This 4th Week of October 2021, Thoughts
Let the Market Worry For You…When I am asked what I worry about in the market, the answer usually is “nothing”, because everyone else in the market seems to spend an inordinate amount of time worrying, and so all of the relevant worries seem to be covered. My worries won’t have any impact except to detract from something much more useful, trying to make good long-term investment decisions.” (Irrelevant Investor)
The market has been focused on who will benefit as we get past Covid but used cars, rents and now food, are being hit hard by inflation. Food inflation has been increasing sharply and is 30% of the monthly increases in the September CPI. It is up 1% and is the highest reading since July 2008. Dining out saw a 1.24% increase - a major acceleration from August.
Within “food at home,” proteins (meat, poultry, fish, and eggs) were up 2.2% on the month. To put that in perspective, excluding the post-pandemic increases in April/May 2020, it’s the third-highest level since August 1986. In addition to rising prices we are seeing that supply pressures are all over the news. Catch the comments from Kroger’s September earnings call:
· “Overall, one in three people have noted that groceries have gotten more expensive in the past month.”
· “…we believe inflation for the full year will be higher than originally contemplated in our 2021 business plan.”
This is a double shock for restaurants, who have to charge more because of higher wages. Full-service restaurants had a 5.2% increase over the last year, the highest level on record, going back to December 1998. Given the increased prices for groceries and dining out (as well as gasoline), it’s reasonable to assume that workers will, in general, demand more compensation in a tight labor market, helping to drive up employer costs across the economy. Travel and dining out are discretionary, eating at home is not! This is going to impact each of us. Do you see prices declining any time soon?
Two big changes are unfolding right before our eyes: call it Power to the Worker. An entire generation of workers of all ages (me included) just don’t want to go to an office every day. The allure of dressing up to drive to the office and pal around donuts piled in the break-room just isn’t there.
Also going on is the Revolt of the American Worker and we are facing a serious shortage of qualified workers. Total employment is still five million below its pre-pandemic peak and the leisure and hospitality sector is still down more than 9%. The power has shifted back to the labor side of the aisle, post-Covid, and it may not shift back again in our lifetime.
😲 Why does this matter to you? When there is a buyers’ or seller’s market in real estate the power goes to the one who can walk away. Workers of all ages and income levels are walking away until they get what they want! Labor adds more to the cost of goods and services than the cost of materials and leads to persistent inflation. Income inequality has been an issue for decades, but this will lead to a true middle class, and more prosperity.
If a nation were to have absolute income equality, with every person earning the same amount, its Gini score would be 0 (0%). If one person earned all the income in a nation and the rest earned zero, the Gini 1 (100%).
😲 Why does this matter to you? The United States has a Gini coefficient of 41.1%...upper middle of the chart. In 2015, the top 1% of earners averaged 40 times more income than the bottom 90%. Translated: 3 million Americans earned $2 million a year & 300 MILLION Americans earned an average of $56,516 a year…BEFORE the pandemic! 12%-17% are below the poverty level, which for a family of 4 is $25,500 and live paycheck-to-paycheck, with no sick days, pension, or health insurance. They are suffering in a way I can’t imagine. Just think how strong our economy would be if more earned more! The conversation we are now having, as a country, is “Are we ok that so many have so little?”
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