labor Statistics reported today. Over the last 12 months, the all items
index rose 2.8 percent before seasonal adjustment.

The indexes for gasoline and shelter were the largest factors in the seasonally
adjusted increase in the all items index, as they were in April. The gasoline
index increased 1.7 percent, more than offsetting declines in some of the other
energy component indexes and led to a 0.9-percent rise in the energy index.
The medical care index rose 0.2 percent. The food index was unchanged over the month.

The index for all items less food and energy rose 0.2 percent in May. The shelter
index rose 0.3 percent in May. The indexes for new vehicles, education and
communication, and tobacco increased in May, while the indexes for household
furnishing and operations, and used cars and trucks fell. The indexes for apparel,
recreation, and personal care were unchanged.

With the June Federal Reserve meeting gaveling in this morning, it’s a given that these latest numbers will be considered.  But, the Fed looks at the numbers differently than you and me.  While the real cost of “operating a family” is reflected (generally) in the All Urban Workers segment, the Fed only considers the CPI less food and energy.

Drilling down:

A couple of legit points:  When a singular component, such as gasoline prices, goes up, it takes a long time for that one price change to fully ripple through the economy.  In fact, for gasoline, the ripple effect of a price shock can be measured out 60-months.

Makes sense when you think about it:  Everything in economics is layered.  So, for example, the retail price of gasoline goes up – like it did in this morning’s report.

At the first level (direct) it will impact people going to work.  At the second level, it will impact people who use their vehicles to deliver work product.  Say you’re a contractor:  Not only will fuel prices impact all of your products over time, but by the time you follow the fuel price increase back from the lumber yard, you’ve into the third (tertiary) level.  Eventually, you can follow the higher prices back to forest workers wherever the wood is being cut.  That rippling, however could take 60-months.

The secondary level is the one to watch, however.  That’s our contractor.  Today’s inflation will cause grousing on the job site, but in time the contractor may have to adjust prices to silence the grumbling crew, and to keep using that 7-layer Baltic birch plywood that we all like to tinker with.  It might take six months – or longer – for the plywood to go up in price.

Then, as that goes up, the cabinet shop will raise its prices…but that’s a year down the road, but when they do, it could impact the price of a spec house in….two years.

Welcome to Ripplenomics,

Back on point, the Fed – leaving out food and energy – is using a lower velocity of change measurement.  Sort of like tossing out the first layer and seeing what inflation is actually sloshing around after the headlines.

Almost no doubt that the Fed will raise tomorrow.  If they don’t, markets will collapse in a heap.  But, if they talk about further hikes to come, well, that’d be bad, too.  It’s axiomatic that markets like stability in outlooks.  Conversely, wild-eyed traders (like moi) love volatility because that makes for good trading.

For the open this morning, futures were pointing down a bit.  Whether inflation will be dubbed the cause du jour, or whether it’s the Korea talks…doesn’t much matter.  Implied volatility may head up and the world asks – again – where’s future growth coming from?

Can We Afford NK Peace?

News out of the NK talks in Singapore overnight seems to be pretty good.  The historic handshake and all aside, we note the Washington Post’s slap mentioning how Trump, elected without a majority….”  WTF?

Obviously, the Washington Post reporters don’t understand how the Electoral College works.  It’s the mechanism that prevents the whole country from being duped into the left-wing agendas underway in any number of “liberal states.”  We assume, lacking any sense of how the process works, the Post reporters don’t understand that 304 Electoral votes compared with Brand X getting 227 in the official Federal Elections Commission tally, is far-beyond their reportorial skill set.

Makes as much sense as a cop trying to write you a speeding ticket because you had hash browns for breakfast.  Such is the abysmal reporting level in politics.  It’s more about cheer-leading for the left, not facts.  Bias in plain sight.

More to our liking is that the NY Times co9verage.  Not only did they publish the text of the statement, but they also did a solid with Dennis Rodman who has turned out to be the real behind-the-scenes star in all this.

Trump, for his part tweeted:

“The fact that I am having a meeting is a major loss for the U.S., say the haters & losers. We have our hostages, testing, research and all missile launches have stopped, and these pundits, who have called me wrong from the beginning, have nothing else they can say! We will be fine!”

But don’t tell the Trump=haters in the NE press.  They will be reminding us until the Second Coming that Hillary carried liberal states.  Pah-leeze!  Enough of this BS.  We’re two years in and time to GTFU, for heavens sake.

But, they won’t.

They’re hard at work weaving the wool to pull over people’s eyes in 2018.

Economic Impacts?

There is one potential downside to a kind of détente with the NorKs.  Specifically, there is a list of 173 companies in the US Defense industry (list here) that might experience some changes. Not right away, of course, but in the longer-term.  With any lessening of tensions will likely come a lessening of revenue to these defense outfits  And that’s a tough one.

What this leads us to anticipate is a fresh round of terrorism -or a global pandemic –  in the coming year – maybe two.

Sure, sure, sounds paranoid, but follow the logic.

After the Wall came down (Berlin 1989) we were led, as a nation, to expect there would be a Peace Dividend.  There was…and supporters of Bill Clinton who point to his success with the federal budget gloss over the Peace Dividend point.

The problem, structurally, for the US, is that it was clear even as the Internet bubble was bursting in 2000-2001 – and $7 or $8-trillion of investor money was burned in the Tech Wreck collapse, – that we needed an analog to War.

Terrorism’s arrival in such an historically necessary inflection point is likely not a coincidence. It provided not only a massive expansion in “security” spending, but it has spawned a whole next industry which spans from “monetizing fear” to “synthetic growth/war substitute.”  And we’re still at it, 16-1/2 years later.

Terrorism fits the “missing growth” bill just great.  It’s not aimed as a specific country, but rather at belief sets or what I call Reality Stacks in my next book.  It’s a globalist growth model.

The fact is emerging that the world is running out of “new things to make” and so, growth is anything but assured.  Leaving us with the problem:  “What will kill people and break things such that we can get back to “growing” again?”  Sounds like Report from Iron Mountain, 101, doesn’t it?

Peace with North Korea – ultimately leading to the end of the Peninsula  war which has been in a half-century armistice – would reduce the US presence in Asia on China’s doorstep.  That will leave China more able to flex its muscles and steal any minerals and build more “islands”  in International, Taiwanese, or Philippine waters.  There is fall-out to NK peace…for China’s benefit.

Anticipating: With All Eyes on Singapore, the U.S. Quietly Opened a De Facto Embassy in Taiwan.  But, China will take Taiwan through absorption…slower but less radioactivity at the end of it.  No scorched earth.

As you ponder the ripples from all this, ask yourself one simple question.

What will provide the next global episodic burst “Synthetic Growth?”

More on this point in Peoplenomics tomorrow.

This and That’s

People are paying down personal debt.  Latest evidence?  CoreLogic March Loan Performance Insights Finds Lowest Delinquency Rates in 11 Years.

As I’ve been saying, with no big, gotta-have-its, people are reduced to spending less on banking costs.  A good thing…

Not Climate Change:  Swiss city inundated in sudden storm as shops flooded is still interesting, though.

In sports: British police: LGBT fans at World Cup should obey local law.  But wait!  Aren’t they special?  Why, such warnings make it seem like the intent is to have the World Cup be a sporting event, not turning it into a political platform to sell a viewpoint.  Unconscionable!  See the PC memos or get of the distro list, fer cryin out loud.

Bandwidth Throttling: AT&T, Justice Department await decision that could determine future of media.   While some of our colleagues in the opinion world have gone with streaming and such, like Morse Code, the printed word still gets through.  (Not that anyone reads, anymore.  That’s a separate point…)

More here Thursday…Peoplenomics for the grown-ups tomorrow.

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George Ure
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27 thoughts on “Inflation Surprise!”

  1. It wouldn’t take much more to convince me, after last night’s TV, that our world is a “Puppet Show” for some other Spezies out in wooh-wooh-land. ‘-)

    • Yeah, George asked: “What will provide the next global episodic burst “Synthetic Growth?”
      Answer: Alien invasion, real or imagined?
      Klaatu barada nikto!

  2. First I would point out that I love this website. Been coming here for years. With respect though, I think you expertise is very much economic rather than foreign affairs.

    “able to flex its muscles and steal any minerals and build more “islands”  in International, Taiwanese, or Philippine waters. ”

    The islands in question were ‘returned’ to China at the end of WW2 in accordance with the Cairo and Potsdam Declarations and pursuant to the peace treaty signed. The Spratly dispute goes back to 1876 where China owned them and the 1887 China/Vietnam Boundary convention said China owned the Spratly and Paracel islands. Indeed, we (the US) reminded the Philippines at its independence in 1946 that the Spratlys was not Philippine territory. We (the US) have decided to rewrite some history here.

    • Rick, I appreciate the input and will change my view (and writing) accordingly – I like being fact-based and thank you for your help over the years!

  3. Interesting List of Contractors.
    I see Baldwin Pianos in the B’s. but not Bechtel National or Battelle Labs.
    See EG&G and SAIC but no Parsons or MITRE. These may be more in the DOE stuff but still significant in the DOD.
    I am working on the last US Nerve Agent site, and we are using a technology there other than incineration (super critical water oxidation). We hope that it is successful here, and management doesn’t want to talk about it, but if it is there are certain places in Washington State, Japan, and the Ukraine that it can possibly clean up as well. Since I am working on certification to operate the SCWO reactors after running the Nerve Agent incinerator in Anniston AL for 15 years, I could be working well into old age if it does work.
    So we hope hermit kingdoms open up all over the world. US has tech in many places that the world has not caught up to yet, and traveling around cleaning up the worlds messes is what got me into this 46 years ago.

    • Have worked with the Mitre folks – they aren’t a company (not sure about SAIC) but Mitre is a non profit r^d outfit – ffdrc or some-such

    • Big Al

      I am curious as to your secret working “well into old age”? I worked for Parsons in Western Siberia on a “Chemical Weapons Demil” plant; and Bechtel in Richmond Ky for a similar project.
      I was shortlisted for a Bechtel WTP in Richland, WA..but since I turned 70 in that year (2015), I have been “put out to pasture”, so to speak, by Bechtel and Parsons.

      • I am with P in Richmond right now. I have about 6 years to that point which will get me vested in P’s 401K and ESOP. So
        They called me to come up here, and asked in the interview If I would commit to 10 years. I said I would if my health holds up, but as you probably know, the end of Agent Ops is scheduled for 12/23, and I will hit 70 on 1/24. As I said I was the LIC (Liquid Agent) Furnace System Engineer in Anniston until end of Agent ops, and asked to be let go in the first RIF. I then got asked to do FCC for Pueblo for a 6 mo contract that only went 3 years.
        I am studying this system and as a secondary oxidation unit for agent it should do fine; I think the look down the road is to placed like Savanna River, Hanford, then to Fukushima and Chernoble.
        If they want to send me home at 70 that will probably be OK with me, but I have always wanted to work on a clean up somewhere where the Government and the Luddite Greens were not the biggest impediment to actually restoring the environment.
        I started Chemistry and Chemical Engineering out of high school in 1972 wanting to clean up all the Superfund sites in the world, and sadly it is not industry that stands in the way. It is usually folks that see the gravy train drying up if things actually get cleaned up.

  4. Regarding the ‘haters and losers’ on nuke deals, Trump (and you) must surely be referencing Conservatives. How will Trump ever overcome the nuke standards Republicans set with Iran?

    That is, 1. Compliance is inherently impossible to verify, so no nuke deals are ever possible; 2. Sanctions can never be lifted from rogue regimes headed by murderers; and 3. All side issues that might lead to mischief in the region, or elsewhere (e.g., Sony hacking, exporting weapons and terrorism), must be fully resolved too.

    Me? I say we had an OK first inning, let’s keep playing, and let’s see if we can give peace a chance. Besides, we have to save our power for those dang Canadians. Best, Mike.

  5. It seems that the “Hillary Syndrome” (an inability to accept an unwanted outcome) now is infecting horse racing as well. There was obviously a conspiracy and the other horse was blocking for the winner.
    I have it from a “credible source” who wishes to remain anonymous that the other horse and jockey had recently traveled to Moscow to meet with Putin, Trump and several unnamed horses.

  6. RE: China and the Norks – China fears two things with the Norks: the first, that Kim produces a viable nuke arsenal that can be used to threaten the mainland if he turns rogue; and second, that if the Norks and the Southerners reengage in direct conflict and the Norks lose, China will have to either occupy the North while providing relief to millions of refugees or accept a non-communist state directly across the border. So China’s take away from all of this is stability – Kim Jong Un stays in power, the Norks dump their active nuke program (or put it into storage) and N. Korea remains a tried and true commie state living in the shadow of Beijing. Make no mistake – China is pulling the strings here. Kim’s dreams of regional domination must play second fiddle to the strategic stability of mainland China. If Kim Jong Un veers from the script, he could well suffer a fate similar to thatof his half-brother, Kim Jong Nam, who was assassinated by a poison attack at an airport in Malaysia.

  7. POT man, POT, and all those cures waiting to be unleashed on the populace, is the next great GROWTH engine!

    • Pot.. I agree.. revenue is up, violence is down, fatal accidents are down,hard drug use is down, domestic disturbances are down, and spending is up.
      Why let the cartels make the what..the number s debatable but somewhere between five bundled billion and a trillion dollars.
      The plant has literally fifty thousand beneficial products in every aspect of our lives, not counting the life saving drugs that can be made and researched. (There are some phenomenal reasearch that have been done in the U.K.) and what seven out of every half million show signs of being addicted to it. ( the same seven are also addicted to alcohol and prescription drugs)
      It devours radioactive waste. It would increase farm revenue, manufacturing, reduce our prison population.
      Those that will use it for recreational purposes already do legal or not.
      My view.. legalize it. Regulate it. Tax it. And expand research in the pharmaceutical products it can produce.
      My daddy always told me.. make a list. Positive and negative well this one the comparison between positive and negative is so vast that it doesn’t make any sense whatsoever as to why it hasn’t been legalized decades ago.
      Now curiosity has me with the potential loss of untaxed revenue by the cartels. The legalized method of buying votes in congress I wonder.. how much money is tossed and dumped on congress by the cartels alcohol industry, that would love to keep it illegal.

      • Youre claiming use of hard drugs is down since marijuana became legal in many states? Really? Weve got more meth and heroin addicts than any time I remember. And that hard drug use is leading to the growing homeless I see on the streets everywhere.

        Im not drawing parallels so much between the legalization of mj as I am wondering if the drugging of western society is corresponding to the trafficking of heroin by the CIA from drug lords in Afghanistan in return for supposed information and their supposed help in the war on terror. Just like the CIA did with cocaine and the distribution of it into the inner city black communities in the 80s and has plagued them ever since.

  8. As a do it yourselfer , what do you think is the inflation rate, away from dealers, on 7/32 drill bit holes in the engine block that after a few weeks of instalation mimic head gasket and fly wheel coolant leak.? And exhaust maifold gasket repairs needed or strength of future engine after weld??? Seems my neighborhood got slummy with a million plus a year payday servicer…just thinking jobbers

  9. So Texas is building its own “Fort Knox!”

    For the life of me I cannot imagine anyone holding gold putting it in someone else’s hands. First temptation will be for the entity to “lease” gold holdings, just like banks lease (lend) deposited savings. Then of course, there is the possibility of the entity going bankrupt! Purpose of holding gold is for security. Putting it in control in other hands is a major security breach, at least in my mind.

    • It might be a good place to put a small part of your assets, since losing all is a horrible thought, and burglaries are a real threat. I’d get proof that whatever you deposit is authentic and not tungsten, and then check it again after withdrawal.

      Of course, people are honest, but some are more honest than others.

  10. “Conversely, wild-eyed traders (like moi) love volatility because that makes for good trading.”

    You’re too smart for your own good GU (like moi);-) El presidente uses “Twitter,” buy the stock, case closed. Sell it when it breaks the 200-DSMA — it’s so simple, yes? As for NK, the media was adamant to instill in us that NK was in possession of nuclear weapons i.e. (weapons of mass destruction), remember? If, indeed, they had them, wouldn’t it be naive to believe they NK would give them up, while we keep ours? Unfortunately folks refuse to think for themselves. ;-((

    • Didn’t mean to buy twitter at this time now, meant to say first time one is aware that our pres. was using it extensively. It’ similar to many other issues. Who needs economics in to-day’s world? Meant to say B/S.

  11. Dear Mr. Ure,

    The current news that Italy is resisting EU demands to land illegal immigrants from the ngo rescue ship Aquarius brings to mind a link you supplied of global populace logic by nation. The top five most logical populaces were SE Asian nations. The sixth was Italy.

    • George could it be that the MSM is just upset that Trump uses twitter to disperse his news rather than them.

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