Well well well.... I posted on many occasions that I think inflation has been understated, and probably intentionally so in this election year.
Incredibly, nobody seemed to think the fact that oil has been steadily rising was inflationary. As if sectors such as trucking and airlines could simply absorb the increased costs of doing business with no problem at all. Even with the recent pullback in oil prices, oil has increased over 50% in the last year, and close to double over the last 18 months, and now shows signs of stabilizing at support:
futuresource.com
Note the most recent candle, which suggests reversal. Also, stochastics are oversold, and there has been volume surge that looks like it will stop the correction in its tracks.
I think we'll hear a lot more about inflation this year, and that news will not be appreciated by the market. Rising fuel prices have a cumulative effect, and this typically takes a long time to become apparent, especially in an otherwise strong economy. It is not like fuel prices have no effect on inflation at all until some threshold oil price is reached. The more gradual the price rise, the more delay there is in feeling its inflationary effects. The only thing that can possibly counteract those inflationary effects are earnings rising at a faster rate, but even that assumes companies will be willing to absorb the costs and not pass them along to customers, and simply settle for lesser earnings growth---a very dubious assumption at best, given their obligation to maximize shareholder value.
Besides things like fuel prices, I think the real rate of inflation is not very accurately reflected by the reported PPI and especially the CPI. I think there are not many consumers who would agree their real costs have increased by 3% or less per year over the last year or two, regardless of what the CPI reports. If I am correct, eventually this will have economic repercussions.
These are the kinds of slower moving forces that I think may cause some real problems for the economy (and stock markets) eventually, probably later this year.
We'll have to wait and see how this plays out, but I think the kiss of death will be if we see a significant fall in real estate prices. If that starts to become likely, I'll be seriously considering going to cash, short duration fixed income, and long-term short positions.
T |
