DawgTalkers.net Forums DawgTalk Palus Politicus Sigh…the economy

So I don’t know how many saw this, but the Fed decided to raise the rate a little bit.

And after the announcement, the stock market rallied.

I wanna thank Peen for always educating me on the stock market, but now I’m just confused.

I thought something like that would make the market go down, even if just a little? I mean I’m not complaining because if you aren’t investing then you’re playing yourself. But the more I believe I’m starting to get some sort of grasp on the market, something happens that reminds me that I don’t know a damn thing.

Somebody, please explain this to me like I’m 12.

Unemployment is also very low, and corporations raised prices simply because they can. I’m lost.

Fed has been putting it out there for a while that rates are going UP this year. Maybe the increase was less than expected?

I'm no expert, but with the economy rolling along just great (believe it or not - despite inflation on most things) the fed saw a need to slow things down a bit. It can be changed again, no doubt. But with supply issues, etc

Yep. This is a classic case of the news already being "baked in" and immediate market reactions having little to do with the actual influence of the decision.

Raising rates can be used to combat inflation. Could be viewed as a step try and control inflation.

Thank you, once again, for a very thoughtful contribution to the thread. Based on the immense amount of data you presented, I can do nothing but agree with you.

On a serious note, this kind of strikes me as curious too, but I am no economist. What oober and FATE are talking about makes sense. Same with arch. Could it also be possible that there is hope that these moves will help counter inflation?

Ha, you beat me to it.

Rate increases usually do flatten the market. In this case, with inflation running wild, I think it is looked as a step of sanity. Also, with rates so low, small bumps aren't really going to shift much money out of the market to seek bonds.

As rates rise , which they most probably should and will, you will see more normal market reactions as more funds start to shift larger blocks of money in to bonds, CD's, etc.

Man, it's been a loooooong time since those have been worthwhile.

Remember the days of 5% Checking Accounts and 15% CDs??

Also… having a plan and knowing the fed is raising rates helps
Stabilize the market

Stock market hates uncertainty…. Does much better with certainty or status quo

It's absolutely this.

Raising interest rates does not combat inflation, it adds to inflation.

After Jimmy Carters presidency, 1978ish, inflation was high, ... yes, just saving money could get like (lets say 5%) back then, and back then, even though I was negative (x) years old-ish, folks would say things like, "Wow you got a home mortgage at 16%, that's AMAZING how low it was, because most home mortgage rates were in the 20s to 30s, that might adjust down after someone spent over a decade and a half 'IN" that home.

And so, AFTER that time, (that time 1978-1982) Ronald Regan! Combated inflation by doing 2 things, (maybe more) He pushed through a Tax decrease for the highest income rates, which at that time were neighborhood 50-60-60% real tax rates in higer tax brackets,

But I'm DANG sure, because I was alive, when in some year? The thing that "REALLY' combatted inflation, that was skyrocketing in the early to mid 80's ( I mean if you acquired/earned enough to save back then you could double your money in like 4 years because of the high rates) BUT,
They MASSIVELY, MASSIVELY MASSIVELY LOWERED interest rates that had (at that time) been forever in the (9% + to higher) like forever, and they Suddenly, suddenly dropped everything to like 1 freaking%, or less, approaching 0%, and that was about
1987------------- until TODAY, and that DROP! is what really combatted inflation.

So, 1, the evidence shows, dropping interest rates combats inflation, and the media lies about it.

Explain it like Swish is 12,,,, continuing,,,,

Swish there are 2 economies in the US, there is the Elite, leader class, that has a ton of money and uses that money to (boat race) the common folks out of their lifes' efforts, and
The Stock Market, in spite of how many commoners may pretend to take part, (the stock market) is largely an indicator of how that class is doing.

What does inflation do, and why, would the Elite class want to bring back inflation? Inflation makes poor people poorer, and average people poor. BUT! it raises prices, and in the end who benefits?
Sellers?
Sellers of things like food, and whomever collects the payment at the end sale of basic goods, like, who gets the pay when you pay at the pump gasoline, or when you buy shoes, or food.
There is a bottom line, and as long as the companies---------- can pass the cost---------- which they always do, to the common folk consumers, ------- then inflation benefits everybody, except,
anyone who needs things, like food, or shoes, or gasoline.

Thus, raising interest rates, and therefore, adding to inflation, can cause the stock market to go up, because the elite class thinks it is going to get a boost, by (boat racing) the common consumers, a little bit moreso.

Now, Evidence? like 12, ok,
Pretend all the money in the whole world is 100 dollars.
and that 100 dollars is 100 because it represents all the value of everything on earth including one building, to represent all the real estate on earth, and one super hero to represent all the work anyone can do on earth, and like one cornstalk to represent all the things that grow that kind of thing.

What you can't have, because it has no value, and doesn't contribute anything to that 100 dollars, is a phantom comic book character that represents what banks do, see, they create fake dollars out of lending and then getting paid back more in interest.

So when rates go UP! the amount of that 100, which over time grew to 150, or 200 dollars, or 500 or a billion, Based on how much the banks lent out, and then took back with interest, while they sat in cushy office seats and added nothing,

then that amount grew, and caused "inflation" because
the one building and one corn stalk, and one super hero worker didn't change, (over time, mostly) I mean unless the population grew like crazy by letting millions in your southern border, or if a billion babies were born or something, (genetic wheat, oil fracking tapped, things that add to it sort of stuff).

But Basically, the less the banks do, and the lower the interest rates they do it at, the better for keeping inflation low over time.

But! Again.
As long as Multi national Elite Money Biggest Boxx Store in the world knows it's going to sell Bread for (a days wages)
instead of $2.19,
then Big Boxxxx Store gets googley eyed at the thought of the dollars they will pull in, because they still believe
the common poor man will just have to pay, and pay more

I mean they aren't going to not buy standard needs, what choice do they have.

“Mr. Madison, what you’ve just said…”

That can be a problem. The problem is you need to wait for the supply to be depleted. The daily fix is for crude right out of the ground. As price goes up, usage drops, so there is still a lot of crude in the pipeline that has to be used up before the new starts to be used.

There may be some fudging on the price...I don't call it gouging like that simpleton does...but it isn't gross IMO. Now if the price of crude continues to drop and the retail price doesn't follow, then we might have something to talk about. All the drops are recent news and this simpleton who doesn't have a cluse is all up in arms. Lets see what happens over the next few weeks. In the end, the laws of supply and demand can be a bit slower with commodity's because there are usually vast supplies in the bin. Retailers, and even the wholesalers are going to be slow to adjust their price until they have used up what they have already purchased.

You see this all the time. You have two gas stations on a corner who usually have similar prices. Then one day you see one of them selling for 5 cents cheaper. That means the guy selling at the higher price still has a few thousand gallons of gas in the ground while the other just took on a new load at a cheaper price. The station selling higher is trying to gouge people. They are trying to keep from losing their ass on that tank full in the ground.

That makes sense. Basically, if you the retailer, buy an amount from your supplier for $100, to make it simple, you need to place your margin on that amount and deplete that supply before your customers see the discount from you buying that same amount from your supplier for $50?

Yes, that's what makes commodities different than normal consumable products. There is a history within commodities, especially oil and gas, that when crude prices start to rise, prices at the pump rise rapidly, then when the price of crude starts falling, prices at the pump fall slowly.

Let's say it costs a retailer $1.50/gallon to buy the gas that's in the tank in the ground, so they sell it to you for $2.00/gallon. As long as the price of crude remains stable, that will continue. If the price of crude begins to rise rapidly, the retailer will begin raising prices, even though they are still selling you the $1.50 gas in the ground because when that's gone, they are going to have to pay to replace it at, let's say, $2.25/gallon. Then if prices start to fall, they need to do what Peen said, which is get rid of the expensive stuff before they can lower prices. I'm not saying that gouging doesn't happen, but in most cases it's retailers covering their costs and protecting themselves from risk as prices rise and fall.

If the retailer has a 20,000 gallon tank in the ground that he paid $1.50/gallon to fill, that's $30,000. Then he sells it for $2.00/gallon, that's $40,000 with $10,000 of that being profit. (Grossly oversimplified example) If the supply truck shows up the next day to fill it and it costs him $45,000 because crude went up 50% and he didn't adjust prices along the way... that's a situation retailers don't want to be in.

Good explanation, but to add some data to that, the average GROSS margin for gas sales is around 10%, after overhead (CC fees, taxes, rent, equipment maintenance etc) there is around 0.02 to 0.04 cents per gallon profit (Less if the station across the street is a national franchise that gets better prices from the distributor, and forces price matching)

The gas is a way to get people in, hoping they come into the store and buy items with real markups.

I worked at a Shell station in the early 90's, I'm sure it hasn't changed much since then.

It would make sense if crude oil hadn't gone down 5% last week alone and has continued to decline this week.

Pay attention. It was explained in several different ways.

The part people struggle with is oil companies raise prices at the first hint of any kind of disruption or slowing of the oil flow. Yet, prices only come down after the historic profits are made and 100% certainty of not taking a loss has occurred. Therein lies the gouging.

I understand how it works. Any sign sign that anything may go wrong and the oil futures market jumps in price. Even if it hasn't happened yet or the odds of it happening are low. Then when oil process go down, it doesn't take a week and a half to use all the "crude in the pipeline that has to be used up". So they up oil and fuel prices in case something might happen while that oil should still actually cheaper, then drag out dropping fuel prices well after those oil prices have dropped. At both ends they charge consumers far more by gouging the price.

I just said that.

Well since you've labeled me a centrist just like Joe Manchin how could we possibly agree on anything?

I understand, but that was explained. People don't understand that the people selling gas, Wal-Mart included aren't big oil.

As DC explained, the small guy who owns the Exxon station on the corner goes up because they really count on the gas in the ground paying for the next load. They don't want to have to come up with another $10,000 to pay for the next batch. You go out of business doing that.

Historic profits are the same as a profit margin. I agree the profit dollars go up as the price of crude goes up, but that isn't gouging. The margin remains static.

Where I get gas, it's gone from $4.19 last week to $3.99 tonight. That's 4.7%.

What you call gouging, business calls risk management. Every business on the planet would LOVE to be able to have a business model where they could achieve a 100% certainty of not taking a loss.

Look, I'm no big fan of the oil industry, they are slimy as hell... we will just see in a couple months when earnings are announced whether they achieved record profits over this period of rising prices.

Well they should have great profits now that they aren't spending money to explore for oil.

All they do now is pump what they have and sell.

One question I have is about their margins when oil prices start to rise. For instance, the gas prices go up quickly on the news of barrel prices increasing, but are slow to fall like we discussed. If they are shedding current supply that they purchased cheaper, at a higher price, wouldn’t that equate to potential windfall profit, albeit limited to the time that the current cheaper supply lasts?

I wonder if the stock market's rising was at all due to the spending to help Ukraine and the rest of the 1.5 trillion dollar funding bill. What are the military industrial complex stocks doing? (NOC, RTX, GD) Unfortunately, war can be profitable for some businesses.

Things are probably going to get really bad in a few months. Our economy lags about 6-8 months before prices hit the store shelves.

Most businesses keep having to raise their COGS because of transportation/shipping costs, labor shortages & more overtime for employed, & higher wages to hire someone.
Last year, a load going from CLE to ATL cost 2500
This year, the costs are $3900


a business does not eat the above costs, they pass it to the consumer they have a margin they need to operate on. Wholesale prices jump nearly 10% in 2022 over 2021. Wholesale prices jump nearly 10% in 2021 over 2020. It's going to get messy before it gets better.

2020 costs
Cost of Goods 1.00
Margin 30%
Product Cost $1.30


2021 costs
Cost of Goods 1.10 Wholesale prices jump nearly 10% in 2021
Margin 30%
Product Cost $1.43


2022 costs
Cost of goods 1.21 - Wholesale prices jump nearly 10% in January 2022
Margin 30%
New Product cost $1.57

Projected 2023 costs
Cost of goods 1.33 - Wholesale prices projected to jump nearly 10%
Margin 30%
New Product cost $1.73

Also, many are going to have to start repayment of their EIDL/Covid Loans starting in 2-6 months. We have jumped out of the plane and we will see how bad it gets before the parachute is pulled/we hit the ground.

Out driving around yesterday, I didn't really pay attention to price, but I did notice that the gas signs that did start at $4 several days ago are now $3 something. I am sure there are still some in the $4 range for the reasons mentioned earlier.
If my usual stations are still higher, I will still fill up there unless the prices stay that way. I am not going to go to the station on the other side of the street in the short term to save maybe .25 cents on a tank of gas. I might if I was burning 2-3 tanks a week and it was a long term deal. That 2-3 cents per gallon doesn't mean much to anybodys budget if you are like most who might burn a tank plus a little. That .75 to $1 per gallon does add up.

You realize that in your example - the product cost (to the consumer) went up by the same 10% each year. The margin is baked into the initial cost. So the margin a company makes has no impact (visible) on the price increase the consumer pays provided the margin doesn't change and price only goes up by COG increase ....

What is a bigger problem is companies making record margin off fewer sales. That is a big driver of the inflation as we saw it early in this inflationary cycle. I mentioned before - I don't know a company that isn't making more profit off smaller sales than ever before. That has a big impact on inflation because the only way to achieve that is to raise prices even though COG have either stayed the same, gone down in some cases ... or where COG went up say 5% - the price to the consumer went up 15%.

I am aware the product cost (not to business) went up 10% because... it did (slightly rounded) from 2020 to 21 and 21 to 22 are at 9.7% right now and they are already projecting around 10% increase next year.


Clearly, you don't own a business.

1. Businesses all set their margin on top of their cost of goods and that is how they adjust their markup. A business is not going to make less profit margin because they have a higher cost of goods. They still need to operate.
2. Businesses are marking more "money" but at the same margin because of the higher cost of goods. Look at my example again.

Jc

Just following along guys. Y’all clearly know more than me so I’m really just learning a lot paying attention to this thread!

I think the market changes have been driven by the news out of Ukraine and China recently and the timing of the Fed announcement, which went exactly as expected, were just coincidental to line up in time. And the market rally wasn't very big.

If you look at the metals, they dived on the announcement, indicating to me that people expecting less inflation due than prior to the interest rate announcement.

I would say the markets are wrong on this one. Inflation isn't just being caused by monetary policy right now, so a rate hike is not going to correct the problem entirely.

Inflation is always caused by monetary policy. Inflation is a function of money and money supply.

You are missing the point or wrong.

Using your numbers:

2020 costs
Cost of Goods 1.00
Margin 30%
Product Cost $1.30


2021 costs
Cost of Goods 1.10 Wholesale prices jump nearly 10% in 2021
Margin 30%
Product Cost $1.43


2022 costs
Cost of goods 1.21 - Wholesale prices jump nearly 10% in January 2022
Margin 30%
New Product cost $1.57

Projected 2023 costs
Cost of goods 1.33 - Wholesale prices projected to jump nearly 10%
Margin 30%
New Product cost $1.73


Product cost: $1.30 to $1.43 ... 10% increase.
Product cost: $1.43 to $1.57 ... 10% increase.
Product cost: $1.57 to $1.73 ... 10% increase.

The margin is baked into the product cost. If the margin stays the same, whatever % increase happens to COG is reflected/same as Sale price of product.

It is always a factor, but I would argue it is not the root cause in all cases.
If money losing purchasing power was the dominant factor, then we should expect to see price changes consistent across all goods and services. Additionally, they would be able to measure inflation rate by just looking at the monetary policy, they wouldn't need to go out and price a basket of goods to come up with CPI.