To The Moon

Prices have been increasing at rates not seen for over 40 years. Simply put, what cost you $15 thirty years ago, will cost you $60 today. A few prices (gasoline) have fallen recently, housing prices are settling down, and some travel costs are down. But they are the outliers. Food prices are going up fast. (However, meat prices are down.) While analysts note the CPI (consumer price index), which tracks prices on about 80,000 products and services, has apparently peaked. That doesn’t guarantee that prices are headed down.

The Federal Reserve has undertaken policies to rein in inflation and is expected to raise interest rates in an effort to moderate demand — those things you borrow money for (house, car) become more expensive — which should push sellers to stabilize or reduce prices.

We’ve heard a lot about supply chain disruptions making some goods scarce but almost nothing about inventory gluts. Inventory gluts could be good news since they often come at inflation peaks, and inflation peaks in the past have often indicated stock market bottoms.

Looking at history, supply shortages move quickly from shortage to oversupply. After a year of shortages, we may be close to the end of supply problems. Even as we look at the macro level’s shortages, there are some segments of the economy that have too much inventory.

For example, retailers. Walmart$Wal-Mart(WMT)$ , Target$Target(TGT)$ , and Nike$Nike(NKE)$ , to mention a couple of big names, are sending the message that they have inventory gluts. Bloomberg on June 3rd headlined, “Walmart says reducing inventory glut will take a couple of quarters.” Forbes on June 7th: “Too much of a goods (sic) thing: Retailers are drowning in inventory.” Also, the stocks of retailers have declined much more than the stock market in general.

Another sector is the semiconductor industry. Like retailers, this industry has also performed much worse than the market in general. Semiconductors have relatively short lives and so are perfect for a volatile stock price up-and-down ride.

Worldwide finished goods inventories at the manufacturer’s level have soared. They have reached levels not seen since the pandemic recession. This contributes to a severe inventory glut.

Obviously, in order to remove an inventory glut, there is one simple answer: cut prices at the retail level. Presto, inflation corralled. Of course, it’s not that simple. Each country, and the world as a whole, operates on a multifaceted economy. In the US, for example, inflation tends to peak with the prices of goods, which peak before services’ prices.

In the energy sector, the price for crude oil is falling. After approaching $120 a barrel, oil is now selling for less than $100 a barrel. Demand has fallen as drivers react to high prices. As one economist pointed out: the best cure for high prices is high prices.

A metal commodity price index has dropped below its level of a year ago. This suggests that perhaps commodity prices have peaked.

For serious investors, a key signal that the stock market has bottomed out is that inflation has peaked. Stay tuned as we stagger through unsettled times.

$S&P 500(.SPX)$ $Cboe Volatility Index(VIX)$ $NASDAQ(.IXIC)$ $DJIA(.DJI)$

https://medium.datadriveninvestor.com/are-there-signs-that-inflation-is-almost-over-67bca51db9e4