The Consumer Is Being Consumed; So Is the World

The fires of inflation and the fires of war are ripping the world apart. Today’s news reveals both are getting worse.

The inflation inferno is beating the “consumer”

Target’s CEO made it clear today that the argument that the consumer is “strong” is grossly in error. Based on what Target is seeing in its stores, it is the consumer that is done, not inflation. He says shoppers are feeling so distressed they are even pulling back on groceries now (not just in dollars spent but in quantity). You know inflation is beating consumers down when they start starving themselves (or in America’s case giving up the extras in their diets that they can live without.) Inflation is apparently the new national weight-loss plan.

As I wrote yesterday, the appearance that shoppers are raising their spending by more than inflation — so they must be strong — is an illusion created by phantom inflation. Today, we have clear evidence of that from Target. There is so much actual inflation that consumers are actually paying that the government is not actually recording or admitting to … that it appears consumers must be buying more stuff because of the falsely low reported inflation numbers.

Not so! says Target’s CEO, about consumers buying more. They are buying less stuff and paying a lot more for it! Of course, readers here and everywhere know that what they are experiencing does not square with what the government has been telling them. Actual inflation drives sales up so much by increasing what people are paying out in dollars for each item (by which sales are measured, as the government doesn’t measure them by units sold) that their spending is outstripping government-reported inflation considerably, even though they are buying less stuff. That is exactly as we can expect if I and others like John Williams at Shadowstats.com have been right all these years about how distorted government statements of inflation are. It merely looks like consumers are doing so well that they are buying more and more stuff even with inflation.

In an interview with CNBC’s Becky Quick that aired Thursday morning, [CEO Brian Cornell] emphasized that the retailer has posted seven consecutive quarters of declining sales of discretionary items, such as apparel and toys, in terms of both dollars and units.

That is a major pullback on those items if sales are even down as measured in inflated dollars, but here is the clincher:

“But even in food and beverage categories, over the last few quarters, the units, the number of items they’re buying, has been declining,” he said in the interview.

The government apparatchiks surveying and reporting sales figures for the nation only track the gross dollar value of sales. They don’t have the unit information, but stores, of course have precise inventory information, and one of the nation’s biggest store CEOs just clarified for all of us that consumers are, indeed, buying LESS STUFF, EVEN LESS OF THE ONE THING THEY ARE LEAST LIKELY TO CUT BACK ON — FOOD!

They are not just buying lower quality at Target; they are buying less. I’m sure other retailers, except maybe Costco, are seeing the same thing.

The retailer cut its full-year sales and profit expectations in August, despite a growing number of economists delaying or scrapping calls for a recession and government data showing that inflation is cooling.

According to Target it is not cooling enough to keep from dropping consumer purchases.

World at Wars

“The biggest threat to global order since the 1930’s is underway,” says one headline, and CEOs everywhere are talking about it.

“No one is saying it won’t affect business. ... Geopolitics is coming into the boardroom in a way it hasn’t in my lifetime.”

First, we had the Covidcrisis shaking the entire world up. Then we had face-ripping inflation forcing a change in global financial policy with central banks everywhere. Then we had Putin’s War against the sovereign nation of Ukraine on Europe’s flank, which dragged out far longer and much worse for Russia than many prognosticators believed it would. That drove businesses out of Russia, wiped out a lot of trade with Ukraine and Russia, damaged other supply lines, and likely contributes more to inflation, though oil prices remained relatively stable until recently. It certainly added huge inflation to gas prices in Europe. Now we have Hamas launching a war with Israel and Israel deciding quite obviously to end decades of responding with surgical strikes against Hamas or Hezbollah and, this time, to wipe Hamas out of existence. End the problem, instead of treating it.

Both wars risk pulling other nations deeper and deeper into the conflict and have divided the globalized world into two spheres as I said it would, not numerous fragmented pieces — essentially some of the East and those allying with them and the West and those allying with them. This is the first time in decades that CEOs all over are saying wars may be a game-changer for business and talking about them from a business leader’s standpoint in terms of how it affects supply lines, availability of resources, prices, and markets in major ways.

The World-War risk felt like it ratcheted up a little higher in the last 24 hours with Hassan Nasrallah, Hezbollah’s leader, announcing a major speech to come on Friday if Israel does not stop fighting in Gaza by 3:00 Israel/Lebanon time on that day. Many are speculating he will make good on his earlier threats and declare a state of war between Hezbollah and Israel if his demands are not met, as they won’t be. (All of this is covered in The Daily Doom’s headlines.)

As the fighting widens, Russia made it clear today what side it is on by declaring officially at the UN that Israel has no right to defend itself in any of the contested areas that are beyond Israel’s 1967 boundaries. A week ago, one Israeli politician spoke out strongly against Russia for its total lack of support, even in word, for Israel’s defense and its softness toward Hamas, saying the day will come when Russia will regret choosing to sacrifice the relationship it had been building with Israel. Now Russia made it clear that it is no friend of Israel. (Never really has been.)

If Nasrallah actually does declare war at that time of day in Lebanon, it will time out perfect for the announcement to hit the US stock market just before it opens and London before it closes. We’ll see if that tamps down the stock market’s last two day’s of ill-gotten enthusiasm over what some are calling Powell’s ultra-dovish speech. One publisher below is even saying Powell’s speech, readily grabbed by the stock market as the “pivot” they’d been waiting for, just undid the the economic tightening he said markets were now doing for him so much that he’ll have to jump back into economic tightening! Stocks roared and soared, and bond yields plunged.

Worse by far, it may drag Iran into the conflict, though most are saying Iran will not enter directly but will fight through its proxies.

I’ll analyze the week’s market madness in my next “Deeper Dive,” but this kind of ethereal market enthusiasm just based on hopes that the Fed is done now doesn’t have any staying power if the Fed turns out not to be done, which is to say if inflation turns out not to be done.