Truman, 1947 and the Future

By Jeff Kelly on February 17, 2023

“We all know that recent price increases have denied to many of our workers much of the value of recent wage increases. Farmers have found that a large part of their increased income has been absorbed by increased prices. While some of our people have received raises in income which exceed price increases, the great majority have not. Those persons who live on modest fixed incomes–retired persons living on pensions, for example–and workers whose incomes are relatively inflexible, such as teachers and other civil servants–have suffered hardship.

In the effort to bring about a sound and equitable price structure, each group of our population has its own responsibilities.

It is up to industry not only to hold the line on existing prices, but to make reductions whenever profits justify such action.

It is up to labor to refrain from pressing for unjustified wage increases that will force increases in the price level.

And it is up to Government to do everything in its power to encourage high-volume Production, for that is what makes possible good wages, low prices, and reasonable profits.”

– President Harry Truman, January 1947

Things to think about on a 3-day weekend:

• The excerpt above is from Harry Truman’s 1947 State of the Union speech.
• It was given in the context of 19% inflation and DEBT/GDP levels at 119%.
• The inflation problem was solved within 18 months.
• Rates never went above 1.5%.
• When did we decide we can’t ask business to participate in the solutions to problems?
• Harry Truman did!
• The answer was growth.
• The answer was to make productivity and the economy blossom.
• If we produce more oil does the price go up or down?
• If we make it harder to do everything is that better or worse?
• If we consistently and constantly raise the cost of money, does someone think that’s not inflationary?
• Lots of talk about what people are against, but what are they for?
• What is the plan to be better?
• What are the plans to have better jobs?
• Higher paying jobs?
• More people with access to affordable healthcare?
• Better, safer schools.
• Safer streets.
• When did we start thinking it’s a good idea for kids to carry guns, anywhere, anytime? Check out the new Missouri law.
• Stop telling me about “woke” or “fascists”.
• Stop getting rid of books and start teaching math and history and philosophy.
• Teach all of it not just the parts we like.
• Let’s build an America that’s proud of our accomplishments, learns from and acknowledges our failures and moves forward toward a better tomorrow.
• We can really do it all. Let’s friggin GO!

Markets had a tough week. The inflation numbers put a damper on the party. Worried about inflation? Yeah, me too. But let’s look at a couple charts of some of the primary drivers of inflation.

Oil down over 42%.

Natural Gas down over 77%, remember when Europe was going to freeze?

Yes, me too. Winter is coming to an end in the next 45 days and their Nat gas storage is bulging.

Lumber down 74%.

Inflation has peaked. It will move lower. It will move lower much faster if we do not continue to raise the cost of money. Our country runs on credit. Homes, cars and large ticket items are purchased using credit. Raising the price of credit increases inflation, it does not diminish it.

If only the Fed knew the history and tried to learn from it. They are convinced we are in the same era as the Burns Fed from the Carter administration. Sorry Jerome, then isn’t now as much as of you might like it to be. Have you heard of the internet?

We can be headed to a better tomorrow. To get there we must seize the day. The time is now. Let your elected representatives know how you feel. It’s for the future. On to some charts from the week past. Check out the charts on rents. Guess what, demand is slowing and with slower demand comes lower prices.

CHARTS FROM THE WEEK PAST

Ugly day of data Thursday morning. Producer Prices well above expectations (red circle).

Revisions higher to previous reports. Housing starts below expectations (blue circle) and Philadelphia Fed business outlook is poor (yellow circle).

Producer Price Index Final demand inflation month over month.

As we say in my household yucky.

Goods and services inflation nicely lower year over year.

The lower panel in the chart below shows core inflation in the CPI report back to long term levels.

So much short covering often marks a top.

The highest level of short covering (chart above) comes when exposure to the market is at its highest level since last April.

Not a good combination.

A warm January has helped with natural gas prices around the country and in Europe.

Most price earnings ratios above ten-year average.

Ten-year green, Current, navy blue, 5 year light blue. The exception is energy. Energy is cheap when compared to 10-year average.

Cost of protection at the highest level since August.

Debt service cost as a percent of income back to 2008-2009 levels as credit card balances soar.

Copper ($COPX) looking to roll over vs. the S&P 500.

The back half of February isn’t usually kind to equities.

We must buy it back at some point.

U.S. Retail Sales had a great month driven by automobiles.

Retail analysts say 76% of retailers will have higher earnings in 2023 than in 2022.

Give me a slug of whatever they are drinking. Not happening.

Small Business Optimism Index (blue) rose to 90.3 vs. 91 est. & 89.8 in prior month.

Net percent of firms expecting better economy rose to -45. Hiring plans moved higher and capex expectations dipped.

Source: Bloomberg, 02/14/2023

NFIB small business survey shows higher prices coming down (blue line) but sales hard to come by (orange line).

Small businesses boosted pay in January.

Rental growth has slowed.

January showed 2.4% from 17.5% last year at the peak.

Rental vacancies heading higher.

 Below is the Phoenix market. Currently 6.7% from 2.32 a year ago.

Margins have remained under pressure across industries with companies forced to grapple with a tight labor supply and waning pricing power.

Among non-financial firms, adjusted operating margins fell to 14.3%, the lowest Q margin in 2 years, down from 14.9% in the 3Q.

The last time you could get 5% on a one-year treasury was in 2001.

What the investment world looked like in 2001.

“While most companies were still able to beat analysts’ forecasts, the share of those delivering negative surprises rose to the highest since the onset of the coronavirus pandemic.”

Folks buying lots of CDs.

I’m now confident inflation is declining.

The Economist is never right with this type of cover story.

WEEKEND HOMEWORK

Dr. Pippa on the flap over the balloon, aliens and much more…

QE, UAPs, Aliens and The Invisible War

“Addicted to Succession? Well, here’s the real thing.” – The Hollywood Reporter

“Jaw-dropping . . . an epic tale of toxic wealth and greed populated by connivers and manipulators.” —The New York Times Book Review, Editors’ Choice

Really amazing how real life is so close to a tv script. Crazy stuff. A good read.

An older book but what a story. A real-life game of monopoly!

Not since the days of the Louisiana Purchase has America seen any bigger real estate transactions than those executed by William Zeckendorf, the derring-do head of Webb & Knapp. Figuring with supersonic speed and an uncanny flair for making money, the flamboyant impresario bought and sold property, remodeled whole sections of New York, Denver, Washington, Montreal and Dallas, and moved the UN, the capital of the world, to New York. At the peak of his power, William Zeckendorf was a man with the Midas touch in an age of computers. From his windowless teakwood igloo office set in a white marble lobby, William Zeckendorf played a real-life game of Monopoly and won the largest real estate empire in the world – so large, in fact, that Wall Street tottered when he went bankrupt. And bankrupt he was, but never in spirit. An autobiography bursting with vitality, enthusiasm and financial know-how, Mr. Zeckendorf reveals himself as a visionary whose creativeness and sense of adventure are matched only by his unalloyed joy at being able to successfully juggle a dozen incredibly complicated transactions at once. The spectacular Mr. Zeckendorf, who has fished for piranhas in South America and sold ships to the Greeks at profit, comes to life in this autobiography. You will not want to miss meeting him.

A long weekend ahead. What a great opportunity to get some exercise, reach out to friend and hug a loved one. Too soon tomorrow will be yesterday. We must seize the moment! Have a terrific weekend.