Fed rate increase = lower hifi prices?

Some here sound like they're boning up on economics by reading anything they can and regurgitating talking points so as to sound relevant and further a conversation that's going to go nowhere. For all the goldbugs out there, if and when it starts to get really bad, how finely does one have to grind up the gold and how do you season it to make it palatable?

All the best,
Nonoise

@headphonedreams 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.

At a basic level, input prices have increased. How much wood (mdf) goes into a speaker? In America, wood/lumber prices have tripled or quadrupled since 2020. That must hurt a little bit.

There may also be issues regarding speaker/transducer availability - I’ve seen stories here about folk having some difficulties securing those round things.

And that is all I know about speaker construction! As for all that air inside, well, its like a bag of chips, innit?

I’d reckon that the market for speakers is fairly competitive, manufactured both in America and internationally, together with "cottage" (independent) outfits - although international shipping costs have also increased substantially.

That’s my simple take on the supply side. The demand side (buyers) - is another story, but my intuition suggests that demand for audiophile kit is pretty inelastic which does allow dealers to take advantage of any supply issues to bump up prices if stock availability is a bit hard to come by, without suffering much loss in turnover.

I reckon 20 - 40% is quite explainable in the circumstances.

In the meantime, estimates of official monthly inflation figures due out on Wednesday in the US are around 0.2% or so. Yeah.

@noske , purely IMHO at this point, but I would think the high high end is pretty inelastic since for the people buying this, it is chump change. I expect the middle-bottom end of the audiophile world to be rather elastic. $100K on a hobby with a $1M+ equivalent salary is "reasonable". There is a lot of disposable in $1M+.  $20K on a $200K salary, or $10K on a $100K salary is a much bigger chunk out of disposable income. For "family" people, there will be an expectation to maintain other aspects of life, including vacations, etc. especially as the pandemic ends, so I could see audio dropping down the list of spends.

@deludedaudiophile I concede there are other aspects on the demand side unique to hifi without going into details. Plenty. What you are thinking about is actually different markets. That's a significant aspect.

Except to point out that elasticity is a marginal (in the economics meaning of the word, incremental) concept. Its quite a neat thing to understand in a variety of contexts - being a ratio, it is almost unit invariant.

Maybe a bit like gain in electronics?

Market is still not happy. Sometimes the best stock investment advice is not to invest.

https://fortune.com/2022/05/02/morgan-stanley-stocks-fall-sp-500-earnings-growth-slows/

Whose crystal ball is best?

That is an EXCELLENT question. In all my years of experience the answer that seems most likely to me is NOBODY’S. And that certainly includes me. Any model can make someone a hero at a point in time, then the market shifts and you’re a dinosaur. Anecdotal note: after Elaine Garzarelli called the crash in 1987 she was on top of the investment strategy world, but she was absolutely paranoid after that because she knew her rep would be tied to calling when to get back INTO the market. She’d call me monthly (she was a client of ours) to see if our models were supporting what hers were saying to give her peace of mind that she wasn’t missing the boat. Point is, even the best know their crystal ball is right only some of the time.

Anyway, It seems I’ve come across as an arrogant ass here, and for that I apologize. The fact is, the longer you do this and if you’re a realist and smart, the biggest thing you learn is humility. My crystal ball is possibly no better than anyone else’s, although I’ve had the benefit of unlimited data and the ability to test and refine it over time. And I agree with many of the insightful points that have been made here. The only difference is I’ve had the opportunity to test my models and refine them into fairly reliable predictive buy/sell indicators over close to 40 years. If you believe in your assertions made here, I’d encourage you to track your own models against the market and try to create upper and lower bounds bounds that denote reliable buy or sell signals over time. Then you’ll be able to put your ideas to work for you in a truly objective and quantifiable way if you really believe in them. I’ll warn you ahead of time, it’s not quite as easy as it sounds, but it can be well worth the effort. I’ll just leave it there and say peace out. Best of luck!

It's the internet @soix, no worries. I find if you push smart people, it makes them think more and you learn more from them. I meant it quite honestly. I have no ego in this area and I did read everything you said looked deeper into some things I have not followed as closely as I could, etc. I have a financial advisor, I regularly talk to our economists and analysts are work because how and what we build is so tightly tied to related commodities, and do my own research.  My advisor encouraged me to invest more after the initial pandemic drop and he was absolutely right and I followed his advice. He thought I was taking too much of a risky position w.r.t. commodities late last year, but that turned out very well. I didn't follow his advice as well as I could w.r.t. Covid medical investments.  Any time human nature can play a huge role in the outcome, nothing is easy.

@deludedaudiophile

I find if you push smart people, it makes them think more and you learn more from them.

Case in point, you’ve got me thinking about the value of using the real earnings yield as part of an indicator. The thing is, you really can’t just use the earnings yield alone as an indicator because it’s always in the context of the current economic environment (i.e. an earnings yield of 5% with rates at 3% is completely different from a 5% yield with rates at 8%). So, to take that into account you need to view it relative to something like bond yields to see what it’s really signaling. I use nominal bond yields in our model so that’s why I’m using a nominal earnings yield, but if you’re up for it I’d highly encourage you to explore using the real earnings yield in some fashion to see if it offers useful predictive abilities. I’d certainly be interested in anything you find.

@soix ,

You have nothing to apologize for. If anything, hearing from you was educational and sobering.

All the best,
Nonoise

@deludedaudiophile hey, just as a rough idea and from a quick, off-the-cuff look, there might be some useful info from the real earnings yield. What I failed to realize initially, because I’m just not that smart, is that by using the real earnings yield you are inherently taking into account market conditions — duh. It appears that when the real yield goes negative it might be a good sell signal, and when it climbs back to 3% or so it might be a good buy signal. Could be wrong, but it sure seems like something worth looking into. The biggest problem is you’re beholden to current earnings estimates (or next year’s estimate if you’re using forward earnings), so any earnings revisions could lead to false buy/sell signals. Such is investing. Anyway, thanks for making me think. BTW, as a coincidence I used to work directly with Ed Yardeni — he was our economist when I was market strategist at Deutsche Bank.

I wanted to revive this thread,  I traded my CJ Classic 2se toward a DAC.  The dealer had it on his site by the time I got home.   I clicked on the ad this morning, less than 24 hours later and it was gone .   I clicked on several other items I saw in store yesterday and there were gone too.   They got $250 more than what I was trying to sell it for locally and gave me all the money for it.   Just shows that some brands retain decent value used.   

@soix excellent points. You make far more sense and have much better logic than the talking heads on the financial/business news - and most all on the Street. Please feel free to update on your economic insights and analyses as you see fit.

The stock market may cause a few potential buyers to sit on the sidelines. 
 

Maybe a larger issue is shipping cost. People have a value in mind for a piece of gear and if shipping has doubled or tripled… especially hundreds of dollars, it could be an issue to those thinking delivered price. 
 

As usual though, well reviewed gear and rarely resold gear will hold its value a little better. 

Thanks @ideal8592 I know I’m in the minority among the financial talking heads, but IME and as mentioned before, significant financial/economic downturns are caused by four factors: Recession, over valuation/significant bubble, high inflation/interest rates, or some major exogenous geopolitical event or environmental disaster. Our current situation was obviously caused by Covid shutting down supply lines and Russia’s war on Ukraine raising food and energy prices. Before those exogenous events inflation was all but non existent due to global competition and technology containing and/or driving prices lower. In lawyer speak, “but for” those two exogenous variables we were looking at continued low inflation, low interest rates, and good economic growth, which is the perfect environment for stocks. I still view our current environment to be an anomaly (albeit a very potent one) and once the two exogenous variables subside — and they will probably sooner rather than later — inflation and interest rates will tumble and stocks will once again take off. This assumes the Fed doesn’t do something monumentally stupid like continuing to hike rates into the stratosphere to try to tame this temporary spike in inflation and sending our economy into a completely unnecessary recession. As I mentioned to my B-school buddies, I’d much rather have a job and complain about high prices than not have a job and pay lower prices. We do agree that if you have the fortitude to stay the course and/or average down into particularly good stock values now you’ll be very happy you did so a year from now, but there’s likely to be a lot of noise and volatility between now and then so hold on for the bumpy ride. Bottom line and as counterintuitive as it sounds now, the base case of low inflation and moderate growth is still there under the surface and should prevail once the temporary exogenous variables subside. Just my take FWIW.

Just to bring this back around to the original subject, given the supply constraints wrought largely by China shutting down operations to control Covid, both new and used audio gear prices are likely to be high until things loosen up.  If you can wait you’ll likely find better prices in both markets a year or so from now, or whenever more “normal” supply returns to the market.  

Soix, you are right on the money.   I bought new speakers, used preamp , and ordered a new amp in the height of Covid.   I got a great deal on my preamp , bought new speakers when they were first released , before the real supply chain issues.   I amp still waiting on amp but it’s right around the corner.  I don’t think I could have built this system now , a year later without spending a lot more