Its inflation Friday! I was reminded of that on my way back from lunch with Gaff — I popped into Starbucks (SBUX) for some high powered caffeine goodness, and wow!
Its now reached the point where a cup of Starbucks is ~$5!
At this point, I do not know anyone left who is still out there denying the existence of inflation . . .
wow what a surprise
where’s eclectic and his fellow travellers
Dec. 14 (Bloomberg) — U.S. consumer prices rose the most in more than two years last month on record energy costs, reinforcing the Federal Reserve’s concern that inflation will erode confidence in the economy.
Dec. 14 (Bloomberg) — U.S. stocks fell, heading for their steepest weekly drop in more than a month, after accelerating inflation raised concern higher prices will slow economic growth.
Folks fault the Fed for not fighting inflation (and lying about the numbers), but I thought they were only able or willing to fight demand-driven inflation with monetary policy? Since the economy isn’t overheating, raising rates (or even not lowering them) wouldn’t help throttle increasing demand. Another example of inflation they cannot control is the inflation of oil futures thanks to regional volatility. So their inflation-ex-inflation is perhaps an attempt to focus on the only things they can control.
ummm eclectic for those of us that understand economics finance and the market this is what’s known as a leading indicator
Dec. 14 (Bloomberg) — Copper headed for its biggest weekly decline since May after global stockpiles rose to a nine-month high.
raising rates (while we were still in total denial) would have helped the problem by uncovering it sooner.
I think it’s no coincidence that the problems surfaced at BSC (as they declined to participate in LTCM) first and then spread (like they were not holding the same type of crap too!)to include the rest of them. It keeps being a surprise to people who do not inform themselves and actually read 8 and 10 k’s
So it’s because of people like BR that SBUX can’t make any money!!! Seriously do the put ANY coffee in those types of drinks any more?? halfacappafrappadecafa with lite whip please….hahahahahaah
Ciao
MS
Serving Size 16 fl. oz.
Amt Per Serving
Calories 240
Fat Calories 60
Total Fat (g) 7
Saturated Fat (g) 4.5
Trans Fat (g) 0
Cholesterol (mg) 25
Sodium (mg) 130
Total Carbohydrates (g) 34
Fiber (g) 0
Sugars (g) 31
Protein (g) 10
Vitamin A 10%
Vitamin C 0%
Calcium 35%
Iron 0%
Caffeine (mg) 150
This post reminded me of the old inflation joke about living in a more expensive neighborhood without ever moving, but the housing bubble blows the punch line, oh well.
Starbucks should put ‘One SBUX Share from NYSE’ on the menu.
Barry,
You haven’t experienced the total cost of Starbucks.
Wait till the hospital sends you a bill for the uncovered portion of your heart attack!
Calories 240
Fat Calories 60
Total Fat (g) 7
Saturated Fat (g) 4.5
Cholesterol (mg) 25
Sodium (mg) 130
Total Carbohydrates (g) 34
Caffeine (mg) 150
TexasHippie,
Increases in oil (or Barry’s coffee, for that matter) prices ARE NOT INFLATION. The fed can influence (but not absolutely control) exactly ONE price, that of very short-term risk-free USD loans (basically currency). The only demand relevant in doing so is the demand for short-term risk-free USD loans. Period.
They can’t control demand for oil. They can’t control demand for Barry’s coffee. Those prices can and will change in relative terms according to supply and demand dynamics associated with each product. Inflation happens when the price of everything rises, which is really just another way of saying that the value of (short-term risk-free) USD loans is dropping.
In other words, it’s the supply/demand dynamics of money that are at issue, not the relative prices of the things the money buys.
Well, they have been printing up money like nobody’s business . . .
amazing once you spend time thinking about it. wasn’t long ago a turkey sandwich was $5 now you can’t do lunch with chips and a drink for less than $12.
You think that is bad, I was at a 7-11 and they had a “Take a $20, Leave a $20” tray.
Nobody would leave pennies anymore, the metal they are made out of is too valuable.
;)
BR,
M1 is stable to down. We can certainly talk about increases in credit, but that’s not money.
It seems to me that at best you could argue that the fed should have reduced the money supply in order to prevent the implicit future devaluation of money embedded in the expansion of credit.
To argue that the fed has printed up too much money though is simply wrong.
You didn’t ask for the hedge fund manager discount?
Barry, come out to Boulder. I’m buying a cup of coffee at the Trident Cafe and Bookstore for $1.50. Small cup, tiny refill, but you get great atmosphere.
It’s not “Starbucks”
It’s “Fourbucks”
Everything there costs $4 now
;)
M1 is stable to down. We can certainly talk about increases in credit, but that’s not money.
Estragon,
M1 essentially is reliant on debt since it counts deposits.. so.. a bank loans money out.. that leaks through the system and some of it is redeposited.
Currency has been growing steadily.
In July 2006, currency was at $740.6 billion.
In November 2007, it was projected to be at $763.6.
So.. yes.. the currency is growing. I’d guess money is coming out of the deposit accounts and going somewhere else.
Maybe into margin accounts to cover calls.. or into something else.
Anyhoo, I’d guess inflation is really coming from all the derivatives contracts floating around.. and.. you should ask yourself what it means that we have only around $760 billion (US) in circulation when the notional amount of derivatives (swaps and other derivatives) denominated in US$ is probably around $50 – $100 trillion.
I’m having to guess at that cause I only know the notional estimates for total volume.. $4 trillion (US) total world currency versus ~$330 trillion notional derivatives.
estragon you are intellectually bereft from an economics/business/marketing perspective
of course I can only comment on your postings here
you may be quite a nice person
rgds pcm
I was reading a bit in the WSJ (I think) about 6 months ago. Some big time manager was saying he thought SBUX was ripe for the picking but he wanted to wait until it got down to $26 or $27. Probably seemed like a good idea at the time.
Price is a function of liquidity, having nothing to do with value.
I buy Sumatra coffee at Costco, 3lbs for $10.50. A normal cup of coffee costs 5 cents. I like it strong so I’m up to 10 cents a cup. Inflation is where you find it.
Things do not cost more. Your money buys less. Repeat 100 times and don’t forget it!!! I can still get 2 hogs and a dozen chickens for one of my beef critters.
peter from oz,
If you want to attack the idea, by all means do so. If you want to attack the data provided in the link, have at it. Calling me intellectually bereft is pretty pointless though.
Eli,
Point taken on the inclusion of demand deposits in M1.
Even if we just look at currency proper though (+~3% in your time frame), the numbers don’t support the notion that money growth is wildly out of proportion with economic growth (+~5%) generally.
I’m with you Norman, Costco has the best deals on whole bean coffee.
I don’t know if anyone was watching CNBC this morning.
Michelle Caruso-Cabrera was talking to Steve Liesman and asked him if he’d rather spend $10,000 today or spend it 4 years ago. Liesman, sputtered for a bit and said he’d rather spend the $$ today.
Michelle then said, so basically the Fed has done a good job over the last year and inflation is under control.
*lol*
Are you kidding me?! Personally I would have rather spend the $10,000 4 years ago. On anything you name it… Real Estate, Gold, Oil, lol
Even if we just look at currency proper though (+~3% in your time frame), the numbers don’t support the notion that money growth is wildly out of proportion with economic growth (+~5%) generally.
Yes.. that’s the thing.. if our economy is growing.. but currency and/or bank deposits aren’t growing fast enough… then.. what is growing?
It’s all these paper contracts.. “money” growth have moved waayyyyy beyond just currency and the recorded amount of deposits in banks.
All the central banks can do now (in my opinion) is keep up with the market players.
If the financial system is tested, stressed in some way (or continues to be stressed as it currently is).. all the central banks may be required to drastically inflate the actual amount of currency in the system (temporarily or permanently).
There’s not enough currency floating around to settle all the bets IF the numbers move too much more than expected.
estragon
you are showing your petticoat
focus on your wallet
you’ll need to
rgds pcm
For $4 you can buy a entire pound of green coffee beans and roast them yourself.
Eli,
I believe you’ve hit the nail on the head.
Peter,
Whatever. Have a day.
To clarify, what I’m trying to say is that all of the entities involved in global finance have developed all of these new derivatives contracts to synthetically inflate the “money supply”.
They no longer need to actually find someone with $1billion in cash to loan them so that they may purchase whatever widget they want.. they just need to find someone willing to write up some swap contract saying that you will pay them some amount of money twice a year or something (say whatever the interest would be on a $1billion loan).. and they will pay you whatever amount your imaginary $1billion worth of widgets appreciates over that time frame.
Anyhoo, if the system gets stress tested too thoroughly, this will require the actual creation of currency to cover margin requirements or what have you.
or.. you could let the system lock up and fail. But, I’m guessing all the market players knew somewhere deep inside that the central banks would probably have to inflate the currency supplies upward if push came to shove.
“I can still get two hogs and a dozen chickens for one of my beef critters”
And I can still get another $350,000, 3/2 dump..er..cottage for the one I’m living in now, but ten years ago the same trade would only have taken half as many dollars. Point well made. It’s the money, stupid!
If the same basket of commodities (that presumably don’t change over time–a bushel of wheat, is after all, still a bushel of wheat, no matter how much its price in dollars changes) then something is awry w/ the money. And please don’t tell me it’s just increased demand. In a world economy that has grown about 4-5% on average over the last few years, commodity prices should not be up threefold, unless there’s more dollars out there relative to the quantity demanded (of the commodities) than there were before.
Take a very simple example: Imagine an economy that only produces Starbucks coffee. It produces 100 cups of coffee one year. If it prints $500 of fiat currency that year, then each cup of coffee is worth $5.00. If the next year it produces 200 cups of coffee, but prints $2,000 of fiat currency, the price of coffee has just increased by $5.00 per cup. Fiat currency has no intrinsic value. It just represents the value of the goods and services produced by the economy that prints it.
Indeed, a beef critter still equals two hogs and a dozen chickens, no matter how much currency is printed or otherwise created.
Don,
You aren’t factoring in the affect of a fractional reserve system.
Make it even simpler.
Imaginary country produces 2 cups of coffee in 1 year.
Imaginary country prints $2 in that same year.
Imaginary person1 gets its hands on those $2, spends $2 on coffee.
Imaginary coffee-seller deposits that $2 (from first coffee sale) in the bank.
Imaginary person2 gets a loan from bank (that is holding the $2 in deposits) for $2.
Imaginary person2 really wants coffee so spends $2 on last cup of coffee in imaginary country.
Next year, the country prints 2 more dollars. Now, there are $4 in the system.
Our banking system is sort of like that.. the currency is just rapidly cycled in and out of the banks.
Of course, we have that extra bonus of derivatives contracts that help accelerate prices even more.
Maybe you should stop blaming the Fed for their loose monetary policy; it may be your monetary policy that is to blame for rising prices. As long as people are willing to shell out absurd amounts of money, businesses will ratchet up their prices.
You could have made your own cup of coffee for $.50. If you really wanted a caramel machiatto, you could have bought week’s worth in the form of a bag of candy and some caffeine pills.
Maybe you should stop blaming the Fed for their loose monetary policy; it may be your monetary policy that is to blame for rising prices. As long as people are willing to shell out absurd amounts of money, businesses will ratchet up their prices.
You could have made your own cup of coffee for $.50. If you really wanted a caramel machiatto, you could have bought week’s worth in the form of a bag of candy and some caffeine pills.
Then there is the value of my time.
Plus, I can’t get the foam to whip up “just so” in the machine in the office. . . .
Then there is the value of my time.
yah.. I’m guessing you can make more than $5 (financially advising some wealthy individual or whatnot) in the time it would take you to make that grande caramel macchiato.
So.. there’s really no point in doing it unless you love making them.
don’t you live in NYC?
Captain and coke is $13-28. So I don’t know how you judge in a place were the more expensive something is the more people want it…
you could have bought week’s worth in the form of a bag of candy and some caffeine pills.
For the cost conscious I recommend going with the Ban Drowz. No Doz are twice the amount of money. As far as I know, their stuff is the same purity when it comes to the Vitamin C.
Barry,
The supplies used by starbucks to make that drink are in a bubble. Dollar supply has stayed the same.
Inflation requires money supply to be expanding. You’re experiencing deflation.. the same dollars chasing fewer goods.
No one left denying the existence of inflation? Try Larry Kudlow and Don Luskin.
Talk about inflation, I went to PJ Clarke’s and a Coke was $3.
Hah, got all you guys beat on Starbucks prices. I bought a Silvia ( espresso maker ) and Rocky ( grinder ) for $950.00. Screw you Starbucks.
BR: Those Starbucks concoctions are just milk shakes with coffee substituted for good old ice cream. You know you like milk shakes better. I give you permission, have them for breakfast.
In all seriousness, though.. Barry, how can you deny that the danger is DEflation from a total lockup of the credit markets? Inflation is just not that bad.. however, deflation is, and deflation is what happens when bad loans are introduced into an unregulated credit market. If no credit is available for any business or individual, everything goes boom and we have 1930 all over again.. because that’s exactly what happened then.
Who’s responsible for regulating the credit markets? Yep, the Fed. They haven’t been doing their job.
Keep drinking – I like getting the used coffee grounds for my garden for free…. ;^)
Estragon, your definition of inflation as the inverse of the price of money and money substitutes is a bit circular.
There is no such thing as a ”general price level”, as there are many different inflations or deflations depending on which basket one chooses to look at…
As to Barry’s idea that money has been printed, or instead that credit has been expanded, well, money and government bonds are just one aspect of credit, that owed by the state, and this not being the 19th century, looking only at M1 and similar is rather misleading.
What has been happening for a long time is a colossal expansion in ”nominal purchasing power”, which has indeed led to a rise in many prices except notably that of labor (unless one wants to reclassify the rents received by CEOs as earnings…).
According to some this colossal expansion has been a strategy chosen deliberately by most western government to finance the rise of the price of oil and other commodities so that such increases did not have a recessionary impact by reducing corporate profits.
This has largely succeeded, but only because there has been a deliberate policy of also compressing absolute as well as relative labor costs, thus reducing the purchasing power of most consumers, which has meant that price increases have been largely confined to various asset categories, those where purchases are funded by ever more abundant credit. But they are now spilling over into retail prices too.
Unfortunately a policy that aims to protect and increase corporate profits and keep down labor costs in the presence of the deflationary effect of input price increases and a strong dollar can only go so far, and cracks are starting to appear.
As to whether there is retail price inflation currently, consider the large differences in the definition of the price indexes between now the 1970s: either retail price inflation then was wildly overstated then, or it is being grossly underestimated now.
Plus, I can’t get the foam to whip up “just so” in the machine in the office. . . .
Barry,
Only posting since you seem to be a bit of a tech geek.
Nespresso Aeroccino, head over to their boutique on Madison between 65th & 66th.
Per Barringo in an earlier inflation rant:
“To complete the picture, the phrase ‘right here’ is also accompanied with a vigorous crotch grab . . .” end quote.
—
My God, Man! Take HOLD of yourself!
I thought we’d dispensed with the innuendo. WTF you wanna do, run wunsacon’s female friends and potential readers off with your conjured up images of one-eyed trouser trout? C’mon… have some decorum and self-respect.
—
New Business:
I have suddenly been seized with a profound philosophical quest, to wit:
Do members of the FOMC scratch their balls?
Seriously, I hope we can find some room for a debate about the topic. I mean… when my balls itch, I scratch ’em, but it’s hard to think of the FOMC as being populated with ball scratchers. I would think they would intellectualize the itch in some way.
I wanna know. Does anybody have a contribution to make?
—
BTW Barringo, I doubt if you conjure up much threat, what with all the intense radiation you probably have from the gizmos in the BP household. Mrs. BP probably can microwave a TV dinner just by taking it out of the fridge and sitting it down in any room.
Consequently, I figure you long ago got num-nutted from the radiation.
Eli,
Yeah, I left out the fractional reserve portion of money creation on purpose, just to simplify. Of course, banks (and now, many other non-bank entities) print money, too, but it has to start w/ the fed.
I think what happened 2003-2006 or so is that the fed added dollars when it should have been taking them away due to technological innovations allowing each dollar’s impact to be more readily maximized, i.e., financial innovations and communications innovations made the velocity portion of the dollar equation much higher, thereby necessitating fewer of them, but the fed was actually adding more of them. And that’s when and why $100 oil, etc., became a distinct possibility.
With the financial innovation wheels grinding to a halt for now, we might need more dollars (velocity goes down, money supply needs to go up for the same level of output and prices), but we were so oversupplied with dollars before (sorta like houses) that it might do to just take a neutral stance (perhaps about where rates are now, or maybe a little higher?) and work our way through the excess–dollars and houses. Yes it could be painful in the short run, but it would have the possibility of strengthening our long-term real growth prospects.
And it would not be nearly as painful now as it would if we let this oversupply of dollars push us back to the seventies and stagflation. Even if that happens, though, I ain’t wearing a leisure suit (again).
on the positive side, Starbuck’s prices are now attracting the interest of sub-prime borrowers
pete/oz,
Just saw your calling card.
I don’t deny the recent run up in inflation, but contend only that it is not likely to be sustained. Too, I have for a long time on this blog spoken of my Sweet Bondie and how she’s not worried. When she gets worried, I will get worried too.
About fractional reserve banking:
It doth both giveth inflation and taketh it away… and peradventureth thine mind that it doth oft taketh it from thine own economy in great haste and leadeth to great lamentation.
This isn’t inflation. This is the start of a DEflationary spiral, just like Japan.
Private sector liquidity is contracting not expanding. “Inflation”/debt/money devaluation requires expanding private sector liquidity – which I challenge you, Barry Ritholz, to find one iota of evidence for. You cannot because there is none.
If .gov deficits continue ramping and putting more pressure on the limited amount of money available to the debt markets, you will see the cost of all debt – consumer, commercial, .gov – ramping, while the pileup of liquidity at the Banks causes the FED to follow the EFF down.
pete/oz:
Bull markets have copper roofs. In the 70s they’d give you $1 at the bank for 96 pennies and houses were wired with aluminum.
And too, Barringo:
…I suppose it hasn’t escaped your less-allergy-filled eagle eyes where the Deus ex-Machinatin’ Caralyzed common is going, huh?
In other news, a large coffee at Dunkin Donuts is still $1.87. There’s a difference between inflation and price discrimination.
But hell, sloppy anecdotal evidence is fun and easy too!
Absolutely agree, and people still believe that the inflation figures reminiscent of the Eisenhower days in the last quarter GDP figures reflect reality. Dupes. If the real inflation figures were used, retail sales were be flat to down and we’d already be near zero growth.
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Do what I do and just a regular venti coffee for 2 bucks. I’m no less caffeinated and don’t really feel a loss of the Starbucks experience. Good old substitution effect at work :)