Inflation is coming...in a big way. Part 2.

[rookiepilot]

Party....is just getting going. Guests are arriving, band is tuning up. drinks are flowing.

Part one was the shift from Capital to Labour. In progress.....seeing more labor disruption...lower participation....people retiring.......

Part two is all about oil / energy prices.

We (globally) are running out of cheap oil / energy Investors, like me, won't tolerate more drilling by oil / gas companies, with governments hostile to new supply.

OPEC has serious question marks, whether they even can supply more.

Energy transition, will take trillions of dollars...tens of trillions, and take a decade or more.

The Biden administration is absolutely panicked. They know. They can't encourage drilling, politically. They are selling oil from strategic reserves, and massively talking down future demand, using every excuse (Omicron). The EIA says demand in 2030 worldwide...will be BELOW 2019, pre covid. Liars.

Get ready for car gas $2.50 +.......and an epic sale on piston twins and the like. Gonna get fun.......

[Aviatard]

So we’ll have the same gas prices as England? What do you suggest we do with this information?

[rookiepilot]

What do you suggest we do with this information?

Let's see. Laugh, fade me, or prepare. It's up to you.

Or perhaps thank me.

Anyway, It's free.

[digits_]

Why would a change in energy source cost trillions?

If you need electricity, you can build nuclear power plants pretty much anywhere. It's a political decision to do or not do this.

If you are running out of oil, you can still access harder to reach oil for a higher cost. If taxes were to stay the same, you can almost spend double the cost on oil drilling vs now, to get the oil you need. Again, a political choice that can fairly quickly change. But if you don't need oil for electricity, and you need less for transportation (electric cars), the remaining oil consumption will put a negative pressure on the oil prices.

[photofly]

Nuclear power plants use vast quantities of water and need stable geology. You can’t build them anywhere.

[rookiepilot]

Why would a change in energy source cost trillions?

Vast rebuild of power infrastructure.

[pelmet]

I think I will hold onto my big Suncor, Enbridge, Pembina, and small Imperial Oil shares. The dividends are addictive.

Maybe I should buy some more. How will AC do with sky high prices.

I going to buy a twin with my dividends and the avgas as well. It will give me comfort over the mountains and I can return some carbon to the air as a thank you. Might warm things up out west.

[rookiepilot]

Inflation continues to accelerate hard.

Kyle Bass, a rather direct talking individual, believes true inflation is upwards of 15% annually in the US.

https://seekingalpha.com/news/3788088-h ... oil-prices

Barry Ritholtz and every advisor like him are blind fools, and worse — gaslighting the truth, to keep naive client money with their firm.

When this is done, they will be carrying people out in body bags.

[photofly]

Get ready for car gas $2.50 +.......and an epic sale on piston twins and the like. Gonna get fun.......

Ok - but can we get a timeframe for this prediction?

[rookiepilot]

Get ready for car gas $2.50 +.......and an epic sale on piston twins and the like. Gonna get fun.......

Ok - but can we get a timeframe for this prediction?

I don’t know. No one knows the future down to the exact week it might happen. Do you?

I don’t need to know. But I am positioned, believe me.

When i see CB’s, I don’t need to know exactly when a storm will show up. Conditions are obvious.

And BTW I write what i want to write. Don’t agree, fade me. Make fun of me.

Lots of people are.

That is the best sign for me. The idiots who laugh.

[photofly]

To be fair, when I see CB's, I know the storm has already arrived. The benefit of weather forecasting is that it comes with a timeframe: it will rain (or not) tomorrow.

I"m just wondering when you think car gas will hit $2.50. 2022? 2023? Beyond that?

[goldeneagle]

I"m just wondering when you think car gas will hit $2.50. 2022? 2023? Beyond that?

I remember clearly, it was over 10 years ago, all the pundits were crying that gas was going up like crazy, it was going to hit 2.00 that year without a doubt. I had just bought a camper van and we filled up in chilliwack for 1.17, both wife and I said we would never put gas that cheap in it again, oh well. guess what, we never did put gas that expensive in it again. some time later, filling it up for well under a buck, we chuckled about that first trip.

A few years later, gas was once again on a tear. I remember well doing the math, we were choosing between purchasing a used corrola or a new smart car for her. We decided we wanted the space, so, I bought the used corrola. On the way home we filled it up for 1.49, again said 'probly never put gas in it this cheap again'. Well, we never put gas in it that expensive again, and only 6 weeks later I was filling it up at a pump that said 1.01, but we got 2 cents off from the cc, so filled for under a buck again.

I've been hearing threats of 2 dollar gas for a decade, the only time I've ever paid that much was filling a rental car in Europe.

Prices do go up, and it's inevitable gas will eventually hit 2 bucks. But it does go up and down like a yo-yo too, so it would not surprise me, when we see 2 bucks at the pump one day, within a few weeks after that, we'll see a buck and a half again.

But those who think the price of gas is somehow tied to overall inflation are delusional. The price of oil will be whatever the Saudi princes say it will be. Ever heard of OPEC ? Those meetings are where they decide how they intend to manipulate the price of oil going forward, and they will grind it up to as much as they can get away with.

[Arnie Pye]

Nuclear power plants use vast quantities of water and need stable geology. You can’t build them anywhere.

Too bad we don't have 20% of all the world's water within our borders. Shame about all those earthquakes we get outside of BC.

[mijbil]

Inflation continues to accelerate hard.

Kyle Bass, a rather direct talking individual, believes true inflation is upwards of 15% annually in the US.

https://seekingalpha.com/news/3788088-h ... oil-prices

Barry Ritholtz and every advisor like him are blind fools, and worse — gaslighting the truth, to keep naive client money with their firm.

When this is done, they will be carrying people out in body bags.

His number is bang on IMO. One example: With the great shutdown some of us had more time for yard work than normal. I bought a few yards of bark mulch and bedding sand in spring 2020 at the local place and made a note of the volume for future reference. I also noted the price. Come spring 2021 I went to the note to see how much I needed and noted the new price. Up 15%. The CPI is in many ways a big fat lie since it strips out food and fuel. I mean who eats or drives a car? Right? Added back in, the number is higher. One other anecdote. The local nuts and bolts place where I go for stainless screws and fittings has a sign taped to the door. "Please ask the clerk for current prices. Prices not as marked. Prices are up 30 to 300%" And Blackface the surfing fool of Tofino would have us believe it's only 4.1%.
My house assessment jumped 32% from last year. I did nothing to it, well other than the yard work.
Fun times ahead. As far as oil rising, I believe it. One of the biggest secrets in the world is the proven reserves of Saudi Arabia. How much DO they really have left in the ground? Have we reached peak oil yet? It's hard to say as drilling tech gets better, but having a hostile government like that of Blackface or even Joe "Xiden" doesn't help.
The green thing like electric cars is nice and all, but it's window dressing compared to the total energy budget of the planet.
https://en.wikipedia.org/wiki/World_ene ... onsumption
https://yearbook.enerdata.net/total-ene ... stics.html
Ask the Germans how "green" energy is working out. Windmills help out, but I note that they have quietly turned back to conventional carbon energy sources.
4th chart shows a return to coal.
https://www.cleanenergywire.org/factshe ... mix-charts
Electric vehicles are great. I don't own one (yet) but friends and relatives do. The acceleration of a Tesla is insane. In fact it's called "insane" mode. A rich relative owns one of those bad boys. The current catch is though that from what I have read, we don't have the grid capacity to handle the electric energy draw if we suddenly went electric as far as possible. Here's but one read on that https://notalotofpeopleknowthat.wordpre ... -capacity/

[photofly]

Nuclear power plants use vast quantities of water and need stable geology. You can’t build them anywhere.

Too bad we don't have 20% of all the world's water within our borders. Shame about all those earthquakes we get outside of BC.

Unfortunately, most of that water is so far from where the power is actually needed that it’s pointless building nuclear plants there.

[PeterParker]

Nuclear power plants use vast quantities of water and need stable geology. You can’t build them anywhere.

Too bad we don't have 20% of all the world's water within our borders. Shame about all those earthquakes we get outside of BC.

Nuclear power plants tend to need heavy water and hence usually found near the ocean/sea. Not quite able to use fresh water IIRC.

Ask the Germans how "green" energy is working out. Windmills help out, but I note that they have quietly turned back to conventional carbon energy sources.
4th chart shows a return to coal.
https://www.cleanenergywire.org/factshe ... mix-charts
Electric vehicles are great. I don't own one (yet) but friends and relatives do. The acceleration of a Tesla is insane. In fact it's called "insane" mode. A rich relative owns one of those bad boys. The current catch is though that from what I have read, we don't have the grid capacity to handle the electric energy draw if we suddenly went electric as far as possible. Here's but one read on that https://notalotofpeopleknowthat.wordpre ... -capacity/

This might have something to do with the sudden shutdowns of all their nuclear power plants after the Fukushima disaster and not from a lack of renewable power.

[rookiepilot]

Fun times ahead. As far as oil rising, I believe it. One of the biggest secrets in the world is the proven reserves of Saudi Arabia. How much DO they really have left in the ground? Have we reached peak oil yet? It's hard to say as drilling tech gets better, but having a hostile government like that of Blackface or even Joe "Xiden" doesn't help.
The green thing like electric cars is nice and all, but it's window dressing compared to the total energy budget of the planet.
https://en.wikipedia.org/wiki/World_ene ... onsumption
https://yearbook.enerdata.net/total-ene ... stics.html
Ask the Germans how "green" energy is working out. Windmills help out, but I note that they have quietly turned back to conventional carbon energy sources.
4th chart shows a return to coal.
https://www.cleanenergywire.org/factshe ... mix-charts
Electric vehicles are great. I don't own one (yet) but friends and relatives do. The acceleration of a Tesla is insane. In fact it's called "insane" mode. A rich relative owns one of those bad boys. The current catch is though that from what I have read, we don't have the grid capacity to handle the electric energy draw if we suddenly went electric as far as possible. Here's but one read on that https://notalotofpeopleknowthat.wordpre ... -capacity/

Shhhh, don’t tell everyone. And bang on comments.

[rookiepilot]

But those who think the price of gas is somehow tied to overall inflation are delusional.

The price of oil will be whatever the Saudi princes say it will be. Ever heard of OPEC ? Those meetings are where they decide how they intend to manipulate the price of oil going forward, and they will grind it up to as much as they can get away with.

This take is so bad I have no idea where to begin.

You have a degree? Get your money back. Wow.

[rookiepilot]

To be fair, when I see CB's, I know the storm has already arrived. The benefit of weather forecasting is that it comes with a timeframe: it will rain (or not) tomorrow.

I"m just wondering when you think car gas will hit $2.50. 2022? 2023? Beyond that?

Maybe takes a while, if Central Banks get serious about crushing inflation. They have a lot to say about it.

Maybe Canada cuts gas taxes. Who knows? Everything is “all else equal”, but that never is the case.

But then Piston Twins, and a whole lot of other beloved assets, are going way down in price.

Never mind a likely recession.

[pelmet]

To be fair, when I see CB's, I know the storm has already arrived. The benefit of weather forecasting is that it comes with a timeframe: it will rain (or not) tomorrow.

I"m just wondering when you think car gas will hit $2.50. 2022? 2023? Beyond that?

Maybe takes a while, if Central Banks get serious about crushing inflation. They have a lot to say about it.

Wouldn't surprise me if they are playing a game of letting inflation run for a while to assist with the debt. The average person has their equivalent of taxes increased and don't realize it.

[digits_]

Wouldn't surprise me if they are playing a game of letting inflation run for a while to assist with the debt. The average person has their equivalent of taxes increased and don't realize it.

What makes you say that?

If there is inflation but your salary doesn't increase, your income tax stays the same but is worth less. Pst and gst might increase to keep their value, but with the salary that is worth less, people will spend less money.

If salaries do increase with inflation, the tax level is pretty much the same (increase but the same value).

[rookiepilot]

Wouldn't surprise me if they are playing a game of letting inflation run for a while to assist with the debt. The average person has their equivalent of taxes increased and don't realize it.

What makes you say that?

If there is inflation but your salary doesn't increase, your income tax stays the same but is worth less. Pst and gst might increase to keep their value, but with the salary that is worth less, people will spend less money.

If salaries do increase with inflation, the tax level is pretty much the same (increase but the same value).

He’s right, but only works until you see serious social disorder.

Biden is about to get annihilated in the midterms.

[pelmet]

Here is an article from the National Post with some details on how it benefits the government. Taxes are pretty much maxed out in this country, so inflation can help the a bunch of uncontrollable free-spenders, like Canada and the US have now. If the high spending types of government can walk a fine line of having some inflation that is a bit annoying but not too much that really pisses off people, it would seem that it would benefit them. They can spend away buying votes and not raise taxes.

As for someone like Biden who may be getting in a situation where inflation is going too far, he has limited control on what can be done as he doesn't control interest rates, independent people do. I am no expert but I have a feeling that a deep recession is what will cure inflation. But that doesn't get governments re-elected. Then there is energy prices that go up due to mis-guided policies.

Obviously, there are other issues beyond the control of our politicians such as places like China shutting down factories and leading to shortages(and higher prices), as part of a covid zero policy and preventing pollution from marring those always clear blue skies over there(at least during the Olympics). But now we may have another self-induced issue with the vaccine requirement for truckers crossing the border combined with people calling in sick. We'll see what happens. I am stocking up on food(maybe toilet paper too this time) and got my oil furnace topped up early for the deep freeze(had it run out already once this winter despite my calling them more than once for a re-fill). No need to run out of oil when half the delivery guys are sick and it is -30 outside.

So as a final note to Digits, you can see that you didn't realize that the federal government is benefitting from this and the huge debt they continue to build. Average Canadians don't realize it and vote in the same government. Imagine if Harper was still PM and what our finances would be like.

https://financialpost.com/opinion/opini ... of-us-dont

Opinion: Ottawa gets an inflation dividend. The rest of us don't

There is only one sector of the economy that gets a holiday gift from inflation. You guessed it, the government

In this expensive holiday season, many families are finding their budgets stretched thin. With industrial prices up almost a whopping 15 per cent so far this year and wages rising because of labour shortages, businesses will be pressed to raise consumer prices further to make up for shrinking margins.

There is only one sector of the economy that gets a holiday gift from inflation. You guessed it, the government. As shown in last week’s federal economic and fiscal update, a one percentage point increase in the inflation rate pushes up federal revenues by $3.9 billion annually. With the GDP deflator rising 7.6 per cent in fiscal year 2021/22, that means the federal government is pocketing an extra $30 billion in revenue from taxpayers. Call that an “inflation dividend” — for the government, not for us.

Overall, federal revenues are expected to rise $54 billion by next March 31, reflecting both inflation and increased employment and industrial activity. Personal income tax brackets and credits are indexed for inflation but not capital gains or net investment income (i.e., dividends, rents, royalties, etc., less debt interest expense). So, when savers get a bit more money from their investments to make up for the loss in the purchasing power of their money, the government gladly taxes it!

Corporate profits aren’t indexed for inflation, either. Book profits get exaggerated since companies report depreciation, inventory costs and net interest income based on historical costs rather than current values. (By contrast, if net interest is negative, which is the normal situation with corporate leverage, then inflation benefits companies: borrowers usually gain from inflation. On balance, however, book profits are overstated when there is inflation.) The profits of federal crown corporations have also swung upwards — by $19 billion, accounting for over a third of the increase in Ottawa’s revenues this year. Part of that increase is due to inflation, as well.

As for the government’s expenses, some automatically rise with inflation, but others don’t. Many payments are indexed, such as for elder and child benefits. Others are indexed to nominal GDP, like the Canada Health Transfer and the aggregate of equalization payments paid to the provinces.

Otherwise, however, the government’s expenses may not rise as much as inflation. Most public employee salaries are not indexed for inflation. While cost-of-living adjustments in contracts were common four decades ago, they cover less than a tenth of employees today. Some payments to provincial governments, such as the Canada Social Transfer, are indexed at a fixed rate (e.g., three per cent) that is now below inflation. Infrastructure costs are ballooning, which will reduce real spending unless the budgets for them are boosted.

Despite most social benefits being indexed, inflation hurts those Canadians who lose benefits that are clawed back when their nominal incomes rise above a threshold level (even if the threshold itself is indexed). For example, low-income seniors might receive indexed CPP benefits. But a senior will lose 50 cents in Guaranteed Income Supplement with each dollar increase in their CPP benefits once their income exceeds $15,672. Talk about giving with one hand and taking away with the other!

Old Age Security payments are also clawed back at 15 cents on the dollar above $81,761 so any inflated income will be taxed by the government. If average investors squeeze out a bit more capital gains, dividends and interest income to make up for inflation, they could end up being taxed at rates close to 50 per cent, taking into account both personal taxes and OAS clawbacks. That hurts.

Same with child benefits. They are clawed back seven cents on the dollar above $32,028 in family income. So, if a worker with a salary of $60,000 gets a $1,000 end-of-year bonus that helps make up for higher living costs, 37 per cent is lost to personal taxes and the child benefit clawback.

Putting this all together, Finance Canada estimates that a one-point increase in the GDP deflator increases federal spending by $2.2 billion annually, which is $1.7 billion less than the revenue bump-up. This year’s GDP deflator of 7.6 per cent therefore gives the federal government an additional $13 billion in budgetary wiggle room.

But by far the biggest part of Ottawa’s inflation dividend is the reduction in the real cost of its debt. Unlike households and businesses, which generally have more assets than debt, government is a big net debtor. So, inflation results in a huge transfer of wealth from households and businesses to the public sector. With net federal debt at $1.2 trillion dollars and consumer price inflation running at 4.7 per cent, that transfer is equal to a whopping $56 billion. If instead interest rates were raised to compensate investors’ losses to inflation, next year’s federal deficit would not be the $144 billion predicted in the fiscal update but $200 billion.

Add it up: $56 billion in real debt relief and $13 billion in budget gains from inflation. The total federal inflation dividend is $69 billion in 2021. The budget doesn’t do inflation accounting. But it should.

[rookiepilot]

Pelmet,

Fed (Powell) will respond forcefully to inflation, or he will be fired, soon.

They aren’t independent, they do what they are told.

Get ready for widespread strikes.

Otherwise, yup this is exactly what they do.

Don’t hold bonds of any kind, shape or form……

[digits_]

...

Thanks!