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PCTEL, Inc. Message Board

  • commandor58 commandor58 Jul 31, 2013 12:37 PM Flag

    Stagflation case

    Within the Chicago PMI and other regional FED mfging surveys, the prices paid sub-index has been moving higher. Today, the employment cost index was up .5% for the 2nd Q in a row and up 1.9% year/year-companies are paying more for inputs and labor, so either they raise prices or they take hits to their profits margins. With oil prices up, compounding the rule changes for truckers, transportation costs are rising for all products, so when July data comes out mid-month of Aug, I'm expecting inflation numbers to remain elevated.

    Today's GDP number is not a strong as the headline as much of the 1.7% increase was do to building of inventories, which could be a drag on later GDP if those inventories are not sold in a timely matter and a rebound in government spending. The consumer component was down vs the 1st Q at 1.8% vs 2.3%. Also, the initial estimate for the 1st Q was 2.5%, that has been revised all the way down to 1.1%. Given recent tax withholding data, consumer incomes are not increasing y/y, so spending is unlikely to accelerate.

    Bottom line, prices are marching higher yet, GDP growth is weak, the 2ndQ will most likely be revised down in coming weeks. In addition, the deflator the government uses understates inflation so GDP is weaker still. Still, stocks keep marching higher, as some companies are showing good results, but operating earnings across the S&P500 are up only 2-3%-hardly worth paying mid teens PE.

    Stocks are way over-valued vs GDP, consequently because of inflation data coming out in mid-Aug and other indicators, I'm expecting stocks to sell off 10-20% staring no later than Aug15-25.

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    • Other tidbits about today's (2ndQ) GDP number. Inventories contributed .4% growth, construction .5% growth, government spending was down only .4% vs down 4.2% in the first Q and the deflator used was 0%.

      Problems
      1)If sales don't materialize then increased inventories will be a drag on later GDP reports
      2)With higher interest rates, home construction has already stagnated, so continued .5% contributions to GDP growth are not sustainable. Also, MBA purchase index is down 7 weeks in a row
      3)Rebounds of net 3.6% in government spending is not sustainable
      4)0% deflator is just not reflective of inflation. The deflator should be 1.5-2.0%

      Today, for the 1st time in years, the FED, in its statement, reflected inflationary "pressures". If I am correct and the July measures of inflation prove to be hot, the "market" will have to get worried that QE may have to end "early" because of inflationary "pressures".

      • 3 Replies to commandor58
      • The real "skinny" on the jobs number today 8/2. They were terrible: hours/week down, aggregate hours down, wages /hour down, construction down, temp (household survey) 174,000. Year to date temp jobs up 4.2X the number of full -time jobs.

        Bottom line, July's number's were recessionary and YTD job growth has been mostly temp jobs.

        Getting back to 2nd Q GDP. Increase in inventories contributed .4% growth, government spending net drag was up .7% vs the 1st Q, understating inflation (deflator used was .7 vs CPI of 1.7%) contributed 1.1%. Bottom line GDP was near 0 when one-time or favorable assumption factors are taken out. All the while inflation as measured by the CPI and PCE is up, at an annual rate in June of 4.8-6.0% In two weeks we will get July inflation stats-if continued elevated then stagflation is here.

      • Commander, are you buying gas stocks aggressively down here?

      • System test-msg #2 is not showing up

 
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