here, here, Russ, my man, prices at every level matter
I have refused to be fooled by the final finished product price trends
what few, including MishMan, are able to see, is what you have left unspoken
allow me to pick up the mantle (containing no wool)
liquidation is not a permanent state
it usually leads to exit from the business
let me focus on just one line of business, for argument sake
let's make it something where material prices are rising
let's track things as they are likely to evolve
and since I am running this post, I will use an example where prices are not badly out of whack inelastic, from a minor component to the whole product
e.g. price of silver rising in an IC electronic board
I choose copper roof gutters
if one were to choose copper plumbing pipes, then they are probably inelastic as hell versus the price of the $200k home
instead, copper roof gutters compete against aluminum and plastic
a friend in Philly (whose pointed nose resembles a gutter edge) tells me of stolen copper pipes and gutters
thieves see a brisk business in fenced items in bulk
we have copper prices rising
Home Depot might be seeing some slack in sales lately
neighborhood hardware stores might also see slack sales
both supply & demand will work to increase prices here
even if aggregate hardware demand is being reduced
HD might run sales on roof supplies, to encourage sales
they might even attempt to clear some asphalt shingles which are loading the inventory shelves
at the same time, they might allow for copper roof gutters to sell below cost
all in the interest of volume sales, tangential (big word) sales from added customer traffic chasing deals
in time, the supply side of copper roof gutters will diminish, adding to price pressures, even in an environment where roofing supplies generally are experiencing some deflationary pressure
(I hate that description, since deflationary implies reduced monetary aggregates)
some hardware companies will drop the entire copper roof gutter line of products
if prices rise, they might regard making any money as impossible
so copper roof gutters will be harder to find for customers
which will increase its price, where sold
in the supplier world, as copper prices work higher, profit margins might disappear on products like roof gutters
gutters have aluminum and plastic competition
so mfrs might turn to copper pipe expansion of business, where prices are more inelastic
in time, they leave production of roof gutters to the lower cost producers who can make a profit
supply continues, but from different sources
efficiency of the marketplace rules
fast forward a year, and supply of copper roof gutters continues
while demand drops off
prices rise, paid mainly by customers who live on the topshelf
what few seem to take into consideration in this price debate,
is that nothing stands still
suppliers cut back, shift production, exit product lines
customers change to other alternatives, or leave the market to the upper crust buyers
I wonder if anyone has considered what will happen to WalMart prices when the Chinese Yuan enters free floating currency markets?
and the yuan rises by 100% over several months?
imagine the plummet to WMT sales !!!
half their products will jump in price substantially
could that be one reason why WMT shares are droopy?
or is it expected saggy retail sales?
I suspect it is more the prospect of rising Chinese import prices
we have already begun to see it with Japanese products?
gonna get a lot worse
I realize one example will not end any price debate
we have absolutely horrendous inflation going on, in the fundamental sense
I see profit margins dwindling
this will result in more outsourcing to reduce costs
it will result in more product line discontinuation
the end result will be more scarcity, one way or t'other
demand will be kept afloat, kept alive, by evermore monetary excess
either continued easy debt extensions
or continued govt deficit spending, tax credits, extended jobless benefits (I hope)
these are part & parcel to what inflation is all about
doesnt anybody see how STAGFLATION is coming?
stagnant economic environment with poor incomes, bad labor market, spendable budgets falling, final demand eroding
rising cost pressures, leading to passed along price rises, wherever possible, with many exiting the business where prices cannot be passed along
SUCH IS THE NIGHTMARE OF STAGFLATION
how little we remember the 1970 decade
in all my conversations, I encounter very few people who even remember that deadly era
I remember it all too well
I was in graduate school, and got an education watching the gold bull, Volcker's battle with inflation, Arab resentment in the recycle backfire, and a decade of adjustment to systemic rising costs (primarily from energy)
we are in the process of repeating that entire chapter
but instead of energy prices driving the process.....
it will be energy, metals, fibers, grains, beans
or shall I just say EVERYTHING ???
watch the next 12 months closely
we will see massive official efforts to continue the inflationary presses
they will have trials runs to see if they can stop the inflationary engines
like end jobless benefit extensions
like end tax credits
like end IT spending capital depreciations
like even end negative real shorterm rates
BUT THEY WILL PUT THEM ALL BACK ONTO THE STOVE
because intervention is permanent
and stimulus will have to be permanent
it will continue, until price inflation shows up in the CPI, and everywhere else
that will be the final success flag to the Greenspasm Gambit
unfortunately, plenty of bond damage by then
and mortgage bond damage, with real estate damage
and consumption damage
OR SHOULD I SAY, INFLATIONARY SYSTEMIC WRECKAGE TO THE ECONOMY ???
/ jim |
