Tuesday, March 11, 2014

Merchant Wholesalers Hoarding Groceries

Click to enlarge.

The red line shows the inventory to sales ratio for merchant wholesalers' grocery and related products (January 1995 = 100).

The black line shows the producer price index for crude foodstuffs & feedstuffs adjusted by the consumer price index (January 1995 = 100).

The blue line shows the overall inventory to sales ratio for merchant wholesalers (January 1995 = 100).

As seen in the red line (and the commentary in red), merchant wholesalers in the United States have transitioned from de-hoarding groceries to hoarding them. As seen in the black line (the real price of crude foodstuffs and feedstuffs), that's probably been a good plan in hindsight (at least at the wholesale level).

As seen in the blue line, merchant wholesalers don't seem all that eager to hoard merchandise in general though, at least over the long-term. That's especially true of electrical and electronic goods. What's the useful shelf life of a TRS-80?

The hyperinflationists will have it right if the blue line begins to rise in earnest. That seems like a very, very long way off to me, at best. That said, we should not be encouraged that grocery hoarding is apparently part of the long-term plan for a stronger and more prosperous global economy. It's not going to work. That's especially true in the emerging markets where food makes up such a large part of household expenses. Something's bound to break again (in a deflationary and/or civil unrest sort of way).

April 11, 2011
Commodity Prices, the Economic Outlook, and Monetary Policy - Janet Yellen

In my view, the run-up in the prices of crude oil, food, and other commodities we've seen over the past year can best be explained by the fundamentals of global supply and demand rather than by the stance of U.S. monetary policy.

Past year? How about the past decade? For what it is worth, and as a risk-averse retired saver, U.S. monetary policy certainly got me to hoard food and oil-based garbage bags as an alternative to three-month treasury bills. Perhaps Janet Yellen believes that I was just a global exception?

From 2004 to 2006, a third of my net investment worth was in gold and silver. That's gotta be very confusing to her. Although, I can't even eat gold or silver from a "fundamentals" standpoint, they both treated me quite well (50% gain). Probably just a coincidence!

This is not investment advice. My hoarding days are mostly over. I will continue to keep a stockpile of basic necessities, but for the most part I'm leaning deflationary now. I think ZIRP may be here for a very long time. We could easily be joining Japan in the deflationary (lack of inflation) mud. Time will tell.

Source Data:
St. Louis Fed: Custom Chart


Stagflationary Mark said...

The hyperinflationists will have it right if the blue line begins to rise in earnest.

The inventory to sales ratio can clearly rise for deflationary reasons too (as seen in the Great Recession).

I should therefore add that the reason has to be because of inventory hoarding activity, not because sales dried up.

Nathan said...


Any more deflation talk and you're going to need to trade those TIPS for STRIPS :)

I feel like the world needs a better term than "nominal" for non-inflation protected bonds. Given their lack of protection, one natural candidate would be "bareback bonds". Mainstream acceptance of that nomenclature may be a challenge though.

Anyway, something to think about between trend failures.

Stagflationary Mark said...


I feel like the world needs a better term than "nominal" for non-inflation protected bonds.

"Barely" Bonds!

Sales Pitch: "You'll want to own them before the economy's performance-enhancing drugs wear off!"

EV said...

Mark, Can you point to a post that describes what seems to be the deflationary thesis you hold, or lacking that, might you write one?

Stagflationary Mark said...


I really should post a summary soon, but until then...

The following post two days ago was the actual turning point for me.

March 10, 2014
Sliding Into Deflation

For the first time since starting this blog in 2007, I am changing my long-term inflation mood to neutral (as seen in the upper left hand corner of my blog). Much like Japanese investors since their housing bubble popped in the early 1990s, I am no longer a believer that the consumer price index must rise even over the long-term. I'm not saying it can't. I'm just indifferent now. That's all.

In addition to that, I've had many deflationary thoughts over the years.

November 6, 2007
Savvy Chinese Know Exactly When Bubble Will Burst!

In hindsight, it sure did burst. I don't think it's over either. They build empty cities with great abundance. Can't go on forever. I continue to be very bearish on China, especially with oil prices so high.

Here's another thought.

July 15, 2010
An Alternative Theory for Japan's Deflation: Robots!

For over 100,000 years, humans have competed with humans for work. The world's population has doubled in the last 42 years.

The growth rate in humans has nothing on the growth rate in robots though. This is especially true in Japan.

And then there is today's topic.

March 12, 2014
Interest Rates Are Too High

You probably won't hear this on CNBC until it is blatantly obvious to all, but as seen in the chart, interest rates are too high again. If they don't come down very soon, something's going to break again in a most deflationary way. That's my opinion and I'm sticking to it.

When we're repeatedly told that interest rates are low when they really aren't, then deflation is what you'd expect to see next. This economy cannot tolerate high interest rates. The bar keeps being reset lower and lower though. What seems low now is actually quite high if you look at the long-term trends and factor in what increasing debt and leverage does.

And lastly, I predicted in 2012 that the next recession would hit by October of 2014. If I am right (might not be of course), then we will enter then next recession while still in ZIRP. Few think it is even possible to enter a recession while in ZIRP. Think what doing the impossible would do to consumer confidence, both in the short-term and the long-term.

February 28, 2014
Man the Lifeboats?

As seen in the chart, we have never successfully avoided a recession when this growth rate falls below 0%.