My Thoughts on the Biggest Mess in Decades: New & Used Autos, Chip Shortages, Inflation, and the Nasty Possibility of Stagflation

Wolf Richter as guest on the HoweStreet.com podcast, recorded October 6. Discussing mind-boggling distortions and some of the craziest market conditions.

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  130 comments for “My Thoughts on the Biggest Mess in Decades: New & Used Autos, Chip Shortages, Inflation, and the Nasty Possibility of Stagflation

  1. Swamp Creature says:

    What is happening in the auto industry is also happening in the real estate industry. High end homes in good condition and good locations are being snapped up like there is no tomorrow. Price doesn’t matter. Prices are going up 15 to 20% per year. Meanwhile there are hardly any for sale because they are all sold as soon as they hit the market. Meanwhile the bulk of the housing inventory on the market what little there is crap. I wouldn’t own some of this garbage if you gave it to me. Just saw one today, a 4 story townhouse which had the worst floor plan ever created by a builder. The price appreciation was minimal. I think this pattern applies with auto purchases today. Everything decent has already been sold. If you buy a car off the lot today you are buying a piece of crap that nobody wants

    • RightNYer says:

      Most of those houses are being snapped up as “investments.” I hope those who are buying them as investments instead of places to live lose their shirts.

      • TenGallonHat says:

        I’ve said it before, but I enjoy your comments, RightNYer (I just got done reading the “People not Looking for Work” comments).

        Some of these folks live in la-la land and are oblivious to reality; I enjoy when you matter-of-factly bring the 21st century to the table.

        • RightNYer says:

          Thanks TenGallonHat, likewise.

          My feeling is, if people want to trade crypto, NFTs, or anything like that, go for it. It doesn’t affect anyone who doesn’t want anything to do with them.

          But buying houses to hold, without actually doing any renovations or work, removing them from the market for people who actually need a place to live, is evil to me.

        • Joe Saba says:

          there are plenty homes for sale
          yes pretty good sales with few weeks on market
          but prices have plateaued for now

          still need for flippers as so many homes are hack jobs in need of updating
          and it is only place right now that I can see decent return on $$
          of course I always use 1 payment plan – CASH

          always have backup plan – if crashes – few rentals out there and cash flow is just as good as profit

      • historicus says:

        Think about the downsizer…
        He wants to sell his house and move to a smaller one.
        The money he pockets by selling the higher priced one less the cost of the new house goes where? To the stock market? If it goes to savings, he will likely loose 5% or more in a year….while the house he just sold might go up 5 or 10%. So he does nothing.
        The Fed has frozen the real estate market with inflation and promoting mortgage rates well below that inflation. Inversions.

        • RightNYer says:

          Yup. You either can risk money in assets that are obscenely overpriced (and yes, even taking interest rates into account) or you can take guaranteed losses in savings accounts.

        • Bobber says:

          You forgot to add that people sitting on huge price gains would have to pay tax if they sell. The one-time home gain exemption isn’t sufficient to cover most of the gain, which in many cases exceeds $1M. Perhaps that’s why I see a lot of elderly couples in their 70’s staying put in their house, with two or more empty bedrooms and living areas they don’t use.

          In the entire Seattle area, the tax is a big consideration that provides another reason not to sell.

        • polecat says:

          Ah, but does not that downsizer have to pay cap gains on the diff between that high sell vs a low buy, assuming that the new purchase actually WAS @ lower market value ?? That has to be factored in with regards to any ‘market wagers’ or this thing of which you speakith called ..’savings’, no?

      • historicus says:

        Real Estate…..driven by people getting out of cash
        Stocks…..driven by people getting out of cash

        Inflation with zero interest rates, courtesy of the Federal Reserve…both parts.

        Yield and dividend chasing…
        Forcing people to take MORE RISK to get any type of return…but anything less than 5% (inflation rate) is a loser…

        Can’t save to buy anything, for the savings INFLATION PUNISHMENT is insurmountable.
        This is the DYSTOPIA created by the unelected Monetary Dictators of the Federal Reserve.
        (Fed Governor scandal to be waived off. Likely an “internal investigation” ala the Yellen internal investigation about policy leaks. Anyone remember? I do.)

        • DougSimski says:

          I don’t understand risking massive loss of money to keep up with inflation. Spend less, cut back, cut out middlemen, be more self sufficient and you can exempt yourself from most inflation without the risk.

        • COWG says:

          Real estate, at this time, is probably the least riskiest of anything to invest in…

          There is no emotional attachment, it’s all a money game…

          Between corporate and private investors, there’s apparently a lot of money sloshing around doing nothing…

          What’s the downside? At the level these guys are playing, where’s the risk? If it blows up, dump it, take the tax write offs , and look for something else…

          Wasn’t investing for a tax write off a theme a while back?

          Or as we used to say in a previous life… in a big operation like this, you gotta expect a few losses…

        • historicus says:

          COWG

          “Real estate, at this time, is probably the least riskiest of anything to invest in…”

          Disagree.
          We are here because the Fed thinks buying MBSs 2.5-3% below inflation, essentially lending to the mortgage industry, is a good idea. It is a loser….and apparently an intentionally designed loser to benefit the owners of real estate.

          The last time we had inflation near these levels, 1999 and 2006, 30 yr was 6%. Now 3%. Why? A decision. Not market forces but a decision by the Fed. You bet everything on them not changing their minds, deciding not to subsidize housing anymore.

          Its all about people trying to realize a yield on their money with this promoted inflation. And with the rising prices and the built in punishment for saving money, how can young families buy homes without going way out on a limb.

          The Fed has made a mess, and any honest questioning of them would reveal it.

        • RightNYer says:

          Historicus, or until they’re forced to. I’ve never seen the average person, both left and right, as angry as they are right now.

          They don’t necessarily know why, nor are most of them well read or sophisticated enough to blame the Fed for house inflation, but people are pissed, and want change.

          I don’t know whether or not they’ll be organized enough to get it, however.

        • DanR says:

          I agree with Doug! Though depending on one’s financial mix may want to buy assets if too heavy on cash.

        • COWG says:

          Doug,

          If you have an investment portfolio of multi millions, I don’t see that much of a risk of overpaying a real estate purchase..

          If you make money, great…

          If you lose some, write it off against the gains of the rest of the portfolio…

          Net, net, net…

          I remember before Reagan changed everything, a rental had a 5 year write off ( now 20)…

          People (mom and pop) would buy a rental for the depreciation write off and didn’t care if it made a profit…

          Maybe one of our accountants in here could help me with this…

        • polecat says:

          The Pea must continue to be slid under that ‘lyin-eyes’ (S)hell ..like a shark that cannot stop swimming, at ALL Bankster CO$T$.

      • Yaun says:

        It probably won’t. We are way too far up the bubble to let it fall deflationary. And if it is solved with continued yield suppression the simple calculation is if

        annual real yield of a 30Y < annual real change of house price

        housing is a good investment. We know that housing is currently about 50% over long term trends, so if inflation over that time is at least 4.5, meaning a -1.5% real yield on the 30Y, you would break even if the price bubble fully deflates in real terms.

        It tells you what the real long term 'inflation expectations' are. The FED just choses to ignore it and uses their faked up statistics instead.

        • Augustus Frost says:

          There will be no gradual resolution to this mania where inflation and ZIRP are used to bring valuations back to reasonable. It’s never happened.

          This is presumably part of the strategy to make current debt (more) affordable but that’s not going to work either as it isn’t even close to being evenly distributed. Zombie governments, corporations and yes households owe most of it.

          As to real estate, I’d rate it lower risk if bought as a place to live in now or later, but not necessarily otherwise.

      • RockHard says:

        Not always people – Zillow dropped a bunch of money on a house on my block. 3 months and 6 price cuts later, it’s still on the market. Maybe they’ll balance that out with gains elsewhere, but they’re taking a beating on this one.

      • cas127 says:

        “lose their shirts.”

        See 2008.

        Actually, and predictably, the G is the real villain here.

        Mindless ZIRP has turned the *housing* market into a highly levered casino…twice…in less than 20 yrs.

        DC (the people who brought you Vietnam, Mosul, and Afghanistan) doesn’t give a crap, so long as they can count on (an albeit dying) MSM to frame somebody/anybody else for the resultant inflation/implosion.

    • David Hall says:

      The August supply of unsold homes in America decreased 1.5% (NAR). I suppose local areas might report different local statistics.

      People in the city may use public transportation, Uber, Amazon and Instacart.

      It takes 3 months to make a silicon microchip. It takes more time to test and package chips. There are COVID related bottlenecks. Vaccination campaigns are vital for the health of the economy.

    • RH says:

      Yes, because the system (including the exclusion from US taxation of foreign income not returned to America) allows and has allowed the easy accumulation of wealth for the rich but by the “free market” has put ordinary Americans in a hopeless position of competing against the lowest paid, subsidized labor from China, etc. Those houses you mention could not be afforded by most Americans or in less desirable states, are far more house than most would buy.

      We are seeing this massive amount of capital among the rich that as Warren Buffet said for himself pays less in taxes than his secretary reaching for investments to maximise their profit. Other Americans are just surviving financially, often by living with roommates or family. I do not want to sound like a commie but justice requires capital also pay taxes on its income, not get an eternal free ride off of ordinary Americans. For example, the low wages and lack of health insurance that many employers pay means most Americans (not those hugely profitable companies) ultimately pay the health care costs of less wealthy, uninsured or underinsured Americans — including from this pandemic virus!

      Counties or the government must pay if individuals cannot. For most conditions treatments from a private doctor would be heaps cheaper than from an emergency room when the conditions peak.

      • RH says:

        I forgot to add the involuntary government subsidies that this compels mean that there are gross economic distortions that reward the wrongdoers and punish the virtuous: e.g. competing, US, mom and pop stores have to pay raises in taxes to cover those others healthcare costs because a large chain importing from China making billions does not pay its workers enough.

    • K says:

      I predicted we would eventually get hyperinflation or stagflation months ago! Do I get an award? LOL

      The “Federal” Reserve’s award should be taxing fractional reserve banking specifically with a HIGH tax and requiring it to only give low interest rate loans or bailouts, e.g. by paying banksters huge dividends or QE commissions, to entities that transfer to it ownership of 9999% of their outstanding shares or authorized shares if the number is larger. Federal law could authorize the issuance of more shares.

    • Finster says:

      The stuff isn’t going up.

      The dollars are going down.

      • Wolf Richter says:

        Yes, that’s what consumer price inflation means: loss of purchasing power of the dollar.

        • MCH says:

          at this rate, we may end up with barter;

          but that would just drive people crazy… with all of the different ratios, and you’d have to put that on an easily accessible score board somewhere.

          1 lb orange = 1 lb apple
          1 lb orange = 7 lb black grapes
          1 lb apple = 4 lb green grapes
          7 lb green grapes = 4 lb black grapes
          1 car = 50,000 lb of apples

          that’s before you start splitting cars into models… ha ha

  2. BuySome says:

    The most memorable event of the car markets in 2021 might be the fact that Paul Smith finally decided (Feb. news) to let the original ’59 Corvette from Animal House go on sale. I wouldn’t expect a senior discount on that one.

  3. SocalJim says:

    In the areas I know, looks like housing inventory has never been lower. That said, it also appears price growth has slowed substantially. My guess is we are down to about 5%ish price growth.

    For now, looks like stagflation to me.

  4. HollywoodDog says:

    Do they still make The Club? Because with the steady, dramatic rise in used car values, the incentive for vehicle theft is only going to increase.

    • DanR says:

      I lived in Southern California in the late 90s. I had the club and one of those car alarms that went woo-woo-woo-ner-ner-ner. I didn’t get my car stolen but do wonder about their effectiveness, especially the car alarm.

      • otishertz says:

        The Club is useless. The lock cylinder can be drilled out, it can be pried and bent from the middle until it comes off, and the steering wheel can be cut. I used to use one until I researched ways to defeat it.

        After that I got a security system with a gps tracker (Directed Smart Start). Added bonus is the system gave me power door locks, trunk pop, and auto start on a 52 year old car (fun to start the car when I’m across the street and people take pictures next to my car.) Also can map location, geofence and send alerts to my phone for alarms and low battery.

        • Dana says:

          No car thief could steal my hubby’s ’68 Chev. Nova, unless they can drive a 3 on a tree!

    • RightNYer says:

      My understanding is that it’s very very tough for non-professionals to steal modern cars, as the “chip” system they use in the keys means you need specialized equipment that your average car thief can’t get his hands on.

      I’m not an expert, however.

      • COWG says:

        RNY,

        Down here the professionals are pretty good… stole 5 high end Jeep’s from a Cape Coral store at one time…got em on camera…used a laptop… no keys needed…

        Stopped at a local convenience store, topped off the tank…headed for Miami… next boat out…

        Got the pictures from the toll booth where they paid toll like good citizens…

        I think it took them about 30 secs to unlock and start each…

        500k worth…

        • otishertz says:

          Ahh, good old Cape Coma.

          Remember when it was illegal in Cape Coral, city of drainage canals, to park a truck in your driveway?

          You heard me right folks. You could get a ticket there for parking a truck in your driveway. They don’t call it ForiDuh for nothing.

        • RightNYer says:

          Yep, much of the commercial traffic on the Miami River is bringing stolen stuff to the Dominican Republic, Haiti and other developing nations.

  5. MJ says:

    Reminds me of 2006-2008 times 10x. This crash will be a doozy.

    • Crunchy says:

      Speaking of doozies, a nice Model J Duesenberg might run you upwards of $2 million now. Used cars ARE ridiculously priced, even ones without chips.

  6. Truckman says:

    Auto makers did not have extremely efficient supply chains.
    What they had was extremely inflexible, short-term cost-efficient supply chains, which were achieved by massive reductions in stocks and flexible personnel.
    Which they are now paying for massively.
    Bungee jumping is very efficient if you eliminate the cord, for almost all the first jump.
    Accountants have replaced engineers. It’s why auto makers can’t get chips, dams keep breaking, and Boeings keep falling out of the skies.

    • Petunia says:

      Paper pushers rule in the current economy. Nowhere more evident than in govt at every level.

    • COWG says:

      T-man,

      I believe they calculated there was was enough slop in the delivery cycles that some delays didn’t affect the total output over a quarter, which was their accounting measure…

  7. Cobalt Programmer says:

    1. Nobody listens to the podcast before commenting. Simply jump into their pet concepts.
    2. I bet on ford maverick. This will bring back the cheap affordable cars with no frills but reliable.
    3. Nations best brains are still thinking how to get the chips on time. They never talk about why chips manufacturing went overseas?
    4. Debt ceiling will be raised but necessary as a bargaining chip (not the chips we need)
    5. You should start a podcast in you tube. All of us will be there. We can take this restrained comment section to new avenues.
    6. Price raises in commodities will stay no decrease from here. Oil prices might decrease.

    • Wolf Richter says:

      Cobalt Programmer,

      “5: You should start a podcast in you tube.”

      Yes, it has been active for years. You can even subscribe to it. Here it is:

      https://www.youtube.com/c/WOLFSTREETcom/videos

      And you can download the podcasts wherever you get your podcasts.

    • sc7 says:

      On point #3…

      My understanding is that the US is best case 3-4 years from opening the next major chip foundry within the US. Our dependence on chips from outside the US seems to me to be a very major national security risk, one that does not get talked about nearly enough.

      Maybe I am missing something or overthinking it, but this seems to be a much bigger deal than people are making it out to be.

      • Petunia says:

        Samsung is building one in Austin, TX. I believe they are due to open by next year. They were delayed by the big freeze in TX.

        • roddy6667 says:

          How will they compete with foreign markets, where the USD buys 5-10X as much as in America?

      • Seneca’s Cliff says:

        Intel’s most advanced fab has been under construction for 4 years now. Just last month they started installing the “tools” which are the thousands of chip making machines. Their last “new process” fab ( as opposed to the copy fabs in Arizona) was completed in 2013 but took until 2019 to get all the tools installed and the bugs worked out so they could get decent yields. So don’t hold your breath that any of the US fabs under construction will solve the chip problem any time soon.

      • Nacho Bigly Libre says:

        Completely agree.

        Big portion of semiconductor manufacturing is concentrated in Taiwan – same place that China wants to ‘unify’.

        It’s essential to have a few new fabs in the USA.

        As Truckman alluded to, this is the bungee cord.

      • Lawefa says:

        2 are getting built here in the Phoenix area in the next 4 years. Huge investments.

      • Thomas Pained says:

        Those chips are going to cut you up and put you in a jar! Be careful of what you wish for. Less chips the better. Think about it! Project out into the future what all of this nasty technology will do to humanity. Please!

    • endeavor says:

      2. I bet on ford maverick. This will bring back the cheap affordable cars with no frills but reliable. I hope so, although the scarcity game may make the cheap affordable part a little iffy. Ford needs to create a similar basic model for the Escape line and the baby Bronco line. I know every auto maker is flush with higher gross margins, but a country in trouble with a rising cost of living will cause this to be a dead end. Also, this truck is a little more analog vs digital on the interior controls I hear. Good move.

      • COWG says:

        E,

        I think the maverick, baby bronco and escape, are all built on the same basic platform…

      • TenGallonHat says:

        There is no cruise control available on the base Maverick. How big of a loser can Ford be doing that? Kia and Hyundai streamlined multiple standard features well over a decade ago. Ford and Chevy don’t allow for cruise control on base miser models that are affordably priced so a person has to step up to a several-thousand dollar more expensive trim level. No thanks.

        • Seneca’s Cliff says:

          If they can take even one semiconductor chip out of the design by leaving out cruise control on base models than more power to them. A few generations from now, travelers walking from one town to another on dusty trails will marvel at how the travelers or our present time were too lazy to press down on the gas pedal.

        • otishertz says:

          Probably cheaper to get cruise control added later, somewhere other than the dealer. It is an easy thing to install.

        • TenGallonHat says:

          That’s a rather moronic comment, Seneca’s Cliff. Clearly you don’t live rural. Clearly you haven’t driven on a road-trip. I’ve never owned a vehicle that doesn’t have cruise control. And Ford is building brand-new vehicles without this feature? Every other beep boop and bop, but cruise control? Again, clearly you’ve never driven 100 miles a day to and from work. Are all your comments this dumb? I’m not supposed to have cruise control because cavemen didn’t????????? OK, DAD.

        • p coyle says:

          TGH:

          i have cruise control and have never used it once, despite making numerous trips across country. i can connect my phone to the car and have never done that either. and if i had to manually roll my window up and down i wouldn’t mind.

          i would happily pay less for a vehicle without all that stuff.

        • TenGallonHat says:

          You’re missing the point, p coyle. I want cruise control (and don’t care if you don’t).

          I’ve been sitting here trying to figure out these replies… who argues against someone wanting cruise control in 2021?

          I erased my paragraph when it dawned on me—–YOU’RE THE LEFT-LANE PRIUS DRIVERS WHO CAN’T FIGURE OUT WHAT SPEED TO DRIVE. Makes perfect sense now. My god.

        • NBay says:

          Stupid Hat Troll-

          Read Seneca.

          He had moronic thought like yours figured out in 50 AD.

    • RockHard says:

      But Wolf says in the podcast, and has been saying, that carmakers are focusing on the high profit models.

      In addition, he’s saying that the Korean automakers don’t seem to have supply problems. If Wolf’s correct, then think about this: the Koreans already kind of own the low end market, so basically the US automakers would be forced to turn to low-profit vehicles to compete in a market that they’ve already conceded to the Koreans. I just don’t see them going down that particular road.

  8. Realist says:

    It would be very nice if the components shortages had the effect that less chip-dependent models were introduced, ie analog instrumentation, “oldfashinoded” switches etc instead of touch panels, easier to repair etc

    It seems we’re bound for the clusterfuck of clusterfucks globally.

  9. Brant Lee says:

    Are these the best of times or the worst of times? I pulled into my local (extremely busy) Walgreens to pick up my prescription. The drive-thru window was closed so I asked the front door cashier what gives. He told me everyone in the pharmacy had quit and walked out, seriously.

    The dam pharmacy has been closed for three days. Are we seeing an awakening revolt against the corporate kingdom and the Metropolis workplace? I sure hope so.

    • historicus says:

      Every Union in America is about to go on strike.
      This is just one of the reasons inflation is BAD for the PEOPLE…..
      but we know its okay for the fully invested Fed Governors, hedge fund buddies, and Congressmen who got the “nod”.

    • Truckman says:

      I live in a rural area with chronic unemployment where, until Covid, people were glad of a minimum wage job. I had never seen a Help Wanted sign anywhere in 10 years. Now I see them on or outside at least a quarter of businesses.
      How are people getting by? Well, my local mechanic is now doing monthly payments for regulars, and 2/3 of his customers are using that. In fact he now has the Service Manager of the local big box auto maintenance shop as one of his customers, who is looking to save the extra few bucks.
      Part of the problem is that the part-time hours most employers offer to avoid paying benefits, plus the higher cost of gas, means it isn’t worth driving for rural employees. The bigger locally owned businesses understand the problem and offer two or three days of full shifts, but all the national chains want five or six 4 hour shifts, and they can’t get anyone.
      A second part of the problem is bad employers. Poor treatment of workers, unexpected shift changes, a punitive culture, etc. People have been looking to quit work for quite a while, Covid lockdowns gave them a taste of it, and it will now take a big shift in attitude as well as wages to get them back. As for new employees, the exhorbitant rise in rental costs means that kids are staying at home, as very few entry jobs are offering enough wages to live away from home.

    • Grrrrr says:

      I have made friends with several of the long-time pharmacy people at my local Walgreens, and they would tell me that starting maybe 3 years ago they weren’t allowed to hire as many staff as they used to have, so they have had to work at an increasingly manic pace and the lines got longer and people waiting got more impatient, and some of those impatient customers would then give the pharmacy assistants a hard time even though they were working as fast as they could. Then COVID hit and Walgreens started giving COVID shots too (without any additional help) which made the lines even longer. Many of the long-time assistants quit Walgreens and went to work for Bellin hospital pharmacies, which paid better and were staffed properly. Now, I just found out the last pharmacist I knew decided to retire early because he no longer wanted to put up with this crap. The only assistant left that I know and talk to says that Walgreens pharmacy has been advertising for months for more help, but NO ONE IS APPLYING. Apparently all the pharmacy people in the Green Bay area know that Walgreens isn’t worth working for. I have no doubt that customers are switching their prescriptions to somewhere else, just like I’m going to do.

      • Wolf Richter says:

        Grrrrr,

        OK, I have to say, I love your screen name. I feel that way too :-]

        The biggest threat to brick-and-mortar pharmacies is mail-order prescription drugs. My healthcare provider encourages it from its own online pharmacy, free shipping, usually the next day (local); and if you need a prescription renewed, you can do that with the doctor via the messaging system they use, and the online pharmacy then has all this info when you order the drugs. Totally hassle-free. Once people figure this out, they’ll never go back to a brick-and-mortar pharmacy.

      • Swamp Creature says:

        Grrrrr

        Just came from CVS. Waited in line for about 5 minutes. Started get a back ache when standing and not moving. Looked for a place to sit down. OOOps! None available in the whole store.

        • otishertz says:

          Usually there is a refrigerated end cap nearby with egs or something, I open the door and sit in that while waiting, but I have a sweaty butt. So nice /s

    • otishertz says:

      I never understood drive up pharmacy windows. It reminds me of drive thru frozen daiquiri businesses in Louisiana. Drive down 41 between Sarasota and Naples. Drive-thru corporate drugstores are on every major intersection with 4 red lights.

      How does it make sense to sell people drugs, who are too tobbly to get out of their vehicular wombs and send them on their merry way, popping Oxy. It’s not like they don’t have ample parking in Foriduh.

      • Apple says:

        If are sick with an infectious disease or stricken with a malady that prevents mobility, drive up pharmacy window is a god send.

  10. Swamp Creature says:

    Fed Vice chair Clarida will soon announce his retirement in order to spend more time with his dog

    It was recently revealed that Clarida used insider information on the pending pandemic Federal response policy to shift anywhere between $1 and $5 million out of a Pimco bond fund (the Pimco Income Fund PIMIX) on Feb. 27, 2020, and on the same day buying between $1 and $5 million of the Pimco StocksPlus Fund (PSTKX) and the iShares MSCI USA Min Vol Factor exchange-traded fund (USMV). Aside from these three trades, Clarida had a grand total of two more trades in 2020, the sale of $500K-$1MM of the Shwab SCHK ETF on August 3 and another purchase of the USMV ETF to the tune of $250K-$500K.

    • Xavier Caveat says:

      ‘Clarida’ sounds very much like something a pharmaceutical firm would name a drug whose ads you’d see on tv proclaiming:

      ‘Can’t get it up anymore? tell your doctor to dole out Clarida on the double!’

    • otishertz says:

      Correction:

      Fed Vice chair Clarida will soon announce his retirement in order to spend more time with his MONEY.

  11. polistra says:

    In the ’70s Detroit followed Toyota into JIT.

    In 2011 Toyota learned that JIT was a bad idea, but Detroit failed to follow.

    • Petunia says:

      Just in time is not bad when all the components are manufactured locally. When the components are global, it becomes a very bad idea. JIT is a perfect example of something that doesn’t scale globally.

      • Truckman says:

        JIT does scale even better globally. It gives maximum opportunity to find the lowest costs. If one country gets isolated, move to another.

        The problem with JIT is that it is inflexible if there is a geographically widespread problem, or a time-persistent problem, and a pandemic is both. Or, to be specific, the reaction governments have taken to the pandemic is both.

        Corporations want to exploit humans as if they are any other resource. It wouldn’t be the slightest problem to them if 1% of the world’s population dropped dead of Covid, especially as most of the dead are already retirees. Unfortunately, they have come into conflict with the politicians, who are control freaks who have to be seen to be doing something. Well, they’ve picked almost entirely the wrong things to do, trashed the world economy in the process, and now all the problems with treating humans as resources have shown up at once.

        You cannot fix the current problems by using JIT, or any of the other current paradigms in industry and government. None of them have any resiliency, nor do they have the mechanisms to fix big problems, nor are any of the paradigm preachers even capable of the necessary changes.

        And the reason things continue to spiral out of control is that all the people who could cope with a crisis have been forced out or retired early, because they didn’t fit the paradigm. Nor are they coming back just because the JIT whizzkids have mucked up. They might come back if you offer them a genuine, grovelling admission that they were right all along, fire those whizzkids, and pay them double what you were paying the whizzkids. But no one has the courage or humility to do that, so forget it.

        • otishertz says:

          Do not hire recent grads.

          By that I mean anyone who graduated after about 2010. They are time bombs of learned grievances that will destroy your long earned company culture with self-righteous indignation.

          If they are a “protected class” watch out even more. If they became a protected class by redefining themselves as one, watch out even more.

          I have seen first hand the damage they can do.

      • sc7 says:

        Great point, Petunia. The original reason Toyota implemented JIT/Lean manufacturing was to be able to pivot as needed for changes in the supply line, namely the ability to address quality issues as quickly as possible. As you note, this works when you have close and collaborative relationships with your local suppliers to work together and communicate. This does not work when managing thousands of suppliers around the globe for a race-to-the-bottom on price.

        Unfortunately, the US implementation of it is all about how bean counters can shave off a few pennies on this quarter’s balance sheet to maximize the number they put out to the short-term focused shareholders.

  12. Spencer Bradley Hall says:

    Atlanta’s gDpNow latest estimate for the 3rd qtr: 1.3 percent — October 8, 2021

    That’s stagflation.

    • Wolf Richter says:

      1. The GDPNow is all over the place. Always is. Up and down. Sometimes, it gets close.

      2. Stagflation is NOT 1 quarter. It’s a long period, as in the 1970s, of slow or no growth and high inflation.

      3. But yeah, if you can’t sell enough new vehicles because you’ve run out of inventory, and manufacturers cannot build enough because they’ve run out of chips and materials, and homebuilders cannot finish their houses because all kinds of things have become unavailable, from appliances to fasteners, and everyone has trouble finding labor, etc., that’s the land of shortages we’re in now, and it’s hard to have a smooth economy, which is the point I was making in the interview. No one knows what actual demand is because current demand cannot be met due to the shortages.

  13. Yancey Ward says:

    My thumbs have been pricking for several months now. I think all of this crashes down before the Spring. Everything seems to be coming unglued.

  14. Yancey Ward says:

    And I point out we still haven’t breached March’s high yields in US government bonds, and may never do so.

    • Wolf Richter says:

      Never = in a few days or weeks?

      • historicus says:

        Wolf
        Your thoughts on those who say
        “they cant raise rates, it would cost too much to service the debt”

        I have my own response, interested in yours

        • Wolf Richter says:

          They WILL raise rates. They’re already doing it in a slew of other developed countries that had 0% rates. From my article yesterday:

          … the Czech National Bank (three hikes, by a total of 125 basis points), the Bank of Korea (by 25 basis points), the National Bank of Poland (first rate hike, by 40 basis points), the Central Bank of Iceland (3 hikes, total 75 basis points), the Reserve Bank of New Zealand (by 25 basis points), and the central bank of Norway (by 25 basis points).

          Those can-never-raise-rates people said the same thing last time, and then the Fed raised rates, and unloaded its balance sheet. And they did without much inflation. Now there is raging inflation, and central banks are getting very nervous.

        • historicus says:

          For 6 decades
          Fed Funds were in close proximity to inflation
          1/4 pt up ticks is zip in this environment
          of 5% inflation
          Fine tuning my question; could the Fed lose control?
          Will fed funds ever be raised to equal inflation?
          thanks

        • Yancey Ward says:

          “Unloaded their balance sheet”= sold most of it off, or just a bit before buying again?

          “then the Fed raised rates”= for weeks, months?

        • Wolf Richter says:

          Yancey Ward,

          I just checked the numbers:

          At QE Infinity peak (and end), in Jan 2015, total assets = $4.52 trillion. At bottom, in Aug 2019, assets = $3.76 trillion. 17% decline.

          But the Fed’s assets historically rise with the size of the economy. Before Sep 2008, the Fed’s assets were around 6% of nominal GDP.

          QE brought total assets to GDP to 25.1% in Q4 2014

          Then assets declined even as the economy grew. By Q3 2019, total assets to GDP = 17.7% of GDP. That was quite a drop from 25.1%.

          By late 2018, the 30-year fixed mortgage rates were over 5%. And market blew up along the way. And Trump started hammering on Powell.

          First rate hike Dec 2015, from a range of 0%-0.25%, last rate hike in Dec 2018, to a range of 2.25%-2.50%. That was above CPI inflation (=1.9%) and the federal funds rate was positive in real terms.

        • Depth Charge says:

          “Now there is raging inflation, and central banks are getting very nervous.”

          I respectfully disagree with this insofar as the US FED is concerned. They are still BUYING $120 BILLION per month in bonds. That’s not “nervous,” that’s recklessly dismissive.

        • Bobber says:

          The Fed will taper, but for how long?

          The Fed and legislators have proven they don’t have the political spine to watch a cleansing recession unfold. Powell is probably looking at the inflation data this weekend, wondering how they can fudge the numbers to make inflation go away.

        • MCH says:

          Won’t the effect of increasing rates mean higher interest paid on the debt? Which would basically further exacerbate the debt out of wazoo chart in the long run.

          Or do you think the debt is just going to be a non-issue going forward. I seriously doubt either side will let this debt football go away. It’s way too convenient.

        • MCH says:

          Wait… never mind the last comment,

          They will obviously increase interest rates. Because the guys in charge will care only about the short term, meaning the next election cycle, the debt problem has been around for so long, no one will understand it, much less care.

          Inflation however will be in your face… so, they have no choice but to deal with it immediately. So, I guess that means we should be watching carefully for a chance to jump into bonds as rates start to go significantly north.

        • otishertz says:

          Big countries will only raise rates to protect their currencies, not before, and not to reduce inflation.

          Some smaller countries are probably seizing the “first mover advantage” by pricing their currencies, in interest rates, higher than they will have to be soon enough for all countries. A higher perch from which to fall? The Japan situation is interesting though.

          The reason global QE worked is because every big country played along. and followed the first mover. Ie: if everyone devalues simultaneously the exchange rates remain the same.

          How long it will last, good question, I see the crotch seams busting out.

      • Yancey Ward says:

        When was the last time German or Japanese bonds pierced through those levels?

  15. HollywoodDog says:

    If stagflation returns, will disco too?

    • Xavier Caveat says:

      If stagflation returns, will Triumph make Stags again?

    • BuySome says:

      To determine how fast we’re going backwards we may need a chart showing if the Repo Men are finding more air fresheners hanging from the mirrors. The gift wrapped stack of cash has already been tossed out the window and the illusory promise of a massive bounty may have hit the max. This latest puppy is running on Neutron Bomb power (biologicals beware) with three dimensional drive systems and road rules be dammed. As we approach the limits of never-before-seen acceleration, a jump may get us a blast to the past beyond the eighties. But will mirror ball production resume?

      • Xavier Caveat says:

        I heard J-Pow is looking into the trunk of the 64′ Malibu for additional QE.

        • historicus says:

          I heard he was seen staggering down PA avenue with a bottle of bourbon /s

          There is a scene at the end of a movie called “Bridge over the River Kwai” in which Alec Guiness has a sudden awareness and yells “What have I done?”
          J Powell should watch it

      • BuySome says:

        Er…that’s three dimensional “Derivative” drive systems. Sorry, assembly was complete but we were waiting on a final component to arrive. Showroom’s open, enjoy the coffee!

      • LK says:

        If we could relive the eighties without Reagan and with the amazing, original output of film and music from that era, sign me up! Not like I’m vested.

    • Truckman says:

      “Ah, ah, ah, ah,
      Staying alive, staying alive”
      ;)

  16. Bobber says:

    The “inflationary mindset” has permeated the housing market for a long time. They’ve been calling it “FOMO”, but it’s the same thing.

    Speaking of FOMO, my local Costco was out of toilet paper yesterday but, thankfully, the local Kroger had some. Fear of missing out on toilet paper purchases is perhaps the highest and most poignant form of FOMO, as we witnessed during the height of the pandemic. Housing comes in second. Autos come in third.

    • Xavier Caveat says:

      Worry not, thanks to inflation ramping up soon we’ll be able to use 1-ply FRN’s to do our business.

      • BuySome says:

        Don’t call ’em Scottie tissues for nothin’…cheaper than hell to make, but nowhere near as soft as the old “gold notes” brand.

    • Masked Ghost says:

      Maybe Wolf could stop beating the auto parts shortages to death for a while, and take a look at the sordid US health insurance market ?

      I am hearing that Anthem Blue Cross and United Health Care are late and Billions of $ behind in paying their claims.

      • Wolf Richter says:

        Anthem is absolutely the worst. No one should do business with them. Don’t know about United Health, maybe even worse. But I have personal experience with Anthem. That company needs to go out of business.

        But it’s not going out of business. They’re bleeding everyone for their own profit. It made net income of $4.8 billion in 2019 and $4.6 billion in 2020. If reckless insidious greed in health care has a name, it’s “Anthem.”

        That’s all I need to say about it. That’s my whole article.

        • Petunia says:

          Wolf,

          Yes please do an article on healthcare, including medicare. I have been researching medicare plans and both Anthem and United Health have Medicare Advantage plans. The reviews all say medicare advantage is good if you don’t get sick, but what do you do if you can’t afford an expensive supplement, also from an insurance company. Would like to see the commentary from this site on the subject and your take as well.

          Some years back my son had an Anthem plan at work. Cost was ~$3K a year, deductible was ~$6K. He had to be ~$9K out of pocket before they would have to pay anything. He was making $15HR. This shouldn’t be legal, its highway robbery enabled by our congress and state governors.

        • Wolf Richter says:

          Petunia,

          The problem with articles on health insurance and Medicare Advantage plans is that they’re different in every state. Medicare is the same in every state, but Advantage plans are insurance plans where Medicare pays the insurer to take care of the patients, and that falls under state regulations. So my Advantage plan is not available where you live.

          I checked Advantage plans in California fairly thoroughly. CA is a little different. Kaiser Permanente (set up as a non-profit) is an insurer and also a healthcare provider at the same time. It covers about 1/3 of Californians. So the whole atmosphere changes because now, it’s not a three-party relationship (you, your healthcare provider, and your insurer) but a two-party relationship.

          I’ve had a Kaiser high-deductible plan for a decade (before reaching Medicare age), and it brought a huge relief to my life, and it saved me a lot of money.

          I now have their Advantage plan, and so far, I’m happy with it. It’s amazingly cheap in San Francisco and free outside San Francisco, with very low deductibles and co-pays, and with caps and max-out-of-pockets (Medicare doesn’t have caps and is open-ended). It includes pharma (and no donut hole), dental, some vision benefits, etc.

          You may not have Kaiser in your state. If you do, check them out. Also check out where their healthcare facilities are so it’s not too inconvenient for you — because you have to go their facilities to get treatment.

          In general, high-deductible plans with tax-deductible Health Savings Accounts (HSA) were a Bush administration law, designed to benefit the wealthy and healthy. It was then incorporated into Obamacare.

          They are great for healthy people in a higher tax bracket because you can get the tax-deductible contributions to your HSA along with it (works like an IRA). The tax deduction of the HSA contribution saved about a third of our already low premiums. When you need to pay for a big deductible, you pay it out of your HSA. We’ve had one since 2006.

          But you need to be in a high enough a tax bracket to benefit from the HSA tax deduction, and you need to have enough cash to pay into the HSA every year. Unlike an IRA, the money is never taxed when you take it out to pay for health care.

          My HSA is attached to a brokerage account, so I can invest the money.

          But these plans are horrible for lower-income people with chronic health problems. They cannot benefit from the HSA and they get hit by the high deductibles and max-out-of-pockets every year.

        • otishertz says:

          “The reviews all say medicare advantage is good if you don’t get sick”

          Gotta love the US health scare system… if you are the CEO of UHC you don’t care.

          “As CEO at UNITEDHEALTH GROUP INC, David S. Wichmann made $17,872,713”

          NO insulin for you!

        • Wolf Richter says:

          otishertz,

          “As CEO at UNITEDHEALTH GROUP INC, David S. Wichmann made $17,872,713”

          not including stock-based compensation.

        • Michael Gorback says:

          They’re all predators. I canceled my contract with UHC several years ago and I refused to see Anthem patients at all.

          Medicare Advantage is a trap. They lure you in with “savings” but the savings come from denial of care and restricted formularies (lists of covered drugs).

          Medicare Advantage combines Medicare fees with HMO control. You have to pre-authorize proposed treatments, which might be denied, resulting in either not receiving necessary care or having your doctor spend time fighting with the insurance company for approval.

          Most of my colleagues won’t see Medicare Advantage patients. Why work for Medicare rates with the added burden of authorization hassles when you can just take straight Medicare without any of that BS?

          Get a Medicare Advantage policy and make yourself a health care orphan like the poor suckers who buy ObamaCare plans.

        • Harry Houndstooth says:

          Absolutely Agree.

          It appears to me that the solution to their unconscionable greed may be a single payer system. Our current method of health care financing handing insurance companies a giant slice of profit as American health care costs approach 20% of GDP (nearly twice other western nations) and we Americans continue to get less and less healthy is unsustainable.

        • RightNYer says:

          Harry, you could run the insurance companies as non-profits, and we’d still spend far more than other developed nations. The reason for the disparity is that we don’t ration care at end of life (look at the differences in the way 95 year olds in nursing homes are treated medically in Europe versus here), and because we effectively pay for all drug research and development worldwide.

          The single payer systems only pay the marginal cost plus a small profit, while we pay the bulk. So we’re subsidizing the rest of the developed world.

        • Petunia says:

          MG,

          Thank you for your response, I found it extremely helpful.

      • Depth Charge says:

        It’s called The “US HELLCARE SYSTEM.” It’s rapacious greed on a level the world has never seen before.

  17. AussieEcon says:

    What would you or any of the readers here suggest an investor do given the current and projected turn of events?

  18. Yancey Ward says:

    That near 40 year trend US government bond rates 10Y and above is still intact. That trend needs to be broken before I bet against it.

  19. Depth Charge says:

    I consider all of the people overpaying for these cars and trucks idiots.

    • Xavier Caveat says:

      You kind of wonder what somebody would’ve paid for one of the last new cars for sale in 1942, with production not to get going again for about 5 years?

      • Anthony A. says:

        Even worse, was buying tires during the war years as synthetic rubber (SBR) was not commercially produced in the U.S. at that time. Germany developed it around 1930. The U.S. built plants to make it during the war years. But if you had a car in 1942, your tires were going to be a problem in a while.

    • Michael Gorback says:

      Or maybe the kind of people who buy Rolexes and fly first class for a 4 hour trip. The kind who are so rich they don’t give a damn if their $5,000 watch provides less function than a $50 rubber watch.

      When Jeff Bezos turns over on the couch during a nap more money falls out of his pockets than you’ll see in a lifetime.

  20. MonkeyBusiness says:

    Prepare yourselves for the year 2030 when you will own nothing and be absolutely happy!!!

    You think this mess is big. Wait till 2030!!! That’s when the real party will get started.

  21. otishertz says:

    I was at the liquor store buying fire water and the guy said that all the holes in their shelves were because of a glass shortage like Wolf was talking about. I remember a couple of glass maufacturers were shut down for environmental reasons in oregon.

    Water bottling plants that are really plastic bottle manufacturers slurping from tributary waters, mostly OK. In those plastics are estrogenic chemicals and DEHA that leach out of the plastic containers. Same thing with beer in cans. Aluminum is not healthful so they line alumunum cans with plastics.

    If this glass shortage starts to effect beer in bottles I guess I’ll have to brew my own. Don’t want man boobs.

  22. Tom15 says:

    Empty store shelves??

    Nieces hubby manages a large store.
    It’s now a weekly event that they cancel
    deliveries.

    Not enough staff to unload.

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