Deflation Watch: Part Two

A friend in the manufacturing biz received the following email yesterday:

Good morning valued XXXX customers!

We have received word of an imminent price increase on glass as announced by the glass manufacturers. The increase in pricing to the glass fabricators such as XXXXXX, will be in the 8 to 14% range, depending upon the product. We will have no choice but to pass a portion of the increase, approximately 7 to 8%, on to our customers. There is a ‘window of opportunity’ for you to place new orders at this time, before the increase takes effect, which, we are told, will be on or about August 16, 2010.

Please check your inventories, upcoming requirements, etc. and let us know as quickly as possible what items you will be needing so as to beat the price increase deadline. If you have any questions, please let us know.

Kind regards.

12 comments:

Anonymous said...

will you be adding to healthcare on pullbacks?

Tsachy Mishal said...

No. Im not adding anything until the market is oversold, which is a long way off.

Tsachy Mishal said...

I was actually hoping for a rally into expiration to get short into (on the SPY, not healthcare) but it seems unlikely now.

PJ said...

But will these price increases stick?

Commodities are priced at high levels right now, in part because of demand from China and developing countries. I think demand is about to plummet worldwide.

Tsachy Mishal said...

Look what has happened to auto prices. Manufacturers around the world cut and now prices are rising. That sounds like stagflation to me more than deflation.

PJ said...

We just went through one cycle, now we're starting another. They are going to have to cut again.

Tsachy Mishal said...

Why can't stagflation happen again? It already happened once. Most choose to ignore it as it goes against everything written in the textbooks.

PJ said...

It can happen, but it takes time to develop. It's not a near-term thing.

We are seeing inflation in China currently, but that's temporary and caused by their huge 2009 credit expansion. In deleveraging nations like the US inflation is going to be difficult to generate. Nor does the Fed really want inflation, since that would crush the banks, the Fed's MBS balance sheet, Fannie/Freddie, and the Treasury.

Tsachy Mishal said...

Unfortunately the Fed controls a lot less than most think.

Anonymous said...

Increases in raw materials don't necessarily pass through to finished products, nor do final consumers necessarily need as much of the finished products as in the past. Technology allows for very high rates of productivity increases, much of which is not measured by CPI.

In the old days, maybe you had to pile on the glass to make a bottle strong enough (I'm assuming this glass is for making bottles). Now, maybe there is some computer program that allows for designing bottles which give the same strength with less glass, taking advantage of how different shapes affect the physics of glass strength. (Sorry if I sound stupid here--I'm not an engineer or scientist.) Maybe there will be some other technology that allows for better recycling of used glass than in the past. And so on.

Technology can be ferociously deflationary. Just look at the computer industry, or all the industries affected by the internet (publishing, travel agents, etc)

Anonymous said...

tsachy, what is the put/call saying about the markets direction..in your opinion? Do we continue the slide or will it get bought and a bounce?

Tsachy Mishal said...

Please see my latest post. I hope that answers the question.