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Inflation on Deck – Again

Today we have the producer price index (PPI) on the calendar—the forecast is for prices to decrease—both the headline and core. After the hot CPI numbers yesterday this would be welcome. We also have a gaggle of Fed yakkers today–at least 4–to them I say ‘shut up–if you don’t agree on the future fine–but none of you knew what to do when we were at zero interest rates and none of you know what to do now. Let’s be data dependent!

Yesterday ended up being fairly painful–most of our accounts were down around .3%. It has been so long since we have seen losses like this that the reality of the loss is better than temporary mental pain. I suspect with our portfolios only 1/2 invested in preferreds and baby bonds and a steady stream of interest payments coming in that this loss was minimal.

Yesterday the 10 year treasury closed around 4.56%–17 basis points above the previous close. It has been a long time since we have gotten a spanking like this–I don’t think we will see a rise like this anytime soon–even a hot PPI today won’t get this reaction. BUT as I have mentioned time and time again I believe that we will see rising rates later in the year as treasury issuance of new debt overwhelms demand and investors ‘demand’ higher payments. We’ll see.

Obviously no buying or selling yesterday for me–can’t see any today or tomorrow excepting for CDs as more maturities of CDs keep rolling in. We’ll see what prices do–maybe next week I will add to issues that have been beaten down, but with my outlook on rates it doesn’t seem to make sense to add anything but shorter dated maturity issues.

Equities are off this morning–not dramatically, but 1/3%. After yesterday we could well see a bounce if PPI comes in at forecast, but we are going to have lots of uncertainty in the weeks ahead so it would seem to me (and what do I know?) that upward traction will be hard to come by with inflation keeping the pressure on interest rates.

30 thoughts on “Inflation on Deck – Again”

      1. I don’t doubt that “seasonality” plays a role in gas price statistics, but I paid $4.99 to fill up last Friday, and my wife said it was over $5 yesterday – both at our local Costco. Up over a buck in the last couple of months (25%). Obviously anecdotal, but…

        I heard the “gas report” on the radio yesterday and lowest gas prices across the bay area had a $5- handle.

        1. Private – Just filled my hot rod Honda up @ $3.23 per gallon. See the reference to the bay area so you must be in California! I’m in the Triangle area of North Carolina.

          1. nice – $3.59 here in eastern MD but about 15c less down the road in VA. Was $3.89 in Cleveland when I was there for the eclipse this weekend.

            1. $5.79 a gallon or Chevron Plus ( 89 octane middle grade)this morning in California. Regular was $5.29.

          2. Florida is $3.19 to $3.39 was recently under $3. No state income tax. Ask yourself why states with the highest resident income have the highest tax rates and they’re all broke.

            1. Florida makes up for no state income tax with plenty of other ways. Unless you are extremely wealthy it washes out.

        2. Private, Of course it’s the plethora of taxes plowed into the gas price – just as it is into everything else in CA. Costco here is 3.23 a few days ago for the higher octane. Truly, I have been mystified at what that state does with all the revenues. We left CA for NC about two years ago – it’s been a financial/tax cultural shock.

          Check this out – you’ll have to see it to believe it. The presentation is not the best so be sure to scan the page top to bottom drill down to the most recent few years.

          Personal Taxes


          And the taxes are not buried somewhere else. e.g. our RE tax “rate” is 1/2 of what we paid in Ventura County and the sales tax is also a 1/3 less.

          1. Thanks, Alpha.

            I did a lot of work in the Carolinas for an employer many years ago. I liked it, other than the humidity. I grew up in desert where average humidity is below 5%, so –Silicon Valley with 20-30% is plenty. I did live on the east coast and all over SE/E Asia for some years, so I can tolerate it, but not my first choice.

            Big thing that holds us here is the grandkids. More than half mine (9) live within a mile of us, so there is no way I could get my wife to move.

            Peoples Republic of California has more hidden/layered taxes than anywhere I know (except maybe NY). We even have a big “climate change” tax embedded in our gas price, plus the “hidden” tax of having to use a “CA only special blend” of gas, which of course costs more than gas in any neighboring state. Lots of “political contributions” behind that system.

            1. Private, Honestly, no one loved CA more than us. We have terrific memories. Just before we left, by great fortune one of our boys and his wife leap-frogged us here from Santa Monica and are now 10 minutes by boat 20 by car…and just had the first grandchild.

              Of interest: we have five people on our street from up and down CA, probably most/all 1%ers. Most shared comment: “why didn’t we do this years ago.”

              Of greater interest: one neighbor from CA was employed at a very visible top (#1 position) in Sacramento, and frequently in the news – lives across the street – moved here during the pandemic and “worked from home” for two years before retiring early.

          2. Thanks, A – very helpful…. Wish I was NC bound from CA instead of tax free TN but I do like the trend.

            1. Are you moving 2wr? We will hate to see you leave the state if that is the case.

              Best wishes to you and yours whatever you do, and wherever you go.

        3. Filled up premium in eastern Massachusetts yesterday for $3.99 (regular is $3.19) at a Richdale’s convenient store in our town center. Costco in our area is no longer a bargain for regular gas but still is a bit better for premium but was out of the way. Gasoline prices do vary considerably by states given the state taxes as seen here -> https://en.wikipedia.org/wiki/Fuel_taxes_in_the_United_States

          My family in Georgia has always given me grieve over MA taxes especially after Reagan’s claim of taxachusetts. But that is no longer true as most taxes like gasoline, income tax and sales taxes are now higher in Georgia. Mass has been reducing taxes since the over-taxation of the 1970’s. If we could only bring down our property tax; well that is really driven by the market driving up property values.

      2. My local purchases of gas is just like buying stocks. They raise the price by about 10% then gradually decrease the price a few cents each day or so until it’s back near what it was before. Then back it jumps up again, and over and over this goes. So, like stocks, it’s a challenge to buy at a low price. Of course this only works for someone like myself who doesn’t have to buy on a regular basis.

      3. Just filled up in Alberta, Canada. $1.489/liter or $4.058US/Gallon.

        Using the following maths:
        $1.489 * 3.78541 (Liters to US Gallon) * 0.72(US Dollar conversion) = $4.058US/Gallon

        You are telling me these Eskimos are paying less?

    1. Ahhh, it seems the DC Ministry of Propaganda is at it again playing games with the numbers

      Anyone who has filled up their tank the last month knows gas prices have been surging

      It is why I don’t believe you can currently and reasonably rely on a number of these government statistics to make trading decisions

      1. It’s extremely difficult to make investing decisions these days. It really feels like you’re flying blind.

        It seems like risk management is about all you can do.

        1. Dick, the good thing is one can collect income and sit on their hands if they so desire. I agree investing for long term is a bit cloudy based on various possible scenarios leading to outcomes either beneficial or not. I just kind of keep hitting all angles not really committed to any scenario. Started unloading some NSS knowing the end is soon anyways past couple days. I used some today to join you with buying AQNB today, a little more SCE-H, a 100 shares of AILIM, and an almost 2 yr treasury paying a smidge over 5%.

          1. I’m almost to a full position in AQNB. My best guess is that I think it’ll be allowed to float until 2029. If I’m wrong and it gets called in a few months, I’m not going to be penalized. I think my avg. cost basis is like $24.87.

            I picked up a little AILIM today too. I sold the rest of my SOCGP for $26.00 and used those proceeds.

            1. Dick, that has been my recent focus. Buying high yielding floaters with no real cap gain potential and totally unbothered if a call occurs. As quite likely it just gives overpriced fixed perps more time to drop.

  1. According to Bloomberg the 10 Year TIPS is up 30 bps in the last month but 10 Year nominals are up only 42 bps. Doesn’t that mean that Supply/Demand in capital is driving rates more than inflation?

    This seems like a substantial data point to support the Fiscal Dominance view that monetary policy is becoming ineffective or is being overwhelmed by expansive and unfunded fiscal policy. No one in Washington got the memo on what a bad idea Modern Monetary Theory is proving to be?

    1. Thanks Bob,
      Sold my B waiting for the C.
      Back in at a better rate and with a (small) profit in my pocket.

  2. legend first i’ve ever heard about tax treatment changes on treasuries best idea I’ve heard in years I’ll sign the petition

  3. I took yesterdays reaction positively and happy that the broader community wants to demand higher payments in order to allow these huge deficits to continue.

    Seeing foreign buyers chasing precious metals and chasing US dollars.

    5% 2 year treasuries and 5.5% 1 year JP Morgan CDs are hopefully just the beginning of another round of opportunity.

    It will be interesting if the Fed finally has to step in to buy treasuries. Preferably, the government improves tax treatment of treasuries too in the hopes of attracting buyers and / or lowering their costs. Looks like more domestic buyers of one kind or another will have to step in.

    1. I have a big chunk of $$$ that will mature on 4/30 so hoping for favorable treasury and CD levels to roll into. I also parked a decent amount in SGOV that I’ll roll into something when the time looks right.

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