FedUpUSA

Archive for the ‘Consumers’ Category

But, but, but….. as Professor Kack (or is that “Hack”) said, there’s no indication of inflation:

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.5 percent in July on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 3.6 percent before seasonal adjustment.

This is “no indication of trouble”, right?  1.005 ^ 12 = 6.2% annualized inflation.

Not a problem, right?

What’s been flying upward?  Gasoline, clothing, electricity and groceries.

You don’t need to buy any of those, right?  You can hide out in things that aren’t going up much, like commodities less food and energy?

Yeah, right.

Oh, and Bernanke?  He claims he wants to see 1-2% inflation despite clear language in The Federal Reserve Act that mandates stable prices.  Well, how’s he doing?

The Consumer Price Index for All Urban Consumers (CPI-U) increased 3.6 percent over the last 12 months to an index level of 225.922 (1982-84=100). For the month, the index increased 0.1 percent prior to seasonal adjustment.

The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) increased 4.1 percent over the last 12 months to an index level of 222.686 (1982-84=100). For the month, the index increased 0.1 percent prior to seasonal adjustment.

Why did we have The Coinage Act of 1792 again?  Oh that might be so that the common man doesn’t get screwed, blued and tattooed by those who would otherwise intentionally destroy his saved capital.

It’s time to bring it back, including the penalty clause, with sentences to be carried out in public on The National Mall.

Does inflation even matter?  The growing secrecy of the CPI and how average Americans face budget squeezes through financial maneuvering and the chained CPI.

Things seem to be progressively getting worse for the middle class as most of the debt ceiling talks revolve on sticking it to working Americans as if they were financially able to handle any more austerity moving forward.  While the too big to fail banks swim around in pools of bailout money like Scrooge McDuck both sides seek to squeeze more pennies out of working class Americans.  One way that the middle class has been hammered over the past few decades comes from the way we measure inflation.  The CPI measure through the Bureau of Labor and Statistics does not even examine actual home ownership carrying costs and uses a very open method of calculating home costs by using an owner’s equivalent of rent.  This is why during the most obvious housing bubble in history home prices seemed to be increasing at a moderate pace according to the CPI while the more accurate Case Shiller Index was registering annual increases of 15 percent or more.  This is important because so much rides on accurately measuring inflation in our country and more is trying to be done to stifle information that reflects the real changes to our overall economy.

Inflation growing slowly if we exclude food and energy

I always find it amazing how some pundits like to remove food and energy from measuring the CPI yet so much spending goes into these two items.  This is also important since stagnant paychecks don’t go as far in covering these monthly budget needs.  As we go forward we start getting a more inaccurate perception of inflation.  For example, housing is the biggest item in the CPI because most Americans spend the largest amount of money on housing per month.  So with that said, you would expect an accurate reflection in the CPI for housing.  But if we look at the CPI housing measure versus the Case Shiller Index we realize a serious problem is occurring:

Read the rest at My Budget 360

The Federal Reserve has one clear mandate.  That mandate involves protecting the biggest investment and commercial banks on Wall Street at the expense of the American people.  This deflation of quality of life is being felt in the most clandestine and subtle ways like a shift in the wind.  The Federal Reserve through archaic money operations has bailed out the too big to fail and has passed on the bill to millions of Americans.  We are now seeing this through the rising cost of goods outside of housing.  As noted before manufacturers unable to charge Americans with an average annual income of $25,000 anymore on goods for fear of losing customers, many producers are simply shrinking the package of items hoping customers do not notice.  Aside from this hidden cost since the US dollar is being devalued by virtual money printing, the CPI which is heavily weighted by housing is also showing increases in inflation.  As expected it looks like the Fed is only concerned with protecting one sector of our economy.

The Federal Reserve causing another bubble?

The above chart shows the Federal Funds Rate and the current CPI year-over-year change.  The above chart highlights the minor bout of deflation we faced in 2009 after the 2007 and 2008 market collapse.  Yet the CPI is now steadily up but the Federal Funds Rate has been stuck at near zero since late 2008.  If you recall, the housing bubble was largely fueled by the Fed holding the funds rate too low for too long.  Why?  Former chief of the Fed Alan Greenspan was trying to re-inflate the economy after the technology bubble burst.  The result was the biggest housing bubble the world has ever witnessed.  There has never been a period in history where the entire globe from Sydney to Los Angeles to London all faced simultaneously rising housing bubbles.

The Fed currently has a negative real interest rate and their propaganda to the public is that they are trying to increase lending.  Yet as we have documented many times before banks are not lending to the average American or small businesses in any meaningful way.  The real reason the Fed is keeping rates at these low levels is to allow banks all the time in the world to inflate their toxic assets via a transfer of wealth from the public to the banking system.  Inflation does this through an insidious way.  The US dollar losing its purchasing power is making it harder and harder for Americans to achieve any semblance of the middle class lifestyle.  It is rather clear that the Fed and the banking system has no remorse for the middle class of America but current chair Ben Bernanke does not even care about the problems caused by these actions on a global scale:

“(Mercury News) China and other emerging markets have blamed the Fed’s strategy for sending waves of capital rushing to their shores, creating a threat of inflation. But Bernanke said the influx of capital appeared to be driven more by investors’ desire to get a higher return in emerging economies than by the Fed’s policies.

He admonished emerging nations to acknowledge that they have “a strong interest in a continued economic recovery in the advanced economies,” and said they should consider deploying their own tools to manage their economies and prevent overheating.”

This should make it clear who the Fed is really fighting for.  It is primarily concerned with protecting the banking system.  It is essentially playing chicken with the world banking system since the US dollar is still the biggest reserve currency.  Yet for how long?  Inflation in these countries cannot continue without domestic political ramifications.  Say China allows their currency to appreciate. What do you think that will do to the cost of goods Americans buy?  With stagnant wages is this going to help?  Of course not but the Federal Reserve is really looking at bailing out the massive debt of banks through a slow loss of the middle class.

MIT has a fascinating inflation tracking tool called The Billion Prices Project:

“The Billion Prices Project is an academic initiative that collects prices from hundreds of online retailers around the world on a daily basis to conduct economic research. We currently monitor daily price fluctuations of ~5 million items sold by ~300 online retailers in more than 70 countries.”

This is showing a much higher inflation rate:

Source:  MIT

Most of us already know this.  Outside of housing which many Americans only buy on a very infrequent basis (at least before the housing bubble) many key items are showing giant jumps in prices:

Food is heading up:

Energy is way up:

Medical care has only gone up:

In the end what most Americans are realizing with the above changes is that their paycheck is buying less and less each year.  The Federal Reserve is purposefully trying to create inflation not to help the public, but to bailout the decade long fiasco wrought by the investment banking sector.  Typical of the Fed the stock market has rallied 100 percent since the March 2009 low even though the vast majority of Americans cannot participate in the market (the average retirement account is $2,000).  Instead of lending banks are merely recycling money back into the Wall Street casino by chasing global bubbles.

Those who think inflation is the answer to this crisis need only look at countries that have suffered major bouts of inflation.

My Budget360

The Fed’s policies are pricing basic morning staples out of reach — and the results may come back to haunt even those who don’t notice.

“Poverty wants some things, luxury many things, avarice all things.”-Benjamin Franklin

Yesterday, one of our young Jedi analysts at Hedgeye, Kevin Kaiser, sent me a highlight from The Grocer (an industry trade rag) that inflating food prices are making ordinary breakfast items like orange and apple juice a “luxury.”

Now a Wall Street analyst at a sell side investment bank would find a way to dress this data point up with a pig’s lipstick and call it an “affordable luxury.” Someone working for Federal Reserve Chief Ben Bernanke probably calls something like breakfast “non-core” or “free.” But we simpleton, non-recipients of government bailout moneys, just call it what it is – inflation.

Six months ago we didn’t have global inflation accelerating. We had a US dollar index that wasn’t being debauched (7.7% higher at $83), a CRB Commodities Index (19 commodity basket) that was 30% lower in price, and we didn’t have Quantitative Guessing Part Deux either. Back then, free markets pricing in a strong U.S. dollar and low inflation was a bullish signal to buy U.S. equities. Today, the  latest big government intervention scheme is debauching the dollar and perpetuating higher inflation. Back then, I dropped my cash position to 46%. Today, I’ve raised it to 67%. (And understand that I’m not one of these perma-bulls who needs to be invested trying to get back to a 2007 high-water mark gone bad.)

Yesterday, we saw a new high-water mark established in the real-world inflation reading. With the U.S. dollar getting burned at the stake (down 1% on the day, making a move towards a 6-month low), the CRB Commodities Index was hitting a freshly squeezed 6-month high. All luxury things considered, if you are one of the 44 milllion Americans who lives on food stamps, how do you like them apples?

Now setting aside the inconvenient truth that there’s never been a global economic powerhouse that has devalued its way to prosperity, let’s give the Bernanke a little something to bring to his dance with America’s new chair of the US Financial Services Sub-Committee on Domestic Monetary Policy, Ron Paul, on February 9th. Here are the 6-month price percentage moves in some of the things people need to live with:

• Cotton = +125.7%
• Sugar = +82.6%
• Corn = +59.0%
• Coffee = +41.4%
• Rice = +40.5%
• Oats = +36.6%
• Copper = +36.1%
• Lumber = +33.8%
• Oil = +25.1%

Yeah, I guess for the sake of professional policy makers in DC who get dinner for free and a car service to work, I should stop there. To make the Top 10 things that may or may not be considered “luxury things,” you really need to have inflated on the order of 25% or more. Pork bellies are only up 10.7% in the last 6 months – so go have yourself some powdered Keynesian Kool-Aid with some sausage links for lunch and like it.

Over that same 6-month period the dollar has droppred almost 6% and now has an inverse correlation to the price of rice and wheat.

So where does that leave the almighty American Consumer? That’s easy, pull up some charts of U.S. consumer stocks – and pull up some big ones like Procter & Gamble (PG), McDonalds (MCD), and Target (TGT).

Sure, since most people in this business read points of view in terms of how it directly addresses their personal positioning, I’m sure you can find me some US Consumer stocks that used to look like Coach (COH) — before the man-purse idea didn’t take  CEO Lew Frankfort to the moon — but overall, Consumer Staples (XLP) and Consumer Discretionary (XLY) are the 2 worst sectors in the entire US stock market all of a sudden for a reason, down 1.84% and 0.97% in the last 3 weeks of trading, respectively.

On a more positive note, Hosni Mubarak turned on the internet. So now all of our Egyptian friends can start tweeting Hedgeye’s 6-month table of real-world inflation to their friends again. Social networking tools are going to continue to revolutionize the transparency and accountability standards that the people of this world hold their governments to. That’s a luxury thing of personal liberty that I can believe in.

CNNMoney

The Benefits Of Contract Abrogation According To Mark Zandi: 6 Million People Not Making Mortgage Payments Frees Up $8 Billion Each Month

Submitted by Tyler Durden

We have disclosed on numerous occasions how excess refunds by the Federal Government despite subpar withholdings is goosing up consumer spending. Now we hear from none other than Mark Zandi of Moody’s Economy that the government’s tacit encouragement for “homeowners” to not pay their mortgage dues is freeing up $8 billion each month that is artificially increasing consumer spending and iPad preorders. And with banks not marking anything to market, all these houses that generate no cash flow are still marked at 100 cents on the books. If you ever needed a justification to not pay your credit card, your mortgage, or anyone else you owe money, now you know – contract law in America no longer exists. Just stop paying everything. And please dont save. Saving is for non-banana republics. Remember – the market is never wrong. And nobody can remember when was the last time we had a downday. So all must be well.

From Diana Olick’s blog:

I opened up a big can of debate Monday, when I repeated some chatter around that consumer spending might be juiced by all those folks not paying their mortgage. 

They have a little extra cash, so they’re spending it at the mall.

Some of you thought the premise had some validity, others, as is often the case, told me I was an idiot.

Well after the blog went up Erin Burnett put the question to Economist Robert Shiller, of the S&P/Case Shiller Home Price Index, during an interview on Street Signs.

He didn’t deny the possibility, and added:

“In some sense there might be a silver lining in that.”

Then I decided to ask Mark Zandi, of Moody’s Economy.com, who will often shoot down my more ridiculous theories.

I asked him if this was a crazy idea:

No, not crazy. With some 6 million homeowners not making mortgage payments (some loans are in trial mod programs and paying something but still in delinquency or default status), this is probably freeing up roughly $8 billion in cash each month. Assuming this cash is spent (not too bad an assumption), it amounts to nearly one percent of consumer spending. The saving rate is also much lower as a result. The impact on spending growth is less significant as that is a function of the change in the number of homeowners not making payments.

I’m not sure I would say this is juicing up spending, but resulting in more spending than would be the case otherwise.

Many of these stressed homeowners (due to unemployment) are reducing their spending, just not as much as they would have if they were still making their mortgage payment.