President Biden has a price problem. On that, we can all agree. We see it every day. Prices under this President are way too high.
When prices across the board are rising like they are now, we call it run-away inflation. And we haven’t seen inflation anywhere near where it is today for a couple of generations.
I believe that the principal reason that the Administration appears to be floundering the way it is currently is first and foremost a misdirection. A misdirection of just what is causing this pricing storm.
Most of this comes from the Media’s portrait of the President. His image is that of a kind-hearted grandfatherly type. Who may be fading some? And that may indeed be partially true. But it is most certainly not true for the Secretaries and Advisors who surround the President. I believe that have a clear agenda.
Just not one they wish to reveal yet.
So instead they reveal a somewhat doddering old gentleman with an inflation problem. Just lower prices go this thinking and everything will return to normal. For the country and for this President.
But any basic foundation in economics and finance, something that’s woefully lacking in the halls of government, will tell you that Price is only the result. Not the cause of our troubles.
Like a fever tells us when someone is sick. Right now our economy is running a high fever. But that does not tell us what the cause of that sickness is. Have we caught a virus? or some other infectious disease?
Before any Doctor would treat a sick patient, with a high fever, they will first determine just what caused the fever.
Just as inflation alone does not give us a clue as to the real cause of that inflation.
Remember, inflation is the function of supply and demand. Rising or falling inflation indicates that one or both of these factors does not line up with the other. Prices must rise or fall to clear the market. That is bring supply and demand back in line. So that those two component parts become equal.
Now, I want to take a break here. Many of my listeners are obviously very sophisticated and will point out that the beginning of our current inflation began, at least, with the stimulus program. Which poured multi-trillions of dollars into the financial system. All very true. And certainly, Milton Friedman would heartily agree.
But today, I’m going to skip that part of our discussion, to point to today’s inflation trends. And how current imbalances are still contributing to inflation.
Returning to our Doctor analogy, a good Doctor will first determine the number one cause of the temperature. For a very sick patient, there may be more than one cause.
For the American “patient” today we see inflation throughout our financial “body.” But there is one cause, that above all the rest, seems to have started this current inflation. And it is certainly running hotter than all the rest. And that cause is oil.
Each month the Bureau of Labor Statistics produces its latest report on inflation, The Consumer Price Index. Not only providing the overall rate of inflation but also of all its components.
For over a year now the BLS has told us that energy in general is our number one contributor toward inflation. In the last 12 months, energy prices are up by nearly a third.
And within the general category of energy, its number one contributing component is gasoline. Gasoline is up by nearly 50% in the latest 12 months.
I hesitate to even write that last sentence because before the ink has dried I see that gasoline prices are up again.
Food prices, incidentally are the second-highest rising component in the CPI.
So, if we could just solve the problems of rising gas prices, and rising food prices we would go a long way in solving the inflation problem.
Not all the way, those monetary issues created by that over-blown stimulus program will still remain.
But if we’re looking for the number one and number two contributors to inflation they are gas and food.
So knowing this, let’s turn to President Biden’s proposals to lower inflation.
That’s right he is promoting solar panels, and lower Chinese tariffs to reduce the price of household goods. Two recommendations that have absolutely nothing to do with food and energy.
In other words, he is running entirely counter to what the facts are.
And I believe this is entirely intentional.
This is no accident.
There is another, underlying agenda at work in this Presidency. And whatever it is, it is not free-market capitalism.
We’ve read a lot about the economic sanctions against Russia. But we haven’t always seen much of an impact. Well. The exception is automobile and truck manufacturing. Most cars and trucks in Russia were made by foreign car companies. And they have been leaving Russia en masse. Of the 20 car companies that were operating before the Ukraine War, 18 have left.
Leaving Russia with only 2 working factories today. And as you may expect, auto sales are down to virtually nothing. The report today indicates that Russian New Car Sales are down by more than 80% over last year at this time.
There was another startling economic report overnight: the Japanese consumer has shut their wallet. Usually a sign of extreme concern by the average shopper. For the second month in a row, Japanese consumers have simply stopped buying, with household spending in Japan down nearly 2% for the past 12 months.
Here in the US, the most significant report will be the latest Balance of Trade number. This will be the report for April. And Wall Street is looking for a very big improvement here. You may recall that the March number showed a trade deficit of nearly 110 billion dollars. It looks like a lead pipe cinch that once again America will have a trillion-dollar trade deficit this year.
But the Street doesn’t think so. The Street sees the deficit dropping by 20 billion. A very big improvement in our trade picture.
I hope they are right. But I don’t think so.
That trade report comes up in about an hour.
In earnings today a couple of down-home companies reporting with JM Smucker and Casey’s General Stores reporting shortly. Then later this afternoon two specialty software companies Guidewire Software and Smartsheet both reporting from the West Coast.
Have a great day!