Fed's Inflation Fight Far from over
The stock market gets a tiny dose of sensible reminder this morning
Today provides another stark example of how you cannot get good financial reporting from the financial media. Walmart took the news by storm with its report that revenue is up, sales are up, earnings are up. Some of the articles make it actually sound like this is because the economy is strong and even go so far out of bounds as to say it is because the American “consumer is surprisingly resilient.” Nothing could be further from the truth!
Fortuately a few of the articles do, at least, clarify that the rise is due to consumers seeking shelter from inflation, and Walmart is one of their best bets for doing that. They are flocking to Walmart and away from other stores because consumers are overstressed and seeking all the protection from inflation they can get. Walmart is their safe haven.
What is not stated in any of the articles, which is exactly why you NEED The Daily Doom, is that Walmart’s rise in sales and revenue is due entirely to the effects of inflation. Sales and revenue are measured in dollars, which have become deflated in value as prices have become inflated. All they are really measuring in their report is inflation. People may be flocking to Walmart, but they are cutting back on how much they are buying and on the quality of what they are buying or are suffering shrinkflation, meaning they are getting less of what they are buying, but they are paying more for it.
For example, one article notes that food inflation — food being one of Walmart’s hottest selling items — was up 20% YoY. Sales were only up 6.5% YoY. Revenue was up 8.4%. Do the math. With food being the main item being bought, it’s pretty clear those gains were entirely due to price increases. None of the articles say the figures were adjusted for inflation, and they never are. The articles also don’t say what part of sales and revenue were due to food, but it’s clear that food is a huge part, and with 20% inflation in food prices, according to one of these articles, it likely accounts for the entire increase in sales and revenue. The article, however, fails to make that point.
Profits are also up, though, because most retailers are marking up goods more than their own cost increases require. They are profiteering a bit off of inflation. Some are profiteering a lot. Walmart probably only a little as it seeks to make itself the consumer’s safe haven, but it has room for some profiteering because others have been doing it to such a high degree, taking advantage of rising costs to justify to their customers why they must raise prices as much as they have and taking advantage of the fact that their competition is seizing the day in the same way.
The stock market, regardless, continues to be dumber than a turnip about inflation — dumber even than one that just fell off the truck and splatted on the pavement. Stocks have been trading as though the inflation battle is being won. The Daily Doom and my other publication The Great Recession Blog have been letting you now for months that is patently not true. The inflation battle is never that easily won.
Today, Fed speakers made that abundantly clear, which surprised opiated stock investors into taking a tumble this morning. Straight-out delusional thinking. Investors are, in mass, buying based on fantasies and wishes, and that is not going to end well. Don’t worry, though: fantasy investors will be quick to recover their delusions … for awhile until the additional and certain serious breakage begins to show up again.
Both Fed speakers made it clear that the Fed is likely to raise rates a little more and then hold for a good long time. That will bring plenty more damage to banking and zombie companies — something I’ve been warning was certain to happen in the collapse of the Everything Bubble that the Fed engineered. So, it should be no surprise that we are also reading in today’s news that bankruptcies are finally rising rapidly among zombie corporations — part of the burst I told my patrons two years ago would be a major outcome during the Fed’s present tightening.
We also see, as I promised repeatedly, that the unemployment that the Fed is engineering but claims it is not targeting is not rising. That is for the reasons I laid out for many months. The labor market is not strong. It is broken. It cannot supply labor because it does not have enough laborers. A market that cannot supply is a market failing to do what markets are made to do; so, it is broken. As a result, unemployment has been very reluctant to rise in the face of Fed tightening, making this gauge as late in showing up as I’ve long said it would be, which means the Fed will certainly over-tighten because it gives a lot of weight to that gauge as an indicator of when it has gone as far as it can.
Lack of available labor assures reduced production. Reduced production is, by definition, a recession. We saw six months of that last year, as I forecast we would. The powers that be did not declare it a recession, though nearly everyone else said that technically it was. TPTB are ignorant because they viewed the labor market as being strong because it is tight. If labor is tight because demand for labor is way up, that’s strong. If labor is tight because there is a shortage of laborers, that is weak.
Rather than the economy not being in recession because labor was still strong, true and accurate reporting (the kind by writers who actually THINK) would have helped everyone understand that the economy WAS IN recession last year precisely because labor was tight. Lack of available workers assured declining production. The tight labor market was a major factor sending us into recession. It continues to assure low production this year, too, so we are going for a double dip. This labor shortage is partly why we have so many supply shortages, which are driving up prices, making this the stagflationary recession I also predicted.
People who THINK also know that credit agencies are supposed to downgrade you before you default if they are on the ball and honest. So, politicians may not have as much time as they think they do. The debt-ceiling timebomb is ticking, but no one knows at what time it is set to explode with a credit downgrade. However, have no fear: Treasurer Yellen is doing her best to save the day with a tersely worded note.