What Happens When the Chickens Come Home to Roost?

Posted on July 16, 2021 by MN Gordon

What happens when the chickens come home to roost?

This is today’s question.  But what is the answer?  In just a moment we’ll offer several thoughts and ruminations.  First, however, we must take stock of the chickens…

This week, for example, the chicken counters at the Bureau of Labor Statistics reported consumer prices, as measured by the consumer price index, increased in June at a year over year rate of 5.4 percent.  This marks the fastest pace of rising consumer prices since 2008.  And if you exclude food and energy, prices in June rose year over year by 4.5 percent…the fastest surge since November 1991.

In reality, consumer prices have increased much higher.  The ‘unofficial’ rate of consumer price inflation, as calculated using methodologies in place in 1980, is about 14 percent.  This rate of inflation is exceedingly caustic to retirees, savers, and wage earners.

Still, the Federal Reserve doesn’t think it’s a problem.  On Thursday, Federal Reserve Chair Jay Powell told the Senate Banking Committee he’s “not concerned” with rising cost of living.  He’s still asserting price inflation is transitory; that soon the price of used cars will abate and inflation will fall below the Fed’s 2 percent annual target. Continue reading →

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Is the Great Post-Pandemic Boom a Great Big Dud?

Posted on July 9, 2021 by MN Gordon

“I want to talk about happy things, man.” – President Joe Biden, July 2, 2021

Lasting Disaster

The prices of certain commodities are down.  But not down enough to proclaim price inflation dead.

Lumber futures, for example, declined more than 40 percent in June.  This marked the largest price decline for lumber since the 1970s.  But after spiking from about $495 per thousand board feet in October 2020 to over $1,423 in April 2021, lumber’s current price of $718 is still almost double its 30 year average.

Futures for lean hogs have also pulled back of late.  After reaching an interim high of 121.95 cents per pound on June 9, they’re currently priced at 110.10.  Still, even with this recent decline, lean hogs have increased over 57 percent since the beginning of 2021.

Just one year ago, raw sugar futures were priced at 11.76 cents per pound.  In February, they hit a four year high of 18.49.  At the time of this writing, raw sugar futures are priced at 17.45.  Apparently, some of this price increase is attributed to concerns about dry weather impacting Brazilian sugarcane output.  Should you sweeten your portfolio? Continue reading →

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Independence Day in America Circa 2021

Posted on July 2, 2021 by MN Gordon

[Editor’s Note: This edition of the Economic Prism has been published in years past to coincide with the Independence Day holiday.  The themes explored within grow more relevant with each passing year.  Thus we are republishing it with several light updates.  Enjoy!]

Merry Mobs

The days are long and hot in the Northern Hemisphere when real American patriots spit upon their hands and hoist the stars and stripes.  On July 4th, the free and brave, with duty and self-sacrifice, begrudgingly accept federal holiday pay to stand tall upon their own two feet.  Rugged individualism and uncompromising independence are essential to their character.

With purpose and intent, they assemble as merry mobs along the shoreline to celebrate American Independence.  Freedom lovers – descendants of Andrew Jackson – gather to eat hotdogs and pitch horseshoes while downing tipples of corn syrup and fermented grain.  When the sun slips beyond the western horizon and the stars twinkle bright, they hoot and holler at the brilliance of fireworks and sparkling pyrotechnics. Continue reading →

Posted in MN Gordon, Politics | Tagged , , , , | 1 Comment

Do You Hear the Bells Ringing?

Posted on June 25, 2021 by MN Gordon

There’s an old Wall Street adage, you’ve likely heard it, “No one rings a bell at the top (or bottom) of the market.”

The bell, of course, is the signal to sell at the market top.  Here we pause to take exception with this adage.  As far as we can tell, bells do ring at market tops.  Yet few hear them.  Most people’s ears are plugged with the prospects of easy riches.

Bull markets often give way to manias…where an asset’s intrinsic value becomes less important than the hope that an overpriced asset can be later offloaded at a higher price to a greater fool.  Certainly, irrational pricing based on greater fool dynamics is the sound of a ringing bell.  Though this can go on for years.

The current ratio of total market capitalization to GDP (now over 200 percent) is most definitely the sound of a ringing bell.  Another ringing bell is the $500 million batch in junk bonds recently sold by MicroStrategy for the sole purpose of buying bitcoin.  These bitcoin junk bonds pay a generous 6.125 percent coupon rate.

How will MicroStrategy pay the coupon if bitcoin goes down?  Will they sell more junk bonds?  Will anyone buy them? Continue reading →

Posted in MN Gordon, Stock Market | Tagged , , , , , | 24 Comments