Profits hit with an ugly stick
By The Mogambo Guru
It was when "official government-approved" inflation figures were released that
I really lost it last week, as that particular rate of inflation is now a
staggering 5.6%. This is - as you can probably tell by the look of panic and
terror on my face - Terrible, Terrible News (TTN).
And when you look at what John Williams at shadowstats.com calculates as
inflation, according to the time-honored method of actually looking at real
prices instead of the "qualified estimates" that are used today, you will see
that annual inflation in consumer prices is actually running at over 13%! Some
of the worst in American history! We're freaking doomed!
Anthony Cherniawski of The Practical Investor is not interested in
my dour assessment of the situation, and took a look at the Bureau of Labor
Statistics' Consumer Price Index for All Urban Consumers (CPI-U), which
increased a whopping 0.5% (non-seasonally adjusted) in July, which is plenty
bad enough for one month, but one's tongue tries to hide by jumping down one's
throat when one learns that it was not a fluke, and that prices are 5.6% higher
than in July 2007! 5.6% annual inflation is the best they can wring from
admittedly-doctored statistics? Yikes! I'm screaming my guts out here!
Mr Cherniawski coolly says that I don't know the literal half of it, as "The
alarming part of this report is the acceleration of inflation in the past 3
months. While the unadjusted rate for the past 12 months was 6.2%, the 3-month
annualized rate of increase was 11.9%." Yikes! We're freaking doomed!
The report itself noted, without any hint of alarm, that "On a seasonally
adjusted basis, the CPI-U advanced 0.8 percent in July, following a 1.1 percent
increase in June." Yow!
Some of the terrifying specifics were that the energy index rose 4%, which
accounted for "about half of the overall increase in the all items index".
The worse news for people who eat food is that "the food index rose 0.9 percent
in July after rising 0.8 percent in June. Indexes for five of the six major
grocery store food groups rose at least 1.0 percent." In one freaking month!
This is outrageous inflation!
This inflation in food may be why Heraldtribune.com interviewed Vicki Escarra,
president and CEO of an outfit called America's Second Harvest, which is "the
nation's largest food bank network", and which is a name that they are soon
changing to "Feeding America", which seems oddly apropos, considering that in
January, they surveyed their 200 food banks and found that "demand was up 20
percent over last year." Wow! What an increase!
"We're seeing more and more people visiting food banks for the first time
because they've lost their jobs or they're not getting raises", she says.
Yikes! People are reduced to begging for food because they are not getting
raises!
Equally alarming is the news from John Williams at shadowstats.com, who says
that real inflation in prices, as measured in a subset of the BLS Consumer
Price Indexes, the CPI-W, "jumped to 6.2%".
What makes the CPI-W inflation subset so interesting is that, as Mr Williams
explains, "The CPI-W is used for making the annual cost-of-living adjustments
to Social Security payments" which would indicate that the federal budget
line-item for Social Security, already one of the largest categories in the
whole bloated federal budget that is already over $3 trillion a year, will be
increasing by a theoretical 6.2%, just by virtue of mandated higher payments!
Then, to make it all worse, the Labor Department reported the latest survey of
producer prices for July, the Producer Price Index, which went up by a stunning
1.2% for the month, where the only saving grace is that it is less than the
1.8% increase in June!
As Mark Gongloff so pithily explained in his Ahead Of The Tape column of the
Wall Street Journal, "While consumers suffer inflation at the bottom of the
pricing pipeline, producers feel it at the top", and that producers will be
very keen about passing higher costs along to the consumer as quickly as
possible, because "to the extent inflation gets stuck with them, their profits
suffer."
And since everybody knows the ugliness of profits suffering, I will not go into
it as it usually means that I am going to be fired soon, and I don't want to
think about that right now, other than to say that "profits that suffer" is
ugly in the best of times, and it will be Much, Much Uglier (MMU) this time,
thanks to seemingly impossible leveraged investment use of every freaking dime,
real or imagined, here or in the future.
Okay, I will say one other thing; if you are not buying gold, silver and oil in
a fit of terrified self-preservation, to the exclusion of everything else
including back-to-school clothes for your stupid kids that make them look like
mental defectives and cost a fortune, then you are almost certainly making the
biggest mistake of your life.
Well, maybe the second-biggest mistake after deciding to have the damned kids.
Or maybe the third-biggest mistake after deciding to get married in the first
damned place and then having the damned kids in the second place, but you get
the point.
Richard Daughty is general partner and COO for Smith Consultant Group,
serving the financial and medical communities, and the editor of The Mogambo
Guru economic newsletter - an avocational exercise to heap disrespect on those
who desperately deserve it.
(Republished with permission from
The Daily Reckoning. Copyright 2008, The Daily Reckoning.)
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