Gold is up $25 and silver silver surges back above $24, but look at these big surprises.
Inflation Is Everywhere
January 19 (King World News) – Peter Boockvar: What is noteworthy about the higher labor expenses that JPMorgan, Citi, and Goldman talked about in their earnings calls is that the wage gains are now reaching the upper echelons of the pay scale and it’s not just a minimum wage and leisure and hospitality influence. Goldman CEO David Solomon said yesterday “There is real wage inflation everywhere in the economy, everywhere.” The CFO said the company was “committed to rewarding top talent in a competitive labor environment.”
Jamie Dimon Friday said, “There’s a lot more compensation for top bankers and traders and managers who I should say did an extraordinary job in the last couple of years. We will be competitive in pay. If that squeezes margins a little bit for shareholders, so be it.” The CFO of Citigroup last week said, “We have seen some pressure in what one has to pay to attract talent. You’ve even seen it at some of the lower levels, I should say entry levels in the organization.”
In today’s press release from the December Architecture Billings Index which rose 1 pt to 52, the AIA chief economist said:
“Since demand for design projects has been healthy over the last year, recruiting architectural staff to keep up with project workloads has been a growing concern for firms. Architecture is one of the few industries where payrolls have already surpassed their pre-pandemic high, so meeting future staffing needs is a challenge that most firms will need to confront.”
It is likely that it won’t be ‘one of the few industries’ for much longer.
Trucking & Transport
In J.B. Hunt’s earnings call last night, the CFO of the $13b+ trucking and transport company said:
“As I look across our business, the common denominator in terms of our pain points continues to be labor related and wages, salaries, benefits and recruiting trends, in both driver and non-driver. We continue to elevate investments in our people, as was evidenced by our decision to provide a special bonus in December of nearly $11mm to our frontline workers for their efforts in working through the supply chain challenges facing our customers and the industry.”
Supply Crunch To Persist
As to when the supply crunch will ease:
“As has been stated in previous calls, the impacts of network congestion, labor shortages and general supply chain challenges are well known and have continued to have a meaningful impact on our business and are likely persist, particularly given the heightened challenges evolving around Covid infections across the country.”
I will be watching for not only when omicron hopefully fades away in coming months but how the supply stress eases after the crunch ahead of the Chinese new year where they are rushing to get product out beforehand. Of course we’ll also be watching the demand side, especially after the very weak retail sales report for December that we saw last week.
Not So Negative Anymore
So there is finally a plus sign in front of the German 10 yr bund yield at +.004% as of this writing for the first time since May 2019. Like I said last week we also have to keep our eye on Italian yields as they have the largest amount of debt and have benefited the most from ECB QE. Their yield is up by 2.3 bps today to 1.34%, the highest since June 2020…
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Gold & Silver Rallying With Bonds
I want to point out the action in gold and silver over the past few weeks as they have rallied along with bond yields to two month highs for silver in particular. In 2021, the disappointing performance in the face of 7% inflation was on the belief that the Fed was going to tighten and why own gold in that environment. What we’re now learning is 2 things:
One, why own bonds in a negative real yield environment when hard assets like gold and silver are a much better protection, notwithstanding the lack of income from them.
Two, in the 1970’s and mid 2000’s gold and silver rallied along with the move higher in yields. The reason being because real rates were mostly below zero during those time frames.
Gold Rose In The 1970s Along With Fed
Funds Rate Which Hit A High Of 20%!
Gold Also Rose With Fed Funds Rate 2002-2006
I Remain Bullish On Gold & Silver
I remain very bullish and if the Fed blinks at some point in the face of weaker markets and still elevated inflation, that’s when gold and silver will really take off.
Supply Constraints & Margins
You’ve heard me argue that even if supply constraints ease (which they will), companies will still do their best this year and next to ‘recapture margins.’ Today in Proctor & Gamble’s earnings press release they said of the 6% organic sales growth, half was volume and half was price. The half that was price though was not enough as gross margins fell by 400 bps y/o/y. “Reductions in gross margin were driven by 400 bps of higher commodity costs, 140 bps driven by negative product mix, 60 bps from increased freight costs, and 20 bps of product/package reinvestments. These were partially offset by 130 bps of benefit from increased pricing and 80 bps of gross productivity savings.”
This is what Fastenal said in their earnings release today, a great industrial bellwether and very well run company: “The overall impact of product pricing on net sales in the fourth quarter of 2021 was 440 to 470 bps (vs sales growth of 12.8% y/o/y). This increase reflects pricing actions taken during 2021, including in the fourth quarter of 2021, as part of our strategy to mitigate the impact of marketplace inflation, particularly for fasteners and transportation services, on our gross margin percentage. Costs remain significantly above year earlier levels, and we will continue to take actions aimed at mitigating the impact of product and transportation cost inflation as the need arises in 2022.”
CRB Food Index Highest In 10+ Years!
By the way on ag commodities, the CRB food index yesterday closed at the highest in 10 1/2 years.
Real Estate
With another jump in mortgage rates to 3.64% for the average 30 yr rate, the highest since March 2020, people got off the fence and locked in a mortgage as purchases rose 7.9% w/o/w.
30 Year Mortgage Rates Highest Since 2020
They are still though down 12.8% y/o/y but the rise in rates easily could have encouraged people to act sooner rather than later. Directly impacted negatively was the 3.1% drop in refi’s and which are down 49% y/o/y.
UK Inflation
Lastly, the UK said its December CPI rose 5.4% y/o/y, 2 tenths more than expected while the core rate was higher by 4.2%, 3 tenths above the estimate.
UK Consumer Price Index Surged…Again
The retail price index jumped by 7.5% y/o/y, 4 tenths higher than forecasted. The only respite was the less than expected output and input charges but they were still up 9.3% y/o/y and 13.5% respectively, with the difference being a margin squeeze. In response, gilt yields are higher with the 2 yr yield up by 5 bps to .92% and higher by 15 bps in 4 trading days as the BoE will be hiking again. The 10 yr yield is up by 5 bps to 1.27%, the highest since March 2019. The 10 yr inflation breakeven is up by 1.4 bps to 4.06%. So even when inflation starts to recede, BoE policy and the level of rates will be extremely disconnected from the rate of inflation and price stability is the sole BoE mandate.
To hear Gerald Celente discuss surprises for 2022 CLICK HERE OR ON THE IMAGE BELOW.
To hear Alasdair discuss the gold and silver markets and more CLICK HERE OR ON THE IMAGE BELOW.
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