Friday, April 13, 2012

Catch the Falling Trauma Shears

This is an update to a post I did in January of 2008.

January 31, 2008
Cheap Chinese Goods?

I have bought nearly a lifetime's worth of clothing this month (think t-shirts, underwear, socks, sweat pants, sneakers). Most of it went directly into storage. First, it is still cheap. Second, the Christmas season was a bust so many of the things I bought were on sale. Third, I think most take it for granted that the things that have been deflating will continue to do so. I'm of the opposite belief. Clothing was one of the first to be outsourced. I would therefore argue that it is a safer thing to hoard. Much of the disinflation has already been squeezed out of it perhaps.

We also bought nearly a lifetime's worth of sheets. I'm not sure how the sheets will last but 14 sets (10 regular and 4 flannel) should cover me for a LONG time, lol. Once again, most are in storage.

Like toilet paper, clothing is about the cheapest it has ever been relative to gold and silver. I see very little downside in buying things while they are cheap. If they stay cheap, no harm done. If they become more expensive, there'll be little need to buy in the future. Win win.


I attempted to catch the falling knife. That's generally a dangerous game. The following charts show how that has worked out so far. I have adjusted the consumer price index for apparel by the consumer price overall to show the real price drop in apparel over the years.





I can't complain. Is it bottoming? You tell me and we'll both know. I can say that apparel prices have not deflated (in nominal terms) since I hoarded clothing. I can also say that my plan, at least so far, beat treasury bills and what economist Mark Zandi tried to catch. Here is the notable quote (found within the link) from 2007.

"I caught the falling knife," Zandi said of his recent home purchase.

His falling knife has since turned into falling trauma shears (see chart within link). Is it any wonder he's on CNBC so often talking about how great the economy is?

Trauma shears

Trauma shears, also known as 'tuff cuts, are a type of scissors used by paramedics and other emergency medical personnel to quickly and safely cut clothing from injured people.

As a physics guy, I'm literally sitting on a pile of shirts and yet there is mainstream economist Mark Zandi figuratively losing his. Oh the irony.

It is not my intention to be mean. It simply bothers me that he talked up the economy heading into the crisis (still does), was wrong, and people listened to him (still do).


Financial Shock: A 360ยบ Look at the Subprime Mortgage Implosion, and How to Avoid the Next Financial Crisis

“Aggressive builders, greedy lenders, optimistic home buyers: Zandi succinctly dissects the mortgage mess from start to (one hopes) finish.”–U.S. News and World Report

As an optimistic home buyer, Zandi ought to know. However, he couldn't see the crisis coming until it was fully visible in the rear view mirror. I wonder if that is mentioned in his book. He's now telling us all how to avoid the next crisis? Let me guess. Does it involve knife catching? Or how about changing the optics of the mirror? Yes! The "objects in mirror are closer than they appear" technology will make us all feel safer, lol. Sigh.



Source Data:
BLS: CPI Databases
St. Louis Fed: CPI

14 comments:

Troy said...

Casey Serin's story that hit the bubble blogs in late 2006 really educated me on the potential extent of outright fraud in the mortgage system.

If major lenders would lend this guy ~$2M to acquire his RE empire I knew he was just the '2nd cockroach' as it were.

Prior to that I was sorta perplexed on how people were buying at those prices.

Back then I also didn't really put 2+2 together as to how the boosted home equity wealth was being converted into cold hard cash showering the middle quintiles, 2004-2007.

CR nailed it in realtime tho: http://www.calculatedriskblog.com/2006/09/gdp-growth-with-and-without-mortgage.html.

"This analysis leads me to believe that declining MEW over the next few years will be a significant drag on GDP growth."

My goal this decade is to make my final move to Japan with a TEU packed full of housekeeping stuff en-route too.

Stagflationary Mark said...

I should also add that I think my mix of clothing is doing better than the charts would imply. My hoard is made up of low profit margin stuff that is therefore more closely tied to cotton prices and outsourced labor costs.

My hoard is not filled with high profit margin Bonobos.

Stagflationary Mark said...

Troy,

The wake-up call for me was reading the fine print of the mortgage offers I was getting in snail mail.

I didn't need a loan. My house was paid off. I was curious what other people were doing though.

And they say curiosity killed the cat!

Can't trust "they" sometimes, lol.

Stagflationary Mark said...

Those offers turned me quite bearish in the fall of 2004.

Since then, I have managed to feed the bearish bear within me. It wasn't long thereafter that I started to realize the implications of our trade deficit (as seen in this very post).

Stagflationary Mark said...

And speaking of real time, I haven't seen anyone else (other than me) publicly post seasonally adjusted port traffic.

November 19, 2007
Los Angeles and Long Beach Trade

Inbound traffic continues to deteriorate. Perhaps it is time to stick a fork in the consumer. I think we're done.

That was one month before the recession officially hit.

Claire Maria said...
This comment has been removed by a blog administrator.
AllanF said...

When you think about how crappy people dress now-a-days that apparel deflation is twice the shame. Like darn near everything else, all our productivity improvements have been squandered on little more than throw-away kitsch.

Along those lines, how much of the apparel deflation is "value engineering"? I know the casual shirts I prefer which used to be 100% cotton are not 60/40 cotton/poly. I've also noticed the quality of cotton in my dress shirts is dropping.

Actually, I think over half the price deflation has been due to devaluing quality. Excepting cars and Moore's Law, if people had to pay for the level of quality that was standard in the 50's & 60's there'd be serious unrest. Unfortunately better than half the population is too busy playing Angry Birds and updating FB to do anything about it.

Stagflationary Mark said...

AllanF,

Along those lines, how much of the apparel deflation is "value engineering"? I know the casual shirts I prefer which used to be 100% cotton are not 60/40 cotton/poly. I've also noticed the quality of cotton in my dress shirts is dropping.

This is such a great point. I will tell you first hand that it helped me decide to hoard t-shirts. Perhaps I'll be wearing real 100% cotton t-shirts when everyone around me is wearing disposable tissue paper. Of course, I'll be making a fashion faux pas but that won't stop me from laughing at the absurdity of it all when it rains, lol. ;)

Scott said...

Bought a pair of jeans while visiting Hong Kong in 1989. Six months later they literally came apart at the seams.

Fast forward more than twenty years...most clothing on US shelves is made in China. Falls apart pretty quickly.

Stagflationary Mark said...

Scott,

Bought a pair of jeans while visiting Hong Kong in 1989. Six months later they literally came apart at the seams.

I hear you. This was one of my first posts.

September 4, 2007
The Vacuum of Hedonics (Rant)

Chrissi said...

Where do you have the data about apparel consumer prices from?! I need the data but I neeed a legitimate source!
It would be greeeeeaat if you remember!

Stagflationary Mark said...

Chrissi,

BLS: CPI Databases

I used the "Multi-Screen Data Search" in the "All Urban Consumers (Current Series)" database.

Hope this helps! :)

Chrissi said...

Do you by any chance still have the table you generated the graph with? I really cannot do it. for some reason I dont find the same number you found.
or can you tell me exactly what to put in to get the data.
or: did you calculate something to get the numbers?
thank you again for your help

I appreciate it!

Stagflationary Mark said...

Chrissi,

I'll try!

1. Go to this page.
2. Select "Multi-Screen Data Search" for "All Urban Consumers (Current Series)" within the "Inflation & Prices" Section.
3. Select "Seasonally Adjusted" and click "Next form".
4. Select "0000 U.S. city average" and click "Next form".
5. Select "Current" and click "Next form".
6. Type "SAA Apparel" in the "Code" box and then type "Search".
7. Select "SAA Apparel" in the search results and then select "Next Form".
8. Select "Monthly" and then select "Next form".
9. Select "Retrieve data".
10. Select "1947" and select "Go".

Now you have apparel prices.

11. Select "More Formatting Options".
12. Select "Column Format".
13. Select "Retrieve Data".

Now we need to take the data to Excel. This will be a problem if you don't have Excel (or a spreadsheet that can handle the data).

14. Select ".xls" from the "Download:" Section.
15. Select "OK" to open the data in Excel.

Now the data should be in Excel. We're not done yet though. Now we need to adjust the data for inflation so that we can see what inflation adjusted apparel prices have done. In general, "real prices" means inflation adjusted prices. In order to do that, we need to download the consumer price index for all items.

16. Click here.
17. Click "Download Data".
18. Click "Download Data" again.
19. Click "OK".

Now you should have another spreadsheet with the CPI in it.

20. Copy columns A and B to columns F and G of your apparel spreadsheet (being sure to line up the dates).
21. An adjustment for inflation goes in Column I. I took the Apparel CPI for a given month and divided by the overall CPI in that month and then multiplied by the CPI in March of 2012 (the most recent data when I made the chart).
22. In Column J, I took the value in Column I of a given month and divided by the value in Column I in January of 1947 (to show how inflation adjusted apparel prices compared to then). Subtract 1 from the result to put it in terms of a percentage change.
23. I then graphed Column J and that is the chart you see.

I hope this helps. It's clearly a bit complicated.