Picking Winners and Losers

I'm feeling pretty good about front-running the most serious impact of tariffs on our household economics.   New appliances, vehicles, water heater, laptop, tablet, iPhone, including locking-down the pricing of a steel roof on the house eighteen months ago.  

I know I sound like a broken record but contrary to what White House Press Secretary Karoline Leavitt or Commerce Secretary Howard Lutnick will tell you about other countries paying the tariffs they're not playing it straight.  Tariffs (sometimes called a duty) are a tax on imports.  Tariffs are not paid by the other countries.  They are paid by the US importer.  The importer might "eat" some of the tax but because they have to turn a profit they generally pass it on to the purchaser of the imported goods.  

Tariffs are a tax (just like a sales tax) paid by US companies and consumers. 

Which leads me to this tidbit.

American-made steel is now the most expensive steel on the planet.

Only about twenty percent of the steel sold domestically is imported.  The steel tariffs, previously at 25%, were raised last month to 50%.  Consequently, steel imports became more expensive.  Naturally, imported steel has declined in volume allowing American companies to increase their market share and raise prices to match that of imported steel.

Domestic trade policy has created an opportunistic landscape that allows domestic producers to simply charge more.  Why, you ask?  

Because they can.  

Scott Lincicome, vice president for trade policy at the Cato Institute said it well - It's just pure protectionism and cronyism. 

Heretofore, president Trump has not imposed tariffs on imports of raw materials such as iron ore, pig iron and other products that are precursors to steel production.  Nevertheless, that could change if he imposes a threatened fifty percent tariff on all imports from Brazil.

In a fit of pique Trump has accused Brazilian leadership of conducting a witch hunt against his pal former far-right President Jair Bolsonaro; menacing the South American country with a retaliatory tariff over internal politics.  This personal retribution against Brazil means American consumers would pay more for coffee, orange juice, paper and pulp and steel precursors sold to American mills. 

White House trade policy is bananas.  Does any of this come as a surprise to you?

This is called picking winners and losers.  And it seems like all of my previously, self-identified libertarian friends have gone silent.

Meanwhile, I'm having a tough time figuring-out how any of this improves your and my prosperity and general lot in life.  And maybe make the world a safer place.

Chart Of The Day

Inflation accelerated in June as President Trump’s tariffs started to leave a bigger imprint on the economy, keeping the Federal Reserve on track to hold interest rates steady when policymakers next meet this month.

The Consumer Price Index rose 2.7 percent from a year ago, the swiftest pace since February, data released by the Bureau of Labor Statistics today. That is slightly higher than expected and is up from an annual pace of 2.4 percent in May.

“Core” inflation, which strips out volatile food and energy prices and is seen as a reliable gauge for underlying price pressures, also shifted higher. Those prices were up 2.9 percent from the same time last year.

Over the course of the month, prices rose 0.3 percent, a notable pickup from a 0.1 percent increase in May. Core prices rose 0.2 percent.

The absence of tariff-related inflation has been a point of pride for the White House and has provided cover for Trump’s critique of Fed Chairman Powell’s approach to monetary policy. If June’s CPI contains evidence that prices are in fact climbing due to import duties, it would weaken the case Trump and his allies have been building against Powell and his wait-and-see approach.

Most economists still expect inflation to rise over the course of the summer.  And with a barrage of new, so-called reciprocal levies and an eye-popping 50 percent tariff on copper set to take effect on August 1, any hint of tariff-related inflation could portend additional price surges later this year. The Yale Budget Lab on Monday estimated that consumers face an overall effective tariff rate of 20.6 percent — the highest since 1910.  In dollar terms this is the equivalent of an average per household income loss of $2,800.

“This tariff policy is going to result in higher prices and fewer goods available for people to buy,” said Norbert Michel, the vice president and director of the Cato Institute’s Center for Monetary and Financial Alternatives.  “That's a supply shock. It’s not a win. And it's not something that monetary policy is any good at dealing with.”
 

Wallet Economics

 

A couple of days ago, Waffle House announced a 50 cent surcharge on each and every egg slung at one of my favorite breakfast joints.

Meanwhile, I grabbed one of three remaining cartons and paid $7.99 for a dozen large brown eggs. 

 

 

That, folks, is what is known as market economics. 

 

There is absolutely nothing a president can do to make your eggs 99 cents a dozen, again…..

Inflation By Any Other Name

This subject has come-up here from time-to-time and I have tried my darnedest to remain circumspect, intellectually honest, good-humored and resist any snarky impulses to poke fun of individuals who seemingly believe that presidents posses cryptic powers to turn inflation on, and off, like a switch.  When it comes to lazy economic thinking the struggle is real.  Thankfully, understanding inflation is not rocket science.  If you have a basic grasp of the interplay between excess liquidity (M2) and demand economics it is not very complicated.  But I digress.

Inflation figured significantly in both the run-up and results of last month's presidential election.  In his interview with Kristen Welker several weeks ago president-elect Trump said: I won on two things; I won on the border and I won on groceries.  And at the RNC convention of last summer Trump declared he would:  End the devastating inflation crisis immediately.  Trump took credit for low inflation in his first term of office; he might take the blame for price inflation in his second term.  Time will tell.

As an old guy I am mildly bemused at the notion that younger voters have no institutional memory of inflation, soaring energy costs and the accompanying astronomical interest rates, of the late 1970s and early 1980s.  By those hardcore economic standards today's historically low inflation, low energy costs and interest rates are the modern equivalent of lotus eating.  Nevertheless, the president-elect has promised to bring inflation down and if he doesn't the voters might become restive. He's certainly got his work cut out for him as there's not much a chief executive can do to immediately influence forces at play in an economy as large and complex as ours. 

Complicating this already challenging task is the potential interplay of tariffs and immigration policies. Consider this.

Tariffs are a tax.  If I own an import-export business and import an item subject to a tariff or duty I have to pay the US Treasury the tax due upon receipt.  The country of origin does not pay the tax - the importer does.  To cover the tax I'll mark-up the price of the imported item when it lands with a distributor.  As a consumer purchases the item from a retailer it is that buyer who ultimately pays the mark-up.  Consequently, tariffs can contribute to inflation as the price of retail goods rise. Trump's challenge is the use of tariffs as a negotiating tactic or to surgically target specific imported goods.  It's a high wire balancing act.  

Almost two million undocumented workers are integrated into our food supply chain.  Another 30% of construction workers are immigrant labor - documented or not.  Immigrant labor is a significant contributor to what we pay for everything from fruits and vegetables at the grocery to a replacement roof.

My hope is that the Trump administration finesses this stuff.  Get too aggressive on immigration and tariffs and prices could rise.  Fail at one or the other and you tread at your own peril with an economy-stalling bout of deflation.  If only there was a magic switch in the White House bunker.

Trump naturally supports the sweeping reform of government regulation.  Furthermore, efforts to re-shore manufacturing to our hemisphere implies efficiencies, retraining a labor force and other productivity gains.  This shrinks inflation pressures but takes time to trickle down in a network economy.  Because 70% of our economy is driven by consumer spending these gains would be modest at best.  

Last, but not least, there is: drill, baby, drill.  Trump has promised to increase domestic energy production by lifting environmental restrictions and fast-tracking permitting.  It isn't clear to me precisely how this will dramatically reduce inflation and shrink the price of my groceries; nor has the former president elaborated.

Transportation costs already benefit from lower energy pricing because domestic energy production has been at record levels for years.  Several weeks ago I filled-up the Honda with regular unleaded and paid less than $2.50 a gallon.  Prices fell further over the busy Christmas Holiday travel season.  Go figure.

I own shares of energy and related companies and in a world where CEOs answer to shareholders; further retail price reductions will be challenged by sustaining record profitability, dividends and share prices.   Besides, oil is a fungible commodity, traded in dollars.  Accordingly, global markets play an outsized role in pricing.  My sense is that lower energy costs are largely baked-into the cake so we'll have to see how this plays-out.  What I know for sure is government doesn't drill for oil and gas.  (Like I said, the struggle is real.)

In closing, inflation is relatively easy to explain; it is far more difficult to bend to your political will.  It is possible that the in-coming president is beginning to wrestle with boastful promises made during his campaign.  As I said to a pal several months ago:  I'm looking forward to detailed policy which will improve my prosperity and general lot in life.

Meanwhile, all of our major appliances have been replaced, a new water heater installed, a new car for me, new car for Jill and a contract for a replacement metal roof on the house in 2025.  If tariffs materialize I think we may have dodged the major impact of any Trump tax increases.  Only time will tell....

Edit To Add:

Got home around noon following an overnight road trip and topped-off the tank of the Missus' new Honda.  Local pricing for regular unleaded:  $2.479....

Laissez Les Bons Temps Rouler

Popular sentiment about the economy is both a curious and fickle phenomenon.  Over the last couple of years consumer confidence did not necessarily reflect the underlying strength of the US economy.  I've blogged about it from time to time as I've scratched my noggin over perceptions of what is real versus perceived.  As a recovering financial guy I periodically puzzled-over this disconnect.  Perhaps that is exactly the point - perceptions in and of themselves are naturally fickle.  Which is why they are nothing more than perceptions.  Don't over analyze it; what is perceived is frequently not founded in reality.

Now we learn that popular sentiment over the economy has flipped.  A majority of consumers (among Republicans anyway) now perceive that the good times are about to roll.

Last week, the New York Fed's monthly consumer survey revealed that an increasing number of us now share the expectation that our financial situation is likely to improve in the coming year.  Remarkably, this optimism has reached its highest level since the period of time immediately preceding the COVID shit show of 2020. 

This is further bolstered by the University of Michigan measure of US Consumer Sentiment indicating that it increased for the fifth consecutive month, the highest level since April.

Some may suggest this this is a consequence of the reelection of Donald Trump.  I am unconvinced as this has been percolating for the better part of 2024; but I'd not disregard the possibility of confirmation bias.  I am certain that the president-elect will take credit for the strong economy he will inherit. The only Trump Effect I can discern is found in reading the University of Michigan data.  Current conditions have been led by a surge in the purchasing of durable goods - a consequence of the perception that purchases of durables today would enable a buyer to avoid price increases in the future.  Which takes us to that nagging matter of inflation.

To be certain the economy remains healthy; the labor market is stable, consumer spending is robust and growth has been steady.  The core consumer price index (excludes volatile energy and food prices) has grown at an annual rate of 3.3% year-over-year; stubbornly remaining above the Fed's target rate of 2%.  

Domestic retailers are warning that proposed tariffs would result in higher prices to US consumers.  The president-elect himself has said that he can't guarantee anything when it comes to the impact of tariffs on Americans at the checkout.  This, along with immigration restrictions, may contribute to our ongoing inflation challenges.

So, stay-tuned.  None of this would be so consequential except that 70% of the US economy is consumer spending.  The remaining 30% is government spending, manufacturing and everything else.  So maybe sentiment counts for something after all.

Thankfulness

As per usual the Thanksgiving Holiday falls during deer camp.  This year it’s just Jill and I as nobody wants to be with us.  Which is just fine.  It’s a relaxing day of filling the wood box, drinking coffee, stuffing and roasting a big, fat chicken, maybe chilling-out in a deer stand for a couple of hours followed by sitting by the fire.

I've been counting my blessings because I've got a great deal to be thankful for.  My family, my friends, neighbors, reasonably good health, my marbles, a comfortable retirement, a new hunting dog and the great outdoors.  Let's face it - we live in the best country on planet earth.

 

An additional ray of sunshine is this bit of news:   According to the American Farm Bureau Survey this year's Thanksgiving dinner will see a dip in price for the second year in a row.  Thanksgiving dinner for ten will set you back $58.08, down 5% from last year; yet still 19% higher than five years ago.

 

Over the 39 years the Bureau has kept records the turkey has accounted for an average of 43% of the total dinner cost.  This year is no different - a 16-pound turkey accounts of 44.2% of the 10-person feast.  2024 brought a 6% decrease in turkey prices - a surprise considering  the USDA reported that growers raised 6% fewer birds this year and the lowest number since 1985.  In further evidence that presidents do not set the price of your turkey dinner contributors to the decline in turkey numbers have been the highly contagious avian influenza along with a drop in consumer demand.  This drop in demand has caused prices to fall.

 

There is some stuff in our world that can be improved-upon; yet on balance this is a terrific time to be alive.  If you glass is half-full like mine take a moment to count your blessings.  We have much to be thankful-for.

 

The staff here at The Platz extends their best wishes to you on this Thanksgiving holiday.   

Gobble, gobble...

 

Colonel Sanders

Inflation-Busting Grocery Pro-Tip. 

Chef Jacques Pepin spoke on this technique a week ago.   This morning’s NYT foodie/cooking email featured Ali Slagle’s bone-in, skin-on, extra-crispy chicken thighs. Coincidence?  This must’ve been a sign from above. Pushed over the edge this happened. 

Jill picked-up a six pack of thighs for $3.55.  Froze two and pan-seared the remaining four. Brown rice and mixed frozen veggies as sides. Made some delicious pan sauce from deglazing the crunchy bits. 

All-in, I figure just north of four bucks for dinner for two - including bonus lunch leftovers. Two more thighs in the freezer. 

Worth the messy spatter clean-up. 

 

Bam!

 

Colonel Sanders got nothing on me.....

 

Fact Checking

We have an inflation crisis that is making life unaffordable, ravaging the incomes of working and low-income families, and crushing, just simply crushing, our people like never before.

- Donald Trump

The monthly inflation rate as measured by the consumer price index (CPI) soared to a high of 9 percent in June of 2022.  The annualized rate has dropped considerably since then  with the year-over-year rate last month of 3 percent.

Former president Trump would lead you to believe that President Biden is solely responsible for the recent rise in prices.  Of course I'm old enough to to have lived with inflation and have even blogged about it from time-to-time.  I purchased my first house in the early 1980s when inflation was roaring-along at double digits and a 30-year fixed-rate mortgage would set you back 14.5 %.  But I digress.  

As a recovering financial guy I know a few things about this subject.  First, inflation usually (but not always) rises quickly and falls slowly.  Second, we live in a market economy and therefore inflation rises and falls as a consequence of market forces and not by a president flipping a switch.

The recent bout of inflation has its roots in the COVID pandemic.  Lock downs caused pent-up consumer demand to spike as the economy eventually recovered from the Trump recession of his last year in office.  This was further aggravated by global supply chains disrupted by the pandemic.  Add-in the the government largess (expansion of the money supply or M-2) that began with stimulus spending under Trump that continued in the early years of Biden's term of office. 

Excess liquidity (money supply) + ravenous consumers (demand) + busted supply chain (product supply)  = increased prices (inflation).  

A simple supply and demand equation.  Economics 101.

It was a perfect storm of events the likes of which we haven't seen before; with responsibility shared by both presidents.  Corporate greed is the cherry on top.

Because this was a global phenomenon I would submit that Old Uncle Joe is incapable of influencing global economics on this scale.

I won't bore you any further; if you'd like to learn more on the subject simply type 'inflation' in the search box in the upper-left corner of the blog and a bunch of posts on the subject will pop-up for your late night reading pleasure.

Meanwhile, Donald Trump is playing fast and loose with the facts.

The Taco Revolution

Last month I published a post about the history of Taco Bell.

Taco Bell was not named for the Mission-style bell logo or atop their early adobe buildings but after founder Glen Bell who had the brilliant idea to sell tacos out of a walk-up window in 1962.  He wanted the experience to feel authentic to Mexican culture even if the food itself was not.  Taco Bell not only played a huge role in the fast-food revolution; more importantly it helped to introduce the idea of Mexican food to US diners.

Get a load of this tidbit found surfing the interweb the other day...

 

The Taco Revolution

This advertisement is form the early to mid 1970s.  High school and college years for this blogger.

I had a close friend that went to work for Taco Bell as a manager about that time.  And if I had nothing better to do on a day-off I would swing by and help him out at the store doing prep work.  Understand that Mexican fare in general was not a universal truth.  Unless you lived in a Hispanic neighborhood or a Mexican family most Americans didn't know the difference between a burrito and a rolled-up comic book.  Tacos were not on the school lunch menu in those days.

Taco Bell changed all of that with a revolving and evolving menu of south or the border-influenced fast food items.  The first Taco Bell menu featured frijoles, tostados, chili burgers, burritos (red or green) and tacos - all for .19.  To this day the bean burrito is a fast-food favorite of mine.  It will set you back $1.69  - tacos (crunchy or soft) will set you back $1.89.  That's the impact of inflation.

Taco Bell was not named for the Mission-style bell logo or atop their early adobe buildings but after founder Glen Bell who had the brilliant idea to sell tacos out of a walk-up window in 1962.  He wanted the experience to feel authentic to Mexican culture even if the food itself was not.  Taco Bell not only played a huge role in the fast-food revolution; more importantly it helped to introduce the idea of Mexican food to US diners.

Venison tacos and nachos are a game day favorite in our household.

The rest is history....

Inflation

This advertisement is from 1963. 

I was in Green Bay recently and on a whim enjoyed a basic Whopper (with cheese) for lunch. 

No fries. No drink. 

That sandwich set me back $6.19.

 

I was mildly taken-aback, yet after reflecting on the subject 39 cents was a lot of money back in 1963 for a Government Inspected burger.  So I suspect current pricing tracks closely with six decades of inflation.

Anyway, it was, and always will be my favorite fast food burger.  I’ll probably have another in a few more years……

Deer Camp Thankfulness

As per usual the Thanksgiving Holiday falls during deer camp.  This year it’s just Jill and me as nobody wants to be with us.  Which is just fine.  It’s a relaxing day of televised parade and football and a traditional stuffed turkey roasting in the oven.  We're also baking a giant yam and there is pumpkin pie for dessert.  

I've got a great deal to be thankful-for.  My family, my friends, great community and neighbors, a comfortable retirement, reasonably good health and the great outdoors.  A new pup rounds it all out.    

An additional bit of good news is this:  The American Farm Bureau Federation's 38th annual survey provides a snapshot of the average cost of this year's classic holiday feast for 10 checks-in at $61.17 or less than $6.20 per person. 

 

This is a 4.5% decrease from last year's record-high average of $64.05, but a Thanksgiving meal is still 25% higher than it was in 2019, highlighting the impact of higher supply costs and inflation have had on food prices since before the pandemic.  Anecdotally, our ten-pound bird was free.  We earn Holiday Bucks from our grocery every December which can be redeemed for a free turkey or ham.

 

In closing the staff here at The Platz extends their best wishes to you on this Thanksgiving holiday.   

Gobble, gobble...

 

Inflation

I have reached the end of my rope.  My patience with the economic condition is not a bottomless reservoir of hope.  This is an outrage and further evidence that the administration has lost the reins on this runaway inflation.  Something needs to be done.

Gram for gram, the white truffle has now become one of the most expensive delicacies on the planet. 

 

In Italy, fresh white truffles run as high as 4,500 euros per kilogram (or nearly $2,200 per pound), according to Coldiretti, Italy’s biggest agricultural trade group. 

 

Once they are shaved onto a plate of risotto or roast quail in the finest restaurants in the world, the price will multiply again, underscoring their “white gold” reputation. 

 

Closer to home, at Acquerello in San Francisco, there is a $495 truffle tasting menu (excluding wine and tax). Trufflephiles in London and Dubai can expect a similarly pricey restaurant tab.  Sky-high prices will be the norm, truffle experts say.

 

At an auction in Alba, Italy, a one-and-a-half-pound specimen fetched a record price of €184,000 (nearly $200,000). Bidders are set to converge on Italy’s truffle capital on Sunday to do it all over again.

 

Another Biden fail.