South Korean Inflation

In earlier posts, we took a look at global inflation and inflation in Mexico to understand what the inflation dynamic is with the United States largest trading partners. South Korea is the 6th largest trading partner with the United States so let’s take a look at the number from September and where we are today.

The graph clearly shows pressure on South Korean producer pricing back in September so where are we now?

From Reuters:

The PPI last month jumped 8.9% from a year earlier, the Bank of Korea data showed, the fastest pace since October 2008 and extending the growth to an 11th straight month. It rose 7.6% in September.

For anyone that considers to believe that inflation is “transitory” needs to carefully examine their belief system. Perhaps the better question to ask is what would trigger a sudden deflationary collapse in PPI or general inflation around the world? From September to October the trend continues to climb and we are now entering the holiday season which will drive consumption higher at least through December.

Retail sales in the United States CLIMBED 1.7% in October as well despite inflation.

Where do we go from here?

We still believe markets are overvalued so we are positioning ourselves ready to pounce on investments we think will make stable returns over the next decade with a bias toward defensive stocks, dividends and options trading. We have written about some positions in BP, GDX , GDXJ, ILPT, and GILD as starter positions and the intention of buying more on pullbacks or market corrections.

Additionally, lower wage workers still have the upper hand when it comes to negotiating better pay at traditionally low wage jobs and coupled with 10,000 baby boomers retiring each day, it doesn’t bode well for any small business that built it’s biz model around low wage workers.

How does it all add up? Let’s take a look at the numbers:

World Population: 7.8 billion humans are needing food, water, energy, clothing, medical care.

US Population: 331 million; 70 million boomers all hitting age 65+ in 2030. Gen X: 65 million, most will be in their 40s and 50s by 2030.

Inflation: Currently running above 3% for the last year for most of the U.S. trading partners.

Pandemic: As of November 20, 2021, flare ups have locked down Austria. Germany contemplating new measures. In the US, some midwest states are seeing an increase in covid infections.

Supply Chain: Disruptions until at least 2023 in some areas.

S&P: Overvalued?

We think inflation will be around for a while, at least 2 more years barring any unforeseen calamity that changes the economic dynamic over the next 24 months. We expect boomers to continue to retire in growing numbers and expect wage pressures to continue to climb. The “Build Back America” legislation may put additional pressure on inflation as demand for materials and labors grows as an outcome of the program.

There are so many wild variables here that it is difficult to navigate through this hurricane of conflicting data so we think the best thing to do is stay mostly in cash and take small positions in dividend bearing investments to keep up with a little bit of the inflation issue.

Stay tuned as we crunch more data and news.