How to prosper in the coming deflation.

[LC]

https://www.cbsnews.com/news/ford-f150-lightning-price-cut-ev/

 

Ford Motor has cut the price of its electric pickup truck, the F-150 Lightning, by between $6,000 and $10,000 at a time when major automakers are fiercely competing for the attention of electric vehicle shoppers.

Company officials said Monday that access to raw materials for the truck's battery is improving and that it has upgraded its suburban Detroit factory where the truck is manufactured, enabling it to drop prices. Those developments also mean customers will get their custom-ordered F-150 Lightning much faster, Ford said.

[Spekulatius]

7 minutes ago, LC said:

https://www.cbsnews.com/news/ford-f150-lightning-price-cut-ev/

 

Ford Motor has cut the price of its electric pickup truck, the F-150 Lightning, by between $6,000 and $10,000 at a time when major automakers are fiercely competing for the attention of electric vehicle shoppers.

Company officials said Monday that access to raw materials for the truck's battery is improving and that it has upgraded its suburban Detroit factory where the truck is manufactured, enabling it to drop prices. Those developments also mean customers will get their custom-ordered F-150 Lightning much faster, Ford said.

EV's are definitely getting cheaper, Tesla as the largest EV producer for now is pushing down prices for the rest. I think the cheapest Tesla  is now cheaper than a Camry in some states, if you include subsidies.

[Castanza]

8 minutes ago, Spekulatius said:

EV's are definitely getting cheaper, Tesla as the largest EV producer for now is pushing down prices for the rest. I think the cheapest Tesla  is now cheaper than a Camry in some states, if you include subsidies.

 

Anyone look at Lucid Group? Financials don't look great....quite a bit of debt (plus dilution), but the vehicle is pretty sweet. Out competes the Tesla Plaid in pretty much every category. Saudi backed enterprise (3b so far with a new plant coming online end of 23 early 24). Financials could make a turn for the better once that opens up. This is their baby and they seem to really want to make a mark in this segment. Saudi's sure have been making moves as of late! 

 

More competition the better for consumer end pricing. What will Elon do if Tesla is no longer the top dog in terms of performance and luxury? Seems like that day is coming soon to a dealership near you. 

 

https://youtu.be/EyDpQpcPpuc

 

 

[Spekulatius]

16 minutes ago, Castanza said:

 

Anyone look at Lucid Group? Financials don't look great....quite a bit of debt (plus dilution), but the vehicle is pretty sweet. Out competes the Tesla Plaid in pretty much every category. Saudi backed enterprise (3b so far with a new plant coming online end of 23 early 24). Financials could make a turn for the better once that opens up. This is their baby and they seem to really want to make a mark in this segment. Saudi's sure have been making moves as of late! 

 

More competition the better for consumer end pricing. What will Elon do if Tesla is no longer the top dog in terms of performance and luxury? Seems like that day is coming soon to a dealership near you. 

 

https://youtu.be/EyDpQpcPpuc

 

 

The Saudis also invested in Twitter stock (post buyout) and CS just before they went belly up. I don't think it's a good idea to follow a Brontosaurus with a squirrel brain as a small guy just because it's big.

[Castanza]

7 minutes ago, Spekulatius said:

The Saudis also invested in Twitter stock (post buyout) and CS just before they went belly up. I don't think it's a good idea to follow a Brontosaurus with a squirrel brain as a small guy just because it's big.

 

MANU on the block 

[mattee2264]

Might be worth resurrecting this thread given that WMT made a point of using the "D" word and there are some signs of emerging weakness in US labour markets as well and the full impact of monetary policy is also likely to be felt in the coming months and already we are starting to see rising credit card delinquencies and defaults and bankruptcies. And a lot of inflation was driven by food and energy prices which are falling. Already in groceries I am starting to see lower food prices. There will be a lot of discounting in the holiday season as well. Rents are also starting to fall. And it is pretty clear that a lot of companies were quite opportunistic in putting through large price increases and got away with it because the economy held up pretty well and labour markets were tight and consumers had a lot of excess savings from the pandemic and it takes time to change your spending habits. If sales start to fall they will come under pressure to reduce prices. 

 

Deflation is still very unusual and there are still inflationary pressures in the economy coming from fiscal profligacy and union wage bargaining and resource shortages.

But these are unusual times and a deflationary bust probably has some probability higher than zero. 

 

Thoughts?

 

 

 

 

[Spooky]

Just saw these two articles in the WSJ this morning:

 

https://www.wsj.com/economy/consumers/black-friday-shopping-charts-3ce30588?st=vndv16w58mez10t&reflink=desktopwebshare_permalink

 

https://www.wsj.com/economy/central-banking/the-hidden-hero-fueling-soft-landing-hopes-a-boost-in-supply-3a32bf3e?st=uis3nczau9fk4mr&reflink=desktopwebshare_permalink

 

Looks like the supply side of the economy is less constrained - easing bottlenecks, more people available to work and possibly increases in productivity. For Black Friday many popular gifts are cheaper than last year at this time.

 

It will be interesting to see where things go from here - in the long run, AI and automation could potentially allow us to create goods at significantly cheaper prices.

[Jaygo]

As long as people do not expect significantly lower prices in the future or are expecting a long term loss of employment a deflationary bust is unlikely. What looks like is starting to happen is that major manufactures are slowing. Germany, China, SE asia ect  This is because European and North American consumers are starting to say uncle, rates have done a lot of damage and most are still happy with their fluffy nest from the covid days. 

 

The thing to watch is services, we know trades are looking for work again but lets look for weakness in travel vs 2019, IT spend, and other cyclicals and that will tell is we need to run for cover or just ride through the bumps.

 

I'm absolutely certain Canada is in a fairly deep recession right now. We will not see it in our numbers because we have a few gigantic construction projects going on that will lift the GDP plus its before Christmas and we know how to spend. It is more visible in the minute details. Having one less drink and app at dinner, choosing the cheaper sofa. I would love to see a 5 year graph of detailed credit card data to prove out what i expect. It all starts with small item decisions because in the back of your mind something doesn't feel right. Were spending too much on our groceries, mortgages and the boss has been in a bad mood lately lol. 

 

One thing is certain, if Westerners dont start spending the above manufacturing nations are going to take a royal economic shit kicking and that will then trickle down to us. The old adage was when America sneezes the whole world catches a cold. Well I believe that China is also there today. If China struggles the whole world is going to struggle. Look at Resource economies currencies for the proof of something dark brewing.

 

The easy solution is for the interest rates to drop immediately to the proper 2% level that they belong at. The western consumer will then feel good and spend and that will help to bring prosperity back to the manufactures and resource economies, China can keep a happy populous by being  employed and sheltered and wont have to start a war to  distract from policy errors and we can all go back to doing what we do best.

 

[Saluki]

There's a great book called "the Other Half of Macroeconomics" by Koo.  What we would experience might look like what Japan did: a balance sheet recession.  Cutting interest rates might not do much because there is so much debt out there that households and businesses would be devoted to paying down debt, rather than capex and investment even if interest rates fall.  Massive government spending, putting the government as the "spender of last resort" would be the way out of it, but with the current political climate I don't see that happening. 

[Jaygo]

10 minutes ago, Saluki said:

There's a great book called "the Other Half of Macroeconomics" by Koo.  What we would experience might look like what Japan did: a balance sheet recession.  Cutting interest rates might not do much because there is so much debt out there that households and businesses would be devoted to paying down debt, rather than capex and investment even if interest rates fall.  Massive government spending, putting the government as the "spender of last resort" would be the way out of it, but with the current political climate I don't see that happening. 

Not sure id agree. I have a fairly large mortgage . Single income family of 4  At 2.5% mortgage rate I dont even think about it. New truck at 2 or 3% sure. At 7% mortgage or 10 on the truck its a bigger nut and I spend less on everything. Since my spending is another mans income and on and on we have an economic slowdown. Large depts with low rates is not an issue, its only an issue with rising rates. 

 

I think people only devote to paying down dept when it gets above the economic rate of interest. (imo that is anywhere above 3% these days)

[Spooky]

1 hour ago, Saluki said:

Massive government spending, putting the government as the "spender of last resort" would be the way out of it, but with the current political climate I don't see that happening. 

 

Interestingly enough, if the US were to sharply decrease government spending that could be a big deflationary force.

[Jaygo]

Yes taxes are innately inflationary. Governments generally do not save like a populous would. All taxes are sent back out the door as expenditures. Often times to special interests and middle men unfortunately.

 

When I bring in a dollar I spend 60 cents and save 40 for future consumption and strengthening of my families balance sheet, this savings give me and mine resiliency in hard times. When governments brings in a dollar it spends 100 cents. The only resilience in hard times is a governments ability to borrow.

[UK]

4 hours ago, mattee2264 said:

Might be worth resurrecting this thread given that WMT made a point of using the "D" word and there are some signs of emerging weakness in US labour markets as well and the full impact of monetary policy is also likely to be felt in the coming months and already we are starting to see rising credit card delinquencies and defaults and bankruptcies. And a lot of inflation was driven by food and energy prices which are falling. Already in groceries I am starting to see lower food prices. There will be a lot of discounting in the holiday season as well. Rents are also starting to fall. And it is pretty clear that a lot of companies were quite opportunistic in putting through large price increases and got away with it because the economy held up pretty well and labour markets were tight and consumers had a lot of excess savings from the pandemic and it takes time to change your spending habits. If sales start to fall they will come under pressure to reduce prices. 

 

Deflation is still very unusual and there are still inflationary pressures in the economy coming from fiscal profligacy and union wage bargaining and resource shortages.

But these are unusual times and a deflationary bust probably has some probability higher than zero. 

 

Thoughts?

 

It is just speculation, but i think if there will be any hints of deflation, just as the last several times, we will get zero interest rates, QE and MMT resurrected all over again or even on a larger scale, if needed. So maybe I am wrong, but zero interest rates again - sure, possible, maybe even probable, but extended deflation - not sure if it is even possible? Can current financial system work under deflation?

[mattee2264]

Central banks have always been terrified of deflation. That is why you have a 2% target and not a 0% target. So yeah if we undershoot the inflation target rates will quickly come down. I cannot imagine the Fed blithely saying "Oh the deflation is transitory so we will wait and see what happens". 

 

Other thing that probably isn't generally realised is that both fiscal and monetary policy operate with lags. So today's rapidly disappearing inflation was caused by yesterday's stimulus. And today's contractionary monetary policy and less effective fiscal policy (no longer giving direct stimmies) could be tomorrow's deflation. 

 

Deflation clearly isn't good at all for government and private sector debt even if it does make it cheaper to service. 

 

I also think that data will get revised and indicate that the economy isn't as healthy as recent figures suggest and while the Fed is still worrying about inflation the market has probably correctly realised that interest rates are heading lower but perhaps will be taken by surprise if we do fall into a recession that is deeper and longer than expected. 

 

[james22]

2 hours ago, Jaygo said:

When governments brings in a dollar it spends 100 cents.

 

We wish.

[Jaygo]

1 minute ago, james22 said:

 

We wish.

The reality is they spend tomorrows dollar too but it was more about individuals or corporations saving in the economy building up resilience vs governments who spend all income. 

 

 

[Jaygo]

Just about every retailer is guiding down. I'm curious to see the united rentals, cintas, aramarks ect to see what they say. My guess is softness started this Q and the outlook is uncertain

[mattee2264]

Companies only cut prices if they think that failing to do so is going to mean unsold inventory. So while good for inflation, bad for corporate profits and employment. 

[SharperDingaan]

44 minutes ago, Jaygo said:

My guess is softness started this Q and the outlook is uncertain

 

You might want to do a little data manipulation on the BoC JSON CPI data. Today's CPI of 3.1% suggests that CPI is rolling on at around -0.7%/month, next month's CPI will be around 2.5%; when the December number is published in January - it will probably be < 2.5%. As Xmas retail sales confirm guidance, negative press coverage should accelerate; pushing inflation down further.

 

Then remind yourself that nominal return - inflation = real return; and you could do very well over the next little while! There is a reason for the changing Bond/Equity capital allocation that is currently being touted.

 

SD

 

 

 

[Jaygo]

When a big portion of the CPI increase is related to extra cost due to higher interest rates we have a pretty obvious case of the dog chasing his tail. Should they raise rates to combat inflation that is being caused by higher interest costs? 

 

 

[Gregmal]

It’s so funny how behind the curve everyone was on this whole thing. NOW they’re seeing it lol!

[Jaygo]

1 hour ago, SharperDingaan said:

 

  and you could do very well over the next little while! 

 

SD

 

 

 

Hey SD. I appreciate you are probably uncomfortable giving advice to strangers on the web, but just to help the discussion can you elaborate on this. What in your opinion would be a profitable way to navigate the next 6months? 

 

 

 

[SharperDingaan]

No comment, re the use of bonds.

 

Inflation itself is just too much money chasing too few goods; higher mortgage costs have sucked much of the money away, and supply chains are now supplying more goods; significant monthly drops in the CPI should not be a surprise. When Jan data reports in Feb, we will also see the impact of year-end bankruptcies and the Jan inventory liquidations.     

 

The good news is that even if the BoC reduced rates, there is a good chance the CPI significantly undershoots the 2% target. Hence, it would appear that the Federal 15B building plan stimulus is not just to get political folks re-elected; it is also a shift away from monetary to fiscal stimulus. Not a bad thing, and well overdue.

 

When construction season restarts, the building plan stimulus will lift the CPI; better for everyone if CPI is < 2% at the time. 

 

SD