📊 Price Tags Moving Up Everywhere 🏠 Families Adjusting Spending Habits Faster Than Ever

Added: 2026-06-02

[00:00:00]People still don't understand is that this high inflation environment is here to stay. Because [music] there's absolutely nothing the Fed is capable of doing about [music] it. In fact, everything the Fed does is going to throw gasoline on the inflation fire.

[00:00:16]So, Fed monetary [music] policy is going to exacerbate the inflation that we're dealing with. I mean, even though they're talking about fighting inflation, >> [music] >> they're not really going to fight it.

[00:00:26]They're going to keep stoking the flames. Just they're going to, you know, be less aggressive. What they're talking about doing is raising interest [music] rates, but these are still highly stimulative rates of interest.

[00:00:39]>> [music] >> It was in 2002 that the Fed slashed rates to 1% to stimulate the economy after, you know, the Nasdaq bubble burst. They started, you know, the the war on terror and all that stuff happened. We had a recession.

[00:00:50][music] And so, Greenspan lowered rates to one to stimulate the economy. Now, Powell's saying, well, we're going to raise rates to sedate the economy. It's still low.

[00:01:00]And the problem is the budget deficits have exploded. [music] We're talking about maybe $3 trillion a year now is what our annual budget deficit is. [music] The only way to finance that is for the Fed to do more QE. So, even though it's talking about shrinking the balance [music] sheet, it's not really going to happen. The balance sheet is going to keep expanding, but not only do we have this huge budget deficit, we have record trade deficits. Last year, we had the first ever merchandise trade deficit to [music] exceed $1 trillion in a single year. And in the month of December, we hit a new record high. We had over a $100 billion deficit [music] in December. And these deficits are going to skyrocket. Look at the price of oil, now $92, $93 a barrel, heading well above $100 a barrel this year. We're at net importing all that a lot of oil.

[00:01:48]That further runs up the trade deficit.

[00:01:50]So, there's no way to finance this. The Fed is going to be forced to print even more money. So, while [music] it's pretending it's going to take the punch bowl away, it's going to continue to spike it, but it's not going to be enough to sustain the [music] asset bubble. So, the change in monetary policy is a significant enough shift to prick the bubble in tech stocks and momentum stocks, but it's not big enough to slow down inflation. So, we're going to have stagflation, we're going to have a weakening economy, rising inflation, and that is a very different investment landscape [music] than the one investors have been used to over the past 10-20 years. The manufacturers are [music] going to have to pass on those higher costs to their customers, because they have to operate at a profit. [music] So, at a minimum, they have to pass on the costs, but what they end up doing is actually passing on more than the cost.

[00:02:41][music] Because you have to find a new equilibrium. Because every time the company raises prices, it does lose some buyers on the margin. Because we're all sensitive to price. I mean, if we weren't sensitive, the companies would just jack the prices even higher. The reason that there's a lid on prices is because [music] companies are looking for the optimal price where they can sell the most amount of stuff and make the most amount of money.

[00:03:06]>> [music] >> And so, as you raise prices, you start losing some of your customers. So, there's a sweet spot where you can have the maximum amount of profit. Well, that all changes when your costs go up. So, when their costs go up, they have to find a new equilibrium where they can maximize their profits, but what happens are is as you start raising your prices, you start losing some customers. And so, now you you know, you have fewer customers to try to average out all your fixed costs. [music] So, the new equilibrium price where you can maximize your profits ends up being even higher than just the increase of costs, because you have to make up for the loss of customers. Uh so, what happens in an inflationary environment is businesses [music] keep selling fewer and fewer products at higher and higher prices, and those customers that can afford the higher prices keep buying, and those that can't, well, they go without the products. Last year, though, businesses didn't raise prices enough. That was the problem, because you had the Fed chairman and all the economists were telling everybody, "Oh, don't worry about these rising costs. This is all transitory, right?" And so, the business owners believed the economists. They absorbed these price hikes in their own costs, because they didn't want to just [music] raise their prices if it was just, you know, a one-off thing. If it was just higher costs for a few months, they probably figured, "You know what?

[00:04:32]We'll just eat that. [music] You know, it's not worth raising prices, losing out to our competitors, annoying our customers. You know, we'll just ride it out, because [music] it's, you know, it's temporary." But, as we got to the end of the year, and now these companies look back, like, look at we just got the [music] earnings on Friday for Clorox.

[00:04:51]And Clorox got killed, like, new down 10%, 52-week low. Why did it get beat up? Well, they missed. Why'd they miss?

[00:04:58]Because [music] their costs were up a lot, and obviously they didn't raise their prices nearly enough to cover [music] the increase in costs. And so, I think a lot of these businesses that were kind of conned into [music] this false sense of complacency on what was happening, now they have a lot of catching up to do. [music] Not only do they have to get ahead of the curve for 2022, and start factoring in rising costs for 2022, but they got to catch up for all the lost ground from 2021. So, they have to raise prices a lot, and that's one of the reasons I've been saying [music] that rather than 2022, you know, CPI, you know, number coming down from the 7% [music] we got last year, 2022 is probably going to be higher. They're going to go maybe from 7% [music] to 10%. First of all, wages are rising. The problem is they're not rising as much as prices, so people are running out of ammo. But some people are not buying stuff. Look what's [music] happened recently to car sales. I mean, car prices have gone way up, and so car sales are coming down. I mean, people are buying fewer [music] cars. You know, it's happened in the real estate market.

[00:06:05]I mean, the prices went way up, and so >> [music] >> fewer people can afford to buy them. So they're still trading, but you know, not as many [music] people can afford to buy. Now, certain things like food, I mean, people are going to keep spending money on food, but they change what they buy, right? They don't buy as much steak, they buy more, you know, hamburger, right? So they're not eating as well as they would like to because they can't afford some of the stuff that they used to be able to afford. They have to trade down. [music] It's going to happen across the board.

[00:06:34]Uh people are going to buy cheaper stuff or less things, and it's probably already happening. It's just going [music] to happen more uh as uh the inflation gets worse.

[00:06:44]You want to skew your portfolio to stuff that people have to buy, not stuff that they buy [music] because they want to, right? So people have to buy certain products, right? And so you've got much more pricing power [music] if the consumer has to buy what you're selling versus a discretionary item that, you know, if he has any money left over, you know, he'll buy that. Uh but, you know, first he has to take care of what he needs before he can [music] start buying, you know, what he wants.

[00:07:12]And so, yeah, and if you look at a lot of the stocks that we own, those are the companies, a lot of these consumer companies or utilities. [music] You got to pay your electric bill. You don't want to be in the dark. I mean, you can use less electricity, you can, you know, watch [music] how many lights you leave on, you can adjust your thermostat, but you're going to buy electricity no matter what. You're not going to, you know, live in the dark and use candles.

[00:07:33]So these companies are still going to sell.

[00:07:35]>> [music] >> Uh energy, right? Your gasoline. People are still going to drive cars. They may not drive as often, [music] but they're still going to drive. Maybe they're not going to take a long vacation, or maybe they'll carpool, but you're still going to buy gas. So, these oil companies are still going to make money. But, you know, you buy these things that you know people are going to keep buying, and you can raise your prices. Your costs go up, you raise your prices, and you can stay ahead, and you can pay dividends. And absolutely, you have to be in companies [music] that have a lot of pricing power.