I have taken the price index for household paper products (not seasonally adjusted) and adjusted it by the CPI (seasonally adjusted). The red line is a very tame exponential growth curve (~0.2% per year, showing that household paper products are inflating ever so slightly faster than the overall average). Not much to worry about there. It is also fairly in line with what I've been seeing in toilet paper pricing over the last ten years.
I was hoping to see the 1970s in this chart but the data didn't go that far back. I think it would have been fascinating to see the panic induced by Johnny Carson's joke (which I stumbled upon looking for additional information on toilet paper pricing today). I'm confident a similar joke these days would do the same.
The Toilet Paper Shortage of 1973
Okay, so what does this mean? In my opinion, it appears we are heading back to the "Danger!" part of the toilet paper business cycle. Any short-term benefit of inflation is now being swamped by the long-term harm of inflation. The following link is a pretty good article about inflation's benefits and harms. It was written in the late 1990s, well before our current problems emerged. It is therefore a bit easier to trust the commentary and appreciate the similarities.
Winter 1997
The Impact of Inflation
Thus, the real estate boom in the 1970s was fueled in part by inflation-induced distortions, wrote Lynn Browne of the Boston Fed. High rates of inflation accelerated home buying by increasing the real, after-tax returns to investment in owner-occupied housing relative to alternative investments. A lag in interest rates reinforced this uptick in demand. As house prices in turn began to rise faster than the general price level, people rushed to buy rather than face higher prices later.
These distortions in the housing market reverberated across other markets. In the forestry industry, for example, housing starts are watched closely to project future sales. Many firms responded to the housing boom in the mid-1970s by expanding sawmill capacity. The St. Regis Corporation, now a subsidiary of Champion International, based in Stamford, Connecticut, decided in the mid-1970s to build a sawmill in Costigan, Maine. The sawmill initially did poorly, as it came on-line when the housing market's boom turned to bust. Vice President Bob Turner recalls that the Costigan mill lost money through the early 1980s, in part because of the firm's misperceptions about future demand.
If not for our massive trade deficit, I'd probably be a deflationist in the short-term based on the chart above and the contents of this article. I don't like investing/gambling for the short-term though. As it stands, I'm a reluctant long-term paper stagflationist as I embrace more of the same (the last 10 years of relative stagnation combined with inflation and deflation scares for as far as the eye can see).
In conclusion, I expect (and could be wrong) that toilet paper will keep up with inflation long-term and possibly even do a bit better. Further, unlike I-Bonds paying a mere 0% over inflation the government can't tax the inflationary gain.
This is not investment advice.
Source Data:
BLS: Prices & Living Conditions
My golly, I can remember a brief shortage in the 70s, in Britain, of what we call "loo rolls". I had no idea that it had originated with a TV joke in the US. Mind you, we also had a brief sugar shortage that seemed equally baseless - it came, it went.
ReplyDeletedearime,
ReplyDeleteIt's kind of funny. There are trees all around me. I'm not hoarding toilet paper because I think there will be shortages. I just happen to think it won't be getting a lot cheaper in the distant future.
Of course, history would indicate that I should make oodles and oodles of money investing elsewhere. Well, much of history anyway. Not all of it. For example, take today's US stock market.
Stag,
ReplyDeleteThe fed sure seems worried about a commodity bubble. I don't know why though. Greenspan and Bernanke have made it abundantly clear that it's impossible for the fed to spot bubbles.
What a joke. We had a bubble in excess money creation. Bernanke can't unring that bell.
MAB,
ReplyDeleteThe fed sure seems worried about a commodity bubble. I don't know why though. Greenspan and Bernanke have made it abundantly clear that it's impossible for the fed to spot bubbles.
Two quick comments.
First: Hahaha!!!
Second: There's one thing that probably scares the Fed more than a commodity bubble. What if there isn't a bubble? What if prices are simply going up because there's way too much money out there chasing way too few investment ideas?
I'm sure having a hard time spotting the bubble. Is it a long-term bubble in commodity prices or is it a long-term anti-bubble in the US dollar?
What a joke. We had a bubble in excess money creation. Bernanke can't unring that bell.
Can't even unring the Taco Bell.
http://www.ocregister.com/articles/food-fast-price-2050688-burger-taco
"It's our impression that consumers will be under considerable financial pressure for some time," Taco Bell's Ovens says. "This one will take some time to work through the system."
How does more time help? More time didn't help the Titanic as it continued to sink. It sounds a bit like an Underpants Gnomes' solution to me, but what do I know?
http://en.wikipedia.org/wiki/Gnomes_%28South_Park_episode%29
The Underpants Gnomes have a three-phase business plan, consisting of:
1. Collect underpants
2. ?
3. Profit
None of the gnomes actually know what the second phase is, and all of them assume that someone else within the organization does.
Stag,
ReplyDeleteWhat if there isn't a bubble? What if prices are simply going up because there's way too much money out there chasing way too few investment ideas?
That's what I see.
We need a shorter work week. What's the point in pushing on a rope - that's what I feel we've been doing during the entire last "expansion".
I propose that the next fiscal stimulus consist of a "Rock Band" game for every household. As households advance through the game they are extended credit. Just think of the oil we could save. Arguably, this would be more productive and less inflationary/destructive than allowing banks and wall streeters to trade new money for bogus promises.
MAB,
ReplyDeleteI propose that the next fiscal stimulus consist of a "Rock Band" game for every household. As households advance through the game they are extended credit.
Hey, that's my plan! I broke into the top 4000 on the drums which is rather pathetic unless you seasonally adjust the data, use old geezer hedonics, and compensate for a lifetime spent not playing drums. Once those are factored in the playing field becomes amazingly tilted in my favor! Special Rock Band Olympics here I come!
That being said, it is hard to increase my Rock Band productivity today. I have lived in this house for ten years and have had never ending weeding problems. That's been pretty much a constant. (I'm sure it isn't my fault though. The weeds are mostly responsible in my opinion.) The recent house price appreciation has made my neighbors alter their behaviors though. They seem to think we're all much better off and should behave accordingly. I'm looking at a 14 day weed the yard or pay the fines letter (the fines were formalized and voted on late last year). I have explained the letter to the weeds and they seem rather indifferent. No remorse at all. That puts the burden on me to execute them with reckless abandon.
The good news is that Rock Band has improved my weeding arms significantly. This is allowing me to shamelessly slaughter Mother Nature's bounty in record time (on tempo even). Thank God for small productivity miracles! I'm sure he's thrilled to see the killing machine I have become! ;)
I'm reminded of a story my sister told me. She had a friend staying at her house. Her friend was from overseas. As she was about to apologize for the dandelions, her friend commented on how pretty the flowers in her yard looked.
We are SO trained to keep up with the Joneses. Most of us anyway. Then there is clover.
http://www.ecologyaction.ca/urban_issues/Pestbylaw/Popups/clover.html
Before 1950, clover was a common and desired component of a healthy lawn.
Let's just cut to the chase. What will my neighbors want to see in 40 years? I say bark. Lots of it. No pesky shrubs that require water or fertilizer. I'll be making every effort to give them right now what they don't even know they so desire in the future! ;)
MAB,
ReplyDeleteIt's been a few minutes since my "40 year" estimate. Based on currrent economic activity, I am bringing down my estimate to 39.1 years.
This is taking me longer to write than I anticipated. I'm adjusting my estimate downwards to 38.5 years.
I doubt this is the beginning of a new trend though.
One last thought. 37.9 years is my final estimate as of 6:13pm PST.
I must apologize. I'm being forced to lower my estimates again to 4.7 years. It's sort of an upside down parabola I guess. Under no circumstances do I expect to lower the estimate below 0.0 though. For better or worse, I'm using the relatively unrelated I-Bond rates as my floor.
ReplyDeleteFarming For Water
http://www.forbes.com/markets/2008/06/11/water-fisher-investing-markets-equity-cz_sk_0610markets48.html
Potash CEO says fertilizer prices not near peak
http://www.reuters.com/article/rbssIndustryMaterialsUtilitiesNews/idUSN1136248920080611
I really should read the headlines moments before I make landscaping estimates. The resiliency of this new and improved economy demands real-time access to information, lest we underestimate by wide margins the impact of unsustainable trends.
Stag,
ReplyDeleteand have had never ending weeding problems
They really are never ending.
For a long time, I was certain that nothing was certain. Then I realized that my certainty that nothing was certain actually disproved my belief that nothing was certain. After your comment about never ending weed problems I am even more certain about certainty. Perhaps that is the ultimate purpose of weeds - they provide certainty in an uncertain world.
I think I'll cancel that napalm order.
MAB,
ReplyDeletePerhaps that is the ultimate purpose of weeds - they provide certainty in an uncertain world.
That is EXACTLY what the weeds in the alien expeditionary force would have you believe.
Indian corals under attack by alien weed
http://lifestyle.in.msn.com/health/article.aspx?cp-documentid=1453954
"No part of the coral reefs was visible in most of invaded sites," Sivagnanam Chandrasekaran, who led the team said. He added that what the team found was only the tip of an iceberg.
We're being invaded I tell you!
You're wasting your time here. I'm not going to report this or anything you do to my crops to the police or news or anybody. You're not going to get famous. - Graham Hess, Signs, 2002
This is the third stage of grief: bargaining. It came right after denial and anger.
Yes, it said they would probably invade. They wouldn't use their technology, or fight in airborne battles, because they know eventually we would use nuclear weapons, and the planet would be useless to them. - Morgan, Signs, 2002
Order more napalm.