Fed rate increase = lower hifi prices?

Everything will be 50% off.

@soix 

"In a few months the CPI comps to last year alone are gonna dramatically reduce inflation, and as supply channels gradually open inflation will fall even further and we’ll still have an economy growing at above 3%."

Yes, that is one way to avert disaster, providing that it's benefits trickle down to the working people.

Let's hope that you're right.

It's certainly a pretty confusing situation here in the UK right now.

Confidence in politicians seems to be at an all time low but our chancellor Rishi Sunak seems to be one of the more capable ones.

Some of still remember 2008 when we were told that it was either plan A or bust!

There was no plan B.

@cd318

Some of still remember 2008 when we were told that it was either plan A or bust! There was no plan B.

In my experience as an analyst on Wall Steet, there are five major factors that lead to big problems and big market capitulation: Overvaluation, recession or other significant economic imbalance, persistent high inflation, some bubble somewhere, or some catastrophic exogenous global or geopolitical event. The first four, in my opinion, are not in play, and unless the Ukraine crisis expands beyond that country’s borders then it’s not a big enough event to create a major global disruption. In 2008 there was a clear and significant bubble in real estate that had significant ripple effects throughout the economy that also rightly rocked the financial markets, but there’s nothing like that present now. Unless one of the five issues above becomes a bigger problem I’m not worried, FWIW.

@soix   You don't see the factors you mention as being present now????

No, at least not to any extent they pose any danger.  Now, if rates were to spike enough to risk a recession that’d certainly be a big problem, but I don’t see that in the current environment.  If you look back, it’s extremely unlikely for the US to go into a recession with rates around 3%, which makes perfect sense.  Now, if the 10-year gets up closer to 4% I’d need to start to reevaluate depending on inflation, etc.  We’ll just have to wait and see, but for reasons I mentioned earlier I believe current inflation rates are temporary.  The bond market is extremely smart, and if it thought we’re looking at sustained 6%+ inflation the 10-year would be a helluva lot higher than 3%.  Just MHO and again FWIW. 

Nazi Germany printed money to pay the war  reparations

The bill was not tied to gold British pounds,french francs or us dollars it was only in there own currency. So they printed money like crazy and paid with worthless colored paper. During corvid 19  the world Bank's almost all of them increased the money supply for the same basic excuse in every country. Even though debt is referenced back to other currencies they all did the same thing. The end result is not higher prices it is in fact lower value of the national currency. This was very obvious what was going to happen to the value of the dollar to anyone who has read rise and fall of the third Reich. Within the first two months of the pandemic I knew what the outcome as far as money value was going to be and brought hard assets real estate gold and silver. I didn't want any amount of cash on hand as I was sure this was on its way. I personally feel like we are in the equivalent to 1973 when OPEC was formed. We are at the beginning of hyper inflation. In 1973 a guy could buy a basic Chevy work truck for three thousand dollars in Canada by 1983 that same truck with a different front clip but the same four speed same 350 same frame same rearend was 12000 so in ten years the price of a pickup went up four times. Housing here went up five to six times here farmland went up seven times. Gold Price in 1972 was 65 dollars by 1982 it was 440 dollars all I say is hang on the ride is looking like it will be a wild one. 

All the best,
Nonoise

Simply put, everything in finance is supply and demand.  Then you add greed, natural and world events and that’s where things get screwy. Like @nonoise said, the stock market is still above where it was 6-7 months ago, so the sky isn’t falling. Can it get worse? Sure.  I bought my first house in the early 80’s and was thrilled to assume a loan for only 8.5%! The going rates for home mortgages was 12.5% for a 30 year fixed loan and up. Can you imagine  the screaming if 13% home loans came back?

@soix   Take a look at the very interesting post from retiredfarmer above. Unfortunately, I think he has some very good points.

@daveyf

@soix Take a look at the very interesting post from retiredfarmer above. Unfortunately, I think he has some very good points.

That’s kind of the point...everyone has good points...everyone’s perspective matters. A word to the wise though...going all in on a gut investment theory, especially one driven by emotion, is the stuff that dreams are made of if you happen to be a bookie or a professional investor. At the dawn of the pandemic, markets actually behaved logically and priced in a rapid slowdown in the economy and asset deflation...then the stimulus, then the change in human behavior, then inflation caused by predictable supply chain disruptions.

There seems to be a pervasive anger brewing among some that the apocalypse hasn’t happened as often as so many like to fear or preach (the choice of the word isn’t accidental). The FEAR of an apocalypse is the most effective way to predict human behaviour though. Interesting stuff to watch. I just try to live drama free and make decisions on that same basis. There’s always someone willing to buy beanie babies and tulip bulbs, which always leaves me scratching my head. Gold is my least favorite place to park investible resources. To each is own.

I just wanted to say it's nice to see folks discussing economics and a bit of politics here and not getting all twisted up with rage or whatever. Nice job fellas and some great points from @soix I will say @ghdprentice there's definitely been some gouging and some companies showing record profits during inflation. Obviously that's not the whole story but it has happened.

@jond +1,000

I wonder if we could ever reach a consensus on which industries should or should not be allowed to price their products as they see fit?

Oil/energy seems to always draw attention when prices rise when, in fact, it may be one of the more efficient markets when it comes to pricing. If a company must prioritize the public good OVER the best interests of the company then wouldn't fair minded people agree that if there is to be a forced pricing ceiling shouldn't there also be a forced price floor? Fair is fair right? Health care costs? Agricultural products?

@ghasley You are right with regards to your last paragraph when it comes to pricing. Unfortunately, in a true capitalistic society the ability to have no price controls is paramount, and as such free market reign is also paramount. The result of this is what we are now seeing in a number of areas of inflation...caused by legitimate market factors, and most likely many non-legitimate market factors ( like simple profiteering and gouging!) ( LOL, unfortunately some will probably argue that even these non-legitimate factors are perfectly acceptable in a truly free capitalistic system!)

@daveyf 

Indeed. Profiteering and gouging are interesting concepts aren't they. I don't know of too many people who willingly sell something they own for less than market value. I want someone to sell me a perfect JBL Paragon at its original MSRP! Somewhat depends on which side of the transaction one finds themselves. I sortof chuckle to myself though when I hear the accusations of gouging. The opposite of much of the accusations of profiteering or gouging is subsidizing.

I don't get a vote, I just get the privilege of participating, but I believe in free markets so I am equally opposed to price ceilings and/or price subsidies.

I wonder if we could ever reach a consensus on which industries should or should not be allowed to price their products as they see fit?

OK, in the context of this thread, lets say that one such industry to have price controls is that of audio/hifi equipment.

Who or what would be granted the ability to determine fair prices?

edit oh, now this appeared -

I believe in free markets so I am equally opposed to price ceilings and/or price subsidies.

What was that little fair is fair motherhood statement?

@daveyf there’s so much wrong with what retiredfarmer wrote I’m not even gonna take the time to respond. I’ll just say the US Dollar is up since covid and leave it at that. If you wanna put any credibility into the crap he’s spewing be my guest. IMHO he has absolutely no idea what he’s talking about and should stick to opining on farming. If you buy into his crap about us being headed to hyper inflation you’re a fool.

I don't pretend to understand what people mean by the term "price gouging". 

I googled it and it was explained as a situation where in times of emergency (however defined) certain goods are subject to rationing to prevent things like hoarding.   Price gouging then occurs if some people find themselves with more than they require on-sell for an exorbitant price.

Has that happened?  Did I blink?

@noske 

I believe in free markets so I am equally opposed to price ceilings and/or price subsidies.

It was intended to provoke thought. Its unfair to limit someones profit potential if you are unwilling to limit their losses. I don't support this way of thinking, Its why I am opposed to price caps or floors.  Its a problem I have with releasing the strategic oil reserves so car trips to Wallyworld remain affordable.

I hear it frequently said that the price of oil/gasoline is too high at a given point in time and that the industry is "gouging". No one whines when prices are so low that it actually stimulates other industries. We hear it frequently from industries who have no pricing power or who are experiencing a demand/supply imbalance, especially if they believe their product deserves subsidies.

Once again, understanding human nature helps us all place these data points in proper perspective. Lets take western states and water for example. There are numerous examples of communities that were/are subsidized with cheap water and the inherent waste of that precious resource is quite visible. Vegas? Palm Springs? LA?  Water has been too cheap as evidenced by its waste. Food and water are the only commodities which cant be substituted. There are subsets of food which can be substituted for other subsets so the free market can work, sortof(regional, climate induced scarcity occurs all the time). Water on the other hand is interesting...you have good/safe water or you don't.  Of course, we live in a world where we take perfectly average tap water from one region, run it through a filter, slap a label on it and then ship it around the globe in a plastic bottle with an exorbinant markup. Doesnt matter to me...as long I have access to safe water to substitute. If the cost of hifi gear became prohibitive, maybe people substitute it for a cooperatively funded live performance? Who knows...

The good news is not only are we not burdened with solving these problems of demand/supply imbalance, they inevitably take care of themselves if humans keep being humans. 

@ghasley When Covid first hit, I saw a report of a young lad who decided he was going to buy up huge supplies of hand sanitizer. Apparently, he did succeed in this and was able to temporarily impact the supply of hand sanitizer. This bad actor then released on a limited basis these hand sanitizing bottles at prices that were 10-20 times what the typical cost had been before the onset. This was found to be price gouging and the Feds shut this fellow down. I guess you have never been the target or the subject of price gouging, otherwise you may not be justifying those actions...no??

@ghasley good to see some micro economic principles discussed, and usually people can agree on the logic as hand-waving and speculation is kept to a minimum.

The politics of water are pretty ordinary - sensible economists have left the building..  In my country it is bureaucrats who administer the politics.  The Nth Koreans could probably plan better.

@daveyf nobody is condoning anything that is illegal. That would have been contrary to any emergency regulations that were swiftly put in place. Perhaps not by the letter, but at least in spirit. Judges are not amused by those antics.

What I’m seeking is some non-emergency examples of pricing irregularities in hifi that cannot be explained logically. Coz people just say stuff and say, oh, price gouging, huge profits.

I understand that respected tube sellers rationed recently, and kept prices not too far away from normal. Because reputation and credibility. Think.

@noske,

I studied, a loose term I'll admit, economics for 3 years as part of my degree and whilst macro economics may have made a little sense, micro made no sense at all.

In fact it was mindnumbingly dull. I remember discussing it with a postgrad student who admitted that it was only the sight of the Swedish lecturer's legs in her knee length skirts that kept him awake during those periods.

Let's not kid ourselves, economics is an extremely complex and largely unpredictable social science. The Keynesian v monetarist debates made the analogue v digital ones look like small potatoes.

I had a lot of time for Keynes, I particularly liked his suggestion of burying bottles full of pound notes and letting folks dig them back out as a way of easing mass unemployment.

However, with Keynes, as everyone else, a lot depends upon sustainable growth.

Given this need for constant growth, perhaps it would not be too far fetched to imagine that this little trouble in Ukraine is related to the search for growth, would it?

@retiredfarmer 

"Nazi Germany printed money to pay the war  reparations"

Isn't that one of the reasons why WW2 is often called a  Bankers War?

"Within the first two months of the pandemic I knew what the outcome as far as money value was going to be and brought hard assets real estate gold and silver. I didn't want any amount of cash on hand as I was sure this was on its way."

Now that's an impressive display of keeping a clear head and pragmatic thinking.

Some of us sort of went into mild shock watching that footage from Wuhan.

On the other hand it now seems some of us were already getting ready to roll out their experimental jabs.

Some others were already planning to drive governments into increasingly more dangerous amounts of debt.

As they sometimes say, follow the money, and if we do that we can see that big pharma and big banks have certainly done very very well from the Plandemic.

Without growth the rest of us will have to increasingly suffer one of the 2 great certainties of life - taxes.

Someone is going to have to pay, and it's not going to be them.

Our business subscribes to an economic forecasting firm.  Growth will slow into 2023 but no recession.  Minor recession in 2026.  Inflation will stay in 4 to 5% range for rest of this decade.  Major depression around 2035 - worldwide.

@cd318 I had a lot of time for Keynes, I particularly liked his suggestion of burying bottles full of pound notes and letting folks dig them back out as a way of easing mass unemployment.

Our brains are hardwired differently.

The owner of the pound notes could have kept them in the bank earning interest and then at a time of unhealthy levels of unemployment allowed willing folks to clean toilets or care for the elderly for which they will be paid with those pound notes.

@greenngoldcheesehead  I would definitely take the folks at the economic forecasting firm to Vegas with you. Should be able to make you a fortune!

Our business subscribes to an economic forecasting firm.  Growth will slow into 2023 but no recession.  Minor recession in 2026.  Inflation will stay in 4 to 5% range for rest of this decade.

Although forecasting is rarely accurate due to unforeseen variables, this seems like a very reasonable forecast to me.  We’ll see. 

Our business subscribes to an economic forecasting firm. Growth will slow into 2023 but no recession. Minor recession in 2026. Inflation will stay in 4 to 5% range for rest of this decade. Major depression around 2035 - worldwide.

With 4-5% inflation without compensatory growth, that would suggest a potential for significant decline of the stock market total asset valuation in constant dollars. An expected matching rise in interest rates will play havoc on government budgets and/or ability to deliver services.

Did it also predict GDP growth in constant dollars?

Sorry I have to catch up on other posts. This take me longer to absorb vs some others here.

I'm not sure if the rate increases will drastically impact the Cost of Goods Sold.

There have been some specific triggers to increased Cost of Goods Sold over the last 24 months or so:

1. Supply is less than demand in the logistics area resulting in all companies having increased inbound/outbound transportation costs
2. Numerous commodities have been supply constrained - increased demand, reduced capacity or combination of the two.  Prices has increased significantly for metals, computer chips and many other specific items.
3. Many companies have increased their sales prices.  

I recognize there are bad actors; I think pressure to keep pricing constant was removed due to the significant fall and return of demand and the financial liquidity pressures immediately following the 'shut down'.

I think prices will be more influenced by demand than interest rates.

@daveyf, the reason I have used this economist for 15 yrs is because they did make my business a fortune so I don't have to rely on Vegas :)  They don't forecast the stock market either.  And, yes, no one has a crystal ball and they didn't predict covid or Ukraine or any other black swan event that comes our way.

The real gist of this thread is prices are high and maybe or hopefully they will come down.  All I am saying is that the input costs into these products including labor are not forecasted to go down anytime soon.  We may be waiting awhile to see it happen.  So if a reader is holding back on purchasing something, consider that the price could go up 20% over the next 4 yrs so you'll need a 20% reduction just to get to the same "high" price point as today.  Of course 4 yrs from now, todays price will be a "deal" and won't be considered "high".

I told my sales team this week:  The best time for a customer to purchase our industrial equipment at the lowest forseeable cost is today.

@greenngoldcheesehead 

Name the firm please.

Thought on the Bank of England predicting inflation could reach 10% by the end of the year and that could be coupled with a recession?

With 4-5% inflation without compensatory growth, that would suggest a potential for significant decline of the stock market total asset valuation

That’s just simply not true.  Using a 2022 S&P500 earnings estimate of 230 the current earnings yield is 5.5%, which leaves quite a bit of leeway for rates to rise before putting pressure on stocks (yes, I’ve done the research).  My expectation is after the dust settles we’ll head back down more to the 3% inflation range given our base rate for years has been stuck at less than 2%, but we’ll see.  

@soix

The new member (as of today) making an unatrributed reference to an “economic forecasting service” who happens to predict a worldwide depression 13 years from now seems “suspect”.

In your entire career or experience, has any reputable firm EVER made such a forecast? I don’t recall ever seeing anything like that…even doomsday cults stopped using exact dates.

That’s just simply not true.  Using a 2022 S&P500 earnings estimate of 230 the current earnings yield is 5.5%, which leaves quite a bit of leeway for rates to rise before putting pressure on stocks (yes, I’ve done the research).  My expectation is after the dust settles we’ll head back down more to the 3% inflation range given our base rate for years has been stuck at less than 2%, but we’ll see.  

Please poke as big of holes as you feel is appropriate in anything I say. I won't take it personally. Is that earnings yield not based on growth?  Since you have done the research are you able to share some simple math for discussion?

I do feel you are correct, I can't see 8 years of high inflation. Gov debt will end up debilitating as there will be matching interest rates to help keep inflation down (in theory).

In your entire career or experience, has any reputable firm EVER made such a forecast? I don’t recall ever seeing anything like that…even doomsday cults stopped using exact dates.

That sounds like something I see from people trying to get me to buy stock newsletters.

@ghasley No, and I thought it was rather absurd and useless so I didn’t even address it. In my business we had some of the best economists in the biz and I ran all manner of econometric models that generated pretty respectable numbers (high R-squared, low autocorrelation/heteroskedasticity, etc.), and I found just trying to forecast the next year to be at best a crapshoot much less 13 years out.

We can't even predict a narrow set of critical commodities to battery manufacturing 6 months out, how one could accurately predict the world economy out a decade seems open to competence questioning.

Please poke as big of holes as you feel is appropriate in anything I say. I won't take it personally. Is that earnings yield not based on growth?  Since you have done the research are you able to share some simple math for discussion?

Look man, I spent many years doing primary research, quantitative analysis, and market strategy on Wall Street, so yeah when you throw some BS generalities out there with no justification that contradicts my experience I’m gonna say so.  Sorry if that hurts your feelings.

Honestly, feelings are not hurt at all. I really do want to see the basis of you analysis so I can understand it better.

Sorry, I meant to say hurting your feelings was not my intent at all.  To answer your question, you can’t just look at growth and inflation and hope to predict where stock prices are going.  We use seven proprietary models that track the economy, the Fed. stock valuations, bonds, technicals, etc.  It’s not until we pull all those factors together that we get a clearer picture of the stock market.  This is why I’m saying just looking at inflation and growth and saying stocks will collapse just isn’t sufficient information to draw that conclusion.  And no, I will not share more details about our models as they’ve been developed over many years.  I will say that when the disparity between the earnings yield and bond yields is this high, betting against stocks is rarely a good idea.  Again, FWIW. 

Oh my feelings are just fine. My questions about your reasoning are quite valid since the Real Earnings Ratio is the worst it has been in 80 years hitting almost -4% and it almost always is a leading indicator of a recession and stock market decline at least near term. Your assumptions seemed based on a rapid return to lowish inflation? However many disagree with a near term (<1 year) chance of that happening say like Bank of England economists.  As well due to the unusual conditions of the last two years there is a larger than normal differential between operating earnings and core earnings suggesting the Real Earnings Ratio is effectively worse. Then again I could read 50 analysts predictions for this year and all would be different the only consistency that a recession with inflation will be bad for valuations. Whose crystal ball is best?

The USA had negative GDP growth Q1. Russia had positive Q1 GDP growth. The Euro is now trading at 1.06 to one usd. Look at a one year chart for the euro. The times they are a changin. 

"price gouging"....lol......as if printing money endlessly, massive deficit spending and handicapping domestic energy have nothing to do with it......same old political shill

+1 @noske 

I just looked at speakers and many brands have increased or is increasing their prices with 20-40% ! 
I have a distinct feeling these new prices will not go down much the next 2 years.

Maybe the 2nd hand market will get some more items for sale which may push the prices a bit lower but they could just as easily start by going higher if new items are prices higher.

@mikeydred "price gouging"....lol......as if printing money endlessly, massive deficit spending and handicapping domestic energy have nothing to do with it.

The Fed has just recently (in the last weeks or so) reverted to no net increase in its "money printing" (quantitative easing, QE) campaign.

QE is designed to flush the economy with liquidity, for financial institutions to spend on buying shares and real estate and to lend it out if they feel like it to audiophiles not wishing to miss out.

Some countries ceased QE last year, eg, New Zealand in July, and are now going the reverse and reducing their bond holdings.

@soix  well we can ask you a few questions on something I might have an idea about. First off do you know how many days worth of food supply the world has at any given time? Do you know how big of percentage of the food supply comes from the Ukraine? Do you know how many countries are net food exporters? When you answer those you will understand what a big deal it is if there is a crop disruption in the Ukraine. There is a difference in not being able to afford gas and not being able to buy food. People are so far past even thinking that there food doesn't get made in the super market it is scary.  Now secondly if I am so simple what percentage did your net worth rise the last two year? 

Regards

A key purpose of Central Banks raising interest rates is to tame inflation. But macroeconomic measures are akin to turning an oil tanker - they take time to have an effect. Rate rises also tend to have the effect of strengthening the currency, making imports more expensive. Currency markets react much faster than consumer price setters do. In a globalised economy exchange rates are heavily influenced by what other players do. So for example, the Euro fell against the Dollar recently because the ECB did not mirror the FED's actions. The indications now are that the ECB will begin raising rates, so that will affect the Euro dollar exchange rate. In any event, consumer price inflation has happened for a whole host of reasons - supply chain shortages, labour shortages, winding down of quantitative easing etc. In short, I would not expect interest rates in and of them selves to have any appreciable effect on the price of hi fi.

@retiredfarmer 

No need for unverifiable phallic measuring contests about whose net worth moved more during a pretty narrow timeframe. You guessed right on real estate and gold during that window. You are also fortunate that the Canadian dollar tracks so nicely with the US dollar. Rather than searching for someone to admire the paper gains you seem to be enjoying, you are hopefully implementing a strategy to secure and hedge against the coming unwind of Canadian real estate gains pushed (until recently) by the arms open policy toward the monied class of China so prevalent in Canada in recent years. 

Gold was not a great investment during the pandemic. It was not awful, but it and silver until recently totally under-performed. Real estate did well due to lack of supply caused by a whole host of issues in some countries, not just pandemic or China, but general immigration, zoning blocking construction, policies that provided "false" affordability, etc. However, in some countries, said real-estate is declining (Canada for instance), and could be headed for correction leaving those most vulnerable to holding assets worth less than the debt they hold against that asset. It’s the 80’s all over again. People 8+ year into ownership with mortgages worth more than the house. It’s fine if you can weather it for another 10 year.

@ghasley  thank you I knew some true colors would show up. 

Regards