Indeflation
One of our core maxims here at Financology is that inflation first shows up in asset prices, and only with long and variable lags, does it finally make its appearance in consumer prices. Once persistent asset price inflation arises, the outcomes from there are limited, almost as if it were a law of physics. Either asset prices will come back down or consumer prices rise to meet them. Or some messy combination of both, where we experience a kind of tug-of-war between consumer price inflation and asset price deflation. For want of a better word, you could call it indeflation.
We are now into the some messy combination of both.
Agreed.
Some asset prices will rise, anything that comes from Hydrocarbons. Given that there is all so much money about then other assets will fall…..like housing. I did note that during the panic of 08 the asking price of a “Professional female” more than halved.
China is flooding the UK with new cars & the British government does not give a stuff! We only got a few car factory about the place & the new cars are almost all Ev’s which is wot the government wants.
You might recall that as a direct result of that little mishap over a cannel in Egypt the limey scum were forced to build a nasty little shit box called “the Mini”. Vast amount of hype to cover up it was badly made death trap……..well history repeats
https://www.carscoops.com/2026/05/mini-rocketman-revival/
The PLEBS need to drive something!
Mike
This … especially the second link … is an eye opener. Even if you strip out oil, commodities have been going to town.
I called attention to this little noticed point in the commodity thread, but it’s worth repeating.
‘The revenge of old economy in real time:’ Top Wall Street voice calls a commodity supercycle
“Currie opened the thread with a performance table tied to the October 2020 supercycle call he made while at Goldman. By his numbers, the QCI Commodity Total Return Index is up 217% since then.
The S&P GSCI Total Return is up 205%. Gold – as tracked by the iShares Gold Trust GLD is up 140%. The Nasdaq 100, tracked by the Invesco QQQ Trust QQQ, trails at 130%. The S&P 500 is up 85%.”
Something Historic Is Quietly Lifting Commodities To Records — And It’s Not Hormuz
“The Bloomberg Commodity Index ex-Energy topped 155 levels this week, breaking out above its 2011 high and sitting roughly 13% above its 40-week moving average.
…
It is a record set without crude oil. The move is structural. And it is wired directly into the AI race.”
Emphasis added. To a first approximation, this is illuminating a major inflation pathway … from money printing and interest rate suppression, through stock prices, through a tech bubble, and finally to commodity prices.
The inflation the conventional economics crowd is just waking up to has been in the pipeline for years. We can trace it at least as far back as the post-2008 reflation-gone-on-too-long through the post-covid reflation-gone-on-too-long and through the 2022-2024 giving-in-to-inflation-too-soon monetary re-easing.
Like a Sauce bottle………..one slap…..nothing……..2 slaps…….nothing……3 slaps & the Bloody lot arrives on your dinner plate!
Mike
Great simile! Of course another, much more heavily covered inflation track is through war. Both are phenomena of the illusion of capital being made to appear cheaper than it really is. Paper capital is unlimited, but real capital is finite. There is no way to have all the data centers, space exploration, crypto speculation, international conflict and war, you want and abundant and affordable housing, infrastructure, medicine, education, etc. Real resources are finite and getting more of one thing means less of something else. Everything is connected.
I wonder what “They” do?
Lie about inflation?……………..say its just a short term spike?………..or cut consuming by higher rates?…………….all BAD choices
Yes. The correct solution would have been to ease up on the inflationary gas pedal when the crises were over, instead of inflating asset bubbles. But having failed to do that, the only choices left are bad ones. A brutal collapse of asset prices or years of intractable consumer price inflation. My guess is they will attempt to steer a middle ground … “some messy combination of both”.
The Fed has traditionally excluded consideration of asset prices from its reckoning of inflation, instead focusing on prices furthest downstream the inflationary chain. The exact opposite of what it should be doing, if its focus were economic stability and the welfare of the average American. There aren’t that many possible explanations. One is that they don’t know what they’re doing. Another is that they’re working for Wall Street. Take your pick!
Brent $112………..
WTIC $107.26
Reeves urges supermarkets to cap grocery prices
Retailers describe the Chancellor’s proposal as a ‘desperate’ attempt to tackle rising costs
No matter which side of the pond, government seems to always have ideas for how somebody besides itself can keep inflation at bay.
That screams of superficial optics and shallow theatrics.
It also shouts government incompetence/impotence.
A solid 5 on the internationally recognised 1 to Venezuela scale.
Still no Gas lines or BIG price jumps……………
Not to dismiss the impact on people who have to drive a lot, but it looks to me like it’s more media hysteria than real. Like the fuss over tariffs … mud for the opposition press to hurl at the incumbents in an election year. In real life conversations with real life people, I haven’t heard a single complaint about gas prices. Not that people aren’t being squeezed by inflation, but it’s more generalized – housing, groceries, utilities, medical – everything, not just gasoline.
I don’t think we’ll see lines for gasoline in the U.S. as I believe that we don’t really have to import crude oil as we did in the 1970s. I can imagine countries that don’t have significant domestic production having supply shortage issues. What I am seeing in the U.S., though, are lines at gasoline stations that have low prices. These gasoline stations did not have lines when fuel was much less expensive. [I could buy a gallon of regular unleaded gasoline for about $2.00 before the war with Iran began.] People are feeling the squeeze at the pump and are going out of their way to save money on gasoline.
I drive a diesel vehicle outside the continental US.
I can get approx 1000km per tank and I fill up approx once a month.
Feb: 1x pre-strike
March: 2x double
April: 3x triple
May: back down to 2.25x
We’re definitely seeing it flow thru the economy in terms of input costs across sectors starting with transportation.
And we’re seeing reduced discretionary spending having an impact on hospitality, leisure/entertainment, and durable consumer goods retail sales.
So pretty much a carbon copy of what Finster is saying.
But I can see risk of specialty POL running into supply chain disruption within 3-6 months.
Developing world LPG shortages seem baked into the cake at this point.
Naphtha/polyethylene shortage is going to have some pain points.
Same with Group III oils/lubricant shortages becoming problematic.
As mentioned earlier, even stripping out energy, commodities are on a roll. But they will become even more so as raw material and energy prices flow through supply chains. It takes energy to run the farm machinery to grow crops, get them to processors, then to ship and distribute the goods to final consumers. Plastics (containers) and fertilizers use petroleum based products too. Helium is used to make electronic chips. Agricultural commodities like soy, corn, pork bellies, etcetera are all in the downstream pricing chain, as are metals whose mining and refining also requires energy. Even Walmart reports that it has to raise prices due to higher fuel costs.
Prices of all these things are rising due to inflationary dollar depreciation as well. Even before geopolitical drama started grabbing the headlines, the Fed had revved up the money machine. Check out the analysis by Lacy Hunt here:
Dr. Lacy Hunt – A Fed-Driven Liquidity Event and Oil Shock
As Hunt points out, the Fed started throwing gasoline on the inflation fire well before war broke out. And as we noted earlier, oil prices bottomed out last December and started rising then. So we have a double whammy going … inflationary price increases with real price increases layered on top.
Hunt goes on to describe what we might summarize as “some messy combination of both”.
Ah……………….Stellantis, the British Leyland of the 2020’s
Press statement:-
……………….”and the introduction of the groundbreaking E-Car, a new generation of stylish and affordable city-friendly electric vehicles to be made in Europe, starting with the Company’s Pomigliano d’Arco, Italy plant,”
Or in plane English:-
“You F88king Plebs are getting a new car to replace your DIESELS!
Mega’s Dispatch from England:- Beware the eyes of August
So, we just had it……the Government sez that bus travel will be FREE in August.
RIIIGHT………….that tells me that thats when the Gas lines will begin.
Right now most UK news is about our Prime Minster & the attempts to remove him. Andy Burnham is going to try, but he is NOT a MP……so he got to win a seat. An sitting MP has agreed to step aside ……..but the area in question has just voted heavy for Reform. There is very good chance he could lose.
I tried to warn everyone i now what is coming but they not interested……….oh well.
Cheers
Mike
Hmmm … free bus service in August … beware government bearing “gifts” …
https://www.autocar.co.uk/car-news/electric-cars/official-citroen-confirms-2cv-name-and-styling-%C2%A315k-city-car
Investing in a World in Turmoil
Rickards saves the best for last … “TINA and FOMO are not your friends. Diversification is.”
But let’s take the details point by point. He recommends having some stocks, but dialing down the overvalued stuff the mainstream is excited about, and the passive cap weighted US indices that are are heavy in them. Have some bonds, especially medium term treasuries. Have some gold, which he calls the “everything hedge”. Have some cash … dry poweder to rake advantage of bargains when something else goes on sale.
I’d add a couple tweaks. Broaden out the treasuries to the whole maturity spectrum. Market weighting it will give you about the same average maturity but add some roll yield. Diversify your gold position with a bit of silver, platinum and copper. Include some broad commodities exposure, to bring in energy and agriculture. That last bit has done a lot these past few months by going up when everything else was going down.
So we closely share Rickard’s views. In fact with the tweaks implemented in ETFs we have the Financology Model Portfolios. They broaden and flatten out the stock allocation by going global with VT and using VYM, VFMF, VYMI, VSS to dial down pure cap weighting with dividends, quality and value. Instead of medium term treasuries, we take whole yield curve. GOVT includes short, medium and long term treasuries, and has been effectively the “dividend growth” fund of the treasury world for years, increasing its distributions as lower yielding issues are replaced with higher yielding ones. IAU is complemented with smaller positions in SLV, PLTM, CPER. And finally, we’ve included REET to patch up the exclusion of REITs in VYM & VYMI and bolster hard asset exposure. These ETFs are widely available in the US, though investors outside the US can follow the same principles with UCITS or whatever else is on their menus.
Investors have been led to believe that by owning the S&P 500, they’re diversified. But the S&P has grown top heavy by virtue of just the top ten stocks accounting for some 40% of its value. Meawhile, it excludes small caps and the rest of the world’s stock markets. It has no bonds, no gold, no silver, nor oil nor corn nor any other commodities, some of which have outperformed even the much touted S&P for variously weeks, months, years or even decades. That’s not diversified. Diversified can both reduce your risk and increase your returns. It’s the only free lunch in investing.