Less Disastrous Than Expected?
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2022-05-12 09:35 by Karl Denninger
in Macro Factors , 443 references Ignore this thread
Less Disastrous Than Expected?
[Comments enabled]

What sort of insanity is this?

The Producer Price Index for final demand increased 0.5 percent in April, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. This rise followed advances of 1.6 percent in March and 1.1 percent in February. (See table A.) On an unadjusted basis, final demand prices moved up 11.0 percent for the 12 months ended in April.

The "final demand" 12 month run rate is stuck at 11.0%.  I remind you that it has been rising radically through that entire table and is well above The Fed's alleged "target."  The claim of "transitory" is proved to be a howling lie by this table, since this is literally a year's worth of "triple the target rate" inflation at the producer level, which then must work its way down to retail.

Food and energy are monsters in everyone's budget, like it or not.  Energy is the hydra that wipes out everyone else because it literally is in everything.  As I have often observed behind every unit of GDP is a unit of energy; this is a fact and no amount of arm-waving will change it, so if you wish to attack energy sources and consumption you are, by definition, attacking economic output and the economic health of the common American person.

It does not matter how you feel about various energy sources.  Mathematics does not care about your feelings, and neither does physics -- and thermodynamics.

What's much worse is that we are seeing 2%+ monthly increases in intermediate demand goods -- and 48% annualized for unprocessed.  That too is a more than a year long trend with 12 month annualized prices in excess of fifty percent.  Folks, that's a doubling in less than two years and these are unprocessed goods, which means they're yet to work their way through the system.

Don't think "services" are ok either -- they're not, with the price increase running three to four times the so-called 2% "inflation target."

No, folks, it's not slowing down -- at all.

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Winesorbet
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Who said it was less disastrous than expected? Let me guess, CNBS
Shadowmask
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There was a decrease in the increase. See? The official word is "decrease." Don't let your lyin' eyes fool you about what you see at the the store and gas pump.
Ewtnewbie2
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THIS is the main reason I am selling out of my business and becoming an employee rather than an owner. Insurance hasn't even HINTED at paying more for a procedure yet everything that goes into that procedure has gone up in price. At some point, the owner loses profits in the business and/or loses income as the dentist in order to protect the profits. Sorry, not going to get squeezed into making money for someone other than myself at this point. Especially since I cannot control the input costs that are being pushed down my throat. I'll work as an employee and get paid a percentage of my production rather than risk the entire business just to have a place to come to work every day. No thank you Mr. Biden and the Woke Mob. #FJB
Moconserv
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Central Missouri
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Yeah but the average "shmo" looking at the TV sees the spin and breathes a sigh of relief.... can fit in another trip to the Chinese buffet on the credit card.

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Beyond pissed.....
Twainfan2
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MN
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Transitory? I do not think that word means what you think it means.

Is there a pool to pick dates as to when the cities will start to burn this summer?
Andrew
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This is like one party saying "they're cutting something" and the other party saying "our opponents are cutting something" when in reality, the only thing "cut" is the "% of increase over last year".
T2
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Brandon says the Putin Price Hike is going to be his major domestic agenda item, right after he sends another $40 billion at Ukraine, and whats worse is how supporters, and theres a lot of them, on Facebook actually believe this tripe.

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In California, no one can hear you scream.
Tdurden
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Quote:
No, folks, it's not slowing down -- at all.
As they say: it's not the fall that kills you, it's that sudden stop at the bottom.

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"I'd like to live just long enough to be there when they cut off your head and stick it on a pike as a warning to the next 10 generations that some favors come with too high of a price." -Vir Cotto Babylon 5
Calrissian
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CNBC had Prof' Siegel on yesterday, who was noting the lag on inflation/hikes is perhaps as much as 18mths. Indeed, whilst the economy is arguably falling into recession, we still have major inflationary pressures.

On any basis, inflation will be inclined to increase well into the summer.

... and I'm talking about the summer of 2023 !

The US/global consumer is set to get crushed.
The mainstream denial is off the scale.
Acebarefoot
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Every chance I get I always bring up "What happened to Transient?"

Anybody who doesn't take a minute to think about it or give me that "Uh huh" nod gets put on ignore.....As in I pay them no attention....they no longer exist....I walk away as they are defending Brandon.

I am tired of entertaining stupid......
Frat
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So... Buy all the food and simple hand tools/basic needs you can before it gets worse? Lovely. Aldi isn't my normal spot, but I've got freezer space. Dang, even though Mrs. Frat and I've made more money than ever before, there's no way it keeps up with this. Sigh.

Bend over. Long lube.

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We're fucked. There will be no happy ending here; there is no going back to 'normal.'. There are only bad outcomes and worse outcomes. And we don't get to choose those, either.
Latviski
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@Ewtnewbie2
I totally get what you are saying, and for smaller mom and pop dental shops the pressure is huge. Weve found ways to buffer and actually lower operating costs significantly the last couple of years while ramping profits. Im much better off as an owner than I was an associate a few years ago. That being said my practice is not the norm and I totally feel for the guys running a smaller one or two man show. I def wouldnt think of starting a practice as a new grad- that dream has been torched for the next gen. We run 5 docs, 6 hygiene and have converted many patients to our own in house insurance. Weve also leveraged economy of scale significantly - possible only bc of the numbers we put up and therefore volume of materials we use. Its still a constant battle with the horrible insurance companies though. I write detailed letters to any patient that gets treatment denied, complete with pics/ radiographs so they are fully aware their insurance denied essential treatment even though they prepaid!
Kiwiapsa
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michigan
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Wife and I were talking several months ago about the rising inflation, along with other economic trends. The question that arose was something like, "How are those who are deeply in debt or lower on the economic scale affording food, gas, and basic necessities now, or especially in the future?" Having once been in massive credit card debt I figured that's where they'll go. Sure enough, consumer credit debt has been trending up, up, and way up. I wonder how many are reaching the stage where the minimum payments are what's being paid, and the credit limits are within sight? The majority have no idea what's really happening and where it's all headed.
Thombradley
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To Ewtnewbie2

How much of your billings were covered by insurance? My insurance (and I looked around) has a yearly benefit of 1500. Thats great if you only need 2 cleanings and varnish, annual x rays and thats it. A cap or root canal and your way into your pocket. Just wondering how a new owner is going to make a go of it if you cant? Someone is going to hold the bag.
Flappingeagle
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Here are my predictions for everyone to see:
S&P 500 at 320, DOW at 2200, Gold $300/oz, and Corn $2/bu.
No sign that housing, equities, or farmland are in a bubble- Yellen 11/14/13
Trying to leave the Rat Race to the rats...
Ewtnewbie2
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OH, there is no doubt in my mind the "new owner" is going to hold the bag for sure. I'm selling the building and practice, working as an associate for the rest of the year, and then I'm a free agent to work here if I want or find greener pastures.

My overhead right now is great...but I don't see that overhead staying low going forward, so time to exit while the getting is good and someone else wants to hold the bag. I'll write more later, time to get chairside again.
Proverbs16.33
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I was just explaining to a newly-more-aware-and-now-horrified co-worker about how much more of this we have to look forward to. While covid, ukraine, and politics have been shrugged off by the masses, even the normiest of the normals can't ignore the food prices at this point. I guess that's a good sign, but it sure doesn't really seem like much good is coming out of it.
Ewtnewbie2
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My one man band, one assistant, two front desk and two hygienists bills just under $1M per year and collects almost every penny and we only work 20 hours a week seeing patients. I have GREAT reimbursement rates from insurance companies compared to my competition, as I am a 5-star office, years of experience, and being on my own, the patients know exactly who they are going to see. Unique in today's dental world--and the trust my patients have in us is also unique.

Insurance does represent 50% of what we get each year, but the reality is that patient DO pay out of pocket to get the work done they need. No getting around that in today's environment. We have an in house insurance program as well, but my adult restorative practice is driven by the working adults of the world with insurance and retirees that join our insurance program.

We have "low cost providers" very nearby so they tend to skim away the true price shoppers, bargain hunters, and poor. We get the cream of the crop by offering value. We don't nickel and dime people, and they appreciate it. So many dentists are pushing, pushing, pushing...we just sit back and discuss options and then let the patient decide when the time is right to follow through. They appreciate that.

I'll miss being the owner, and running my own shop, no question. I've been more than successful at this game for 30 years, but this is the year to cash in the chips and take the equity off the table--while I can. Can't be a seller unless there is a willing buyer. :-)
Nadavegan
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@proverbs16.33 - the best thing that can possibly come will be more pain, and quickly. Our only hope is to bypass the slow-boiling frog and get straight to scalding pain. Then MAYBE people will wake up and get angry.

I expect that most of the normies are waiting out election season. If the R's truly do catch a "Red Wave", they better brace themselves, because that will require action, decisively and immediately. If they do not, it will be their houses that burn, not the Dems.

Think about what is going to be true in 5 months: rising covid case rates and a "new" variant, still smoking inflation, consumers who have reached the end of their credit capacity, and my personal favorite: mass layoffs and the contraction of the job market. It's coming.

If the R's do not have a plan in place for this, they may be the ones to decorate a streetlamp or two. They will have to prepare to deal with being called racist homophobic transhaters and just get to doing what needs to be done. If there is anything that can be done, that is.
Kirklandguy
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Ohio
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Frat wrote..
So... Buy all the food and simple hand tools/basic needs you can before it gets worse? Lovely. Aldi isn't my normal spot, but I've got freezer space. Dang, even though Mrs. Frat and I've made more money than ever before, there's no way it keeps up with this. Sigh.


Same. Wife's been shopping at Aldi the last year or so tracking prices. She went yesterday and came back with a notebook full of items that were 20-40% more expensive from even just 3 months ago.

We have a large chest freezer that is slowly filling up, as well as a basement pantry area for canned goods.
I make the most I ever have in inflation-unadjusted $$ this year, but well, when food/energy prices soar like this, it sure doesn't feel like it.
Czyhorse
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How soon before it all breaks? Gradually and then all at once...
Latviski
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Colorado
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@Ewtnewbie2
Great numbers for hours worked! And sounds like youve got the plan and are putting it into motion so hats off to you. Im 6 years into my career; my associates cover my note and then some, and I have amazing staff that allow me to individually push about 2.3-2.5M production a year on 4 days. Super lucky to be in an affluent area where 8 veneers or all on 4 cases are pocket change to the average resident...
Cletusnclovis
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kansas cattle country
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Flappingeagle,
The big oil companies won't kiss his and the environmental wacko's asses that it takes to explore and produce there. They aren't stupid enough to take the bait he is offering so Biden and his admin HAD to cancel basically because there are no real bidders.
Due to lack of industry interest in leasing in the area, the Department will not move forward with the proposed Cook Inlet OCS oil and gas lease sale 258 or the Cook Inlet project, DOI said.
Jerry_d
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@Twainfan2 I was wondering the same, about the cities -- I think Chicago may be high on the list this summer
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