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Hyperinflation starting? What's happening in your area? Post your ground reports.

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thechosen1

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They announced that they are cutting back on the easing actions -- they are still systematically pumping money into the financial system. I read that they had increased the money supply by around 30% during the last year. And then they wonder why we have inflation!!!! The Feds are going to have to raise the rates because this inflation is not going away any time soon -- and they are starting at almost a 0% prime to the member banks. They were talking about a quarter of a point quarterly over the next year -- which is a drop in the bucket compared to what is needed to put the brakes on this situation. They are between a rock and a hard spot. These interest rate increases will increase the debt service on the national debt -- causing a lot of other problems. In my mind, the people who are in charge just don't get it! The inflation rate is similar to 1979, but we're not even close to putting on the brakes as they did then.

Some history -- in 1979, the mortgage rates for home loans were 9.5%. We took our normal Christmas season break. When we came back in January 1980, the rates jumped to 21% and 22% or more. EVERYTHING stopped cold.
Thank you, that's some serious perspective and experience!!!

The part about everything stopping cold - I wonder how badly they are willing to push it before that happens? Surely there is TREMENDOUS political pressure to "keep the graph looking pretty." You know, "market goes up" sort of thing.

The last thing they want is to stop everything cold and have the public snap out of it and say "Wait a second! The conspiracy theorists were right!"
 
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jdm667

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They announced that they are cutting back on the easing actions -- they are still systematically pumping money into the financial system. I read that they had increased the money supply by around 30% during the last year. And then they wonder why we have inflation!!!! The Feds are going to have to raise the rates because this inflation is not going away any time soon -- and they are starting at almost a 0% prime to the member banks. They were talking about a quarter of a point quarterly over the next year -- which is a drop in the bucket compared to what is needed to put the brakes on this situation. They are between a rock and a hard spot. These interest rate increases will increase the debt service on the national debt -- causing a lot of other problems. In my mind, the people who are in charge just don't get it! The inflation rate is similar to 1979, but we're not even close to putting on the brakes as they did then.

Some history -- in 1979, the mortgage rates for home loans were 9.5%. We took our normal Christmas season break. When we came back in January 1980, the rates jumped to 21% and 22% or more. EVERYTHING stopped cold.
I remember being amazed when my mom told me that you could get 12% on a CD back in the 80's. Then she laughed and told me the downside: they were paying 18% on a mortgage.

I don't know if we'll go back to something quite so extreme, but hey, it happened once right?

On an unrelated note: an industrial property in my small town in Massachusetts just sold for $50 million. For perspective: it was assessed at $9 million.

The town's assessed values are sometimes off - but not by THAT much. I don't know if this is a money laundering play, a tax deduction play, or a very confident & successful manufacturer, but in any case, it just goes to show that there is way too much money out there chasing too few buildings and goods.
 

thechosen1

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On an unrelated note: an industrial property in my small town in Massachusetts just sold for $50 million. For perspective: it was assessed at $9 million.

The town's assessed values are sometimes off - but not by THAT much. I don't know if this is a money laundering play, a tax deduction play, or a very confident & successful manufacturer, but in any case, it just goes to show that there is way too much money out there chasing too few buildings and goods.
Yeah, you could never do what we do in Texas up in Massachusetts. Forget about starting your own industrial/manufacturing small business up there. It's big partnerships and venture capital or nothing - just to start a little muffler shop. Better call Wall St.
 

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I bought a XMAS card from Walgreens. Nothing special about the card, no fancy decorations, no audio jingles, no pop-outs, just a standard Hallmark card. As such I didn't bother looking at the price.

Cards are supposed to cost 1.99, 2.99, sometimes 4.99. Nope, this card was 7.29. For a freaking folded piece of cardboard.
 
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My personal opinion is that increased rates will NOT help with inflation at this point. In fact, I think it may make it worse. The ship has long sailed and the Fed knows this... don't believe anything coming out of Powell's mouth. They're pushing socialist agendas and with midterms around the corner, I don't expect any "catastrophes" to occur. It seems like they rather have high inflation than a major recession. At the end of the day, it's either continued inflation or a MAJOR recession.

By the way, increased rates increases cost of borrowing which will be priced in by businesses for their goods/services.
 
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WJK

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Thank you, that's some serious perspective and experience!!!

The part about everything stopping cold - I wonder how badly they are willing to push it before that happens? Surely there is TREMENDOUS political pressure to "keep the graph looking pretty." You know, "market goes up" sort of thing.

The last thing they want is to stop everything cold and have the public snap out of it and say "Wait a second! The conspiracy theorists were right!"
And 2022 is an off-election year. The current administration really doesn't get it. They don't appear to be backing down. They don't take any ownership of the situation, so they can't even start to fix it.

(This looks like it might be a self-corrected problem -- also known as a depression -- a very deep recession that lasts a LONG time -- and will hurt like hell. I'm worried that we're close, or at the end, of another credit cycle -- similar to the 1929 crash. Most people only know about business cycles -- not the longer credit cycles. I'm looking at the staggering national debt, the massive student loans, the bloated secondary mortgage market, the bond market for all those commercial/industrial RE debt, the fact that over 95% of cars are financed, credit card/consumer debt... and, so sob, I rest my case. This is all beyond crazy to me!)

For more history: I owned 2 RE offices when those huge interest rates hit in1980. I lost everything and had to start over. It took years for the market to recover and the big interest rates to moderate. Then in the late 1980s, we had another RE run, like the one we've been in recently. Everyone was into OPM (other people's money) with heavy leverage -- taking on LOTS of debt. Does that sound familiar? And then around 1990, everything crashed really hard again. That one took out the whole Savings & Loan Industry and all of the Thrifts -- which was the private money sources that accounted for 75% to 80% of the money in the RE financing market. That's when Wallstreet and the secondary market (Fannie Mae, Ginny Mae, Freddie Mac) took over the residential mortgage market -- which crashed and burned in 2008. And today all that mortgage debt for the entire RE market (residential, commercial, and industrial) is still totally on the backs of the guys on Wallstreet. I sure hope they can carry a heavy load. I don't know specifically what is the "straw" that could break their backs...
 

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So, we are clearly experiencing unprecedented inflation (at least for recent history).

I'm wondering how high they will raise rates (they mentioned TRIPLING THEM on the latest meeting), and why their actions have been so different compared to thehigh rates of the 80's? Is it political activism on the part of the Fed?

Anybody have insight to this? I'm looking at @WJK in particular :D

Just watching for how BIG things could shift. If they went to double digit rates, wow.

The fed has backed itself into a corner. Unlike when Paul Vollcker was fed chair and raised the interest rate to double digits to fight inflation, the fed today cannot do that without forcing the US government into a severe debt squeeze - which could lead to default.

The difference is the size of debt of the government in relation to the tax base it receives. Currently rates on treasuries are very low, keeping the percent of the tax base spent on interest relatively low. Essentially as debt has gone up over the years interest rates have gone down keeping interest payments low.

As we print more and more money in these low interest rate environment, we create an interest trap. Because if interest rates rise to say double digits, the government would be in an unprecedented position where a massive percentage of tax revenues would be required to service the debt.

In this scenario as interest goes up, and interest costs go up, less money is available to pay for non interest obligations. In this scenario they only have a few options on the table.

1) dramatically cut obligations - this only helps slow down the rate of debt rising, but as long as the gov is running a deficit cutting obligations does not result in actual net saving just net decrease in additional debt accumulation.

2) dramatically raise taxes - there is a limit to this since you can only tax up to 100% of available income.

3) confiscate citizens assets to pay debt - this has been done before such as the gold confiscation in the US then doubling the price of gold. Or in other countries and their bail ins from bank or retirement accounts.

3) print exponentially increasing amounts of money to fund the government - this only escalates the problem by increasing the percent of tax revenues consumed by interest payments.

My bet is that the government will raise interest slightly but inflation will continue to burn very hot for many years to come. It’s a convenient way for governments to erase past debt without raising tax rates. Inflation is a silent tax that the government can pretend they are not responsible for.

It also raises tax revenues in dollars, since as wages/property values increase, then tax collections go up. E.g, 10% of $100,000 in wages is $10,000 in taxes. $10% of $200,000 in wages is $20,000 in taxes.

All of this empoverishs the people, and this is when server civil unrest and outright civil war becomes a serious risk. Some serious people like Ray Dalio are warning of the risk of some sort of civil was based on historical precedence.

As an aside his new book is excellent and a must read to understand what’s going on right now.

 
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WJK

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My personal opinion is that increased rates will NOT help with inflation at this point. In fact, I think it may make it worse. The ship has long sailed and the Fed knows this... don't believe anything coming out of Powell's mouth. They're pushing social agendas and with midterms around the corner, I don't expect any "catastrophes" to occur. It seems like they rather have high inflation than a major recession. At the end of the day, it's either continued inflation or a MAJOR recession.

By the way, increased rates increases cost of borrowing which will be priced in by businesses for their goods/services.
I'm not sure that they can keep things going without a catastrophe for too much longer. They are dancing on the edge of a huge black hole. The only bright side I can see is that the inflation happened here in the U.S.A. BEFORE they got their socialist programs in place. We have our foot partway in their mousetrap, but we're still alive and for the most part, a market-driven economy. We choked down part of this poison pill in 2008 when we did a banking reset. Now we must start re-thinking the rest of the equation.

Will we come out with different attitudes toward savings and debt? My Great Grandmother never trusted banks again after the Great Recession. She carried her entire savings in a rolled wad of bills, in her bra, nestled between her breasts, for the rest of her life. And she never borrowed a dime again. Another relative, my great aunt, had her stash in her purse. I remember the day she paid cash for their new pick-up truck at the Chevy dealership out of that rolled-up wad of bills. How would a hard depression now change us as a people?
 

socaldude

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By the way, increased rates increases cost of borrowing which will be priced in by businesses for their goods/services.

If you’ve been paying attention to the market banks $XLF cheer higher rates and big cap tech loves the lower rates. Looking at the spread between the 2-10 year yield can offer some clues as well.
 

farmer79

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Not as dramatic as some of the stories here but the price of Nitrogen (largest variable expense to growing a crop) has doubled from 3 months ago and nearly tripled from a year ago. We paid(Canadian per metric tonne (2204 lbs)) $450 a year ago, $700 three months ago, and was quoted $1300 yesterday. For context in Saskatchewan 3500 acres is probably the average grain farm, and they would use about 350 tonnes of Nitrogen in a year. One year ago their Nitrogen bill would be $157,500, For the 2022 crop year if they haven’t booked already they are looking at $455,000 just for Nitrogen. I talked to my rep about a credit increase and she said, “just wait, the credit department is drowning in applications right now.” I suspect another wave of inflation as the increase in costs to all primary producers rolls through the market next year and of course gets added to by all the middlemen,brokers, retailers etc.
 
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Andreas Thiel

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Not sure what aspects have been discussed so far, but a German market observer comes to the following conclusion:
- The USA wants to stop the rise of China and pull the plug while their growth is still mostly bought with loans
- When you look at truck delivery activity, you see that it is still only roughly around 75% of pre-pandemic levels
- Costs of shipping and transportation suffer mostly because of the situation at a few (maybe just 2) ports in the US
- When you look at the non-existent progress at the most critical ones, it seems like there is no interest in fixing the problem soon
- Rising inflation means:
  • Bonds need to become more valuable in order for them to at least cover inflation
  • Shares need to have a better yield than Bonds since they are more risky - so they either become cheaper or their earnings have to improve
Even if inflation is just at around 3.5% next year, the FED will say bonds need to get there (which the USA / FED want because China will have a harder time meeting their debt obligations) and in order for stocks to get to healthy levels (roughly 3% higher yield) again, they need to accomplish the forecast of an average yield increase to 4.7% and still lose around 25% of their value.
Wouldn't be the end of the world and a reasonable price to pay to stay at the top in the global dominance game.

Once the dominoes are in motion and China has no way out of the mess, the ports will magically become a priority and things can go back to normal. At least it makes more sense that there is such a plan in place rather than the FED being clueless enough to be surprised by inflation.

Raising rates is the worst thing that can be done for american businesses when you look at the root cause of inflation in this particular case. Financing should still be as attainable as possible for the manufacturers that are affected by the extraordinary situation. You won't find that kind of reasoning in official publications, though.
 
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Walter Hay

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Not as dramatic as some of the stories here but the price of Nitrogen (largest variable expense to growing a crop) has doubled from 3 months ago and nearly tripled from a year ago. We paid(Canadian per metric tonne (2204 lbs)) $450 a year ago, $700 three months ago, and was quoted $1300 yesterday. For context in Saskatchewan 3500 acres is probably the average grain farm, and they would use about 350 tonnes of Nitrogen in a year. One year ago their Nitrogen bill would be $157,500, For the 2022 crop year if they haven’t booked already they are looking at $455,000 just for Nitrogen.
How would that cost compare to the cost of growing and plowing in legumes as a cover crop?

I found it very cost effective when growing grain crops on suitable parts of our cattle property. Mind you, prices for seed and fertilizer back then were "normal".

Walter
 

farmer79

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So you mean seeding some kind of legume into an existing crop? A few neighbours tried some tillage radishes a few years ago but didn’t have a lot of success. I think one of the problems was the limited chemicals you could use in that environment.

Some guys have tried clearfield peas with clearfield canola, and then harvest 2 crops at once and clean the canola out of the peas. On paper that makes a lot of sense but the 3-4 people I know who tried this stopped doing it so I assume it didn’t work great. I think there were harvest issues as the peas are at least 10-15 days earlier and they were getting over ripe. However the economics of these things may change with fertilizer being so high.

You make a good point with legumes though, as a stand alone crop they are an excellent option when fertilizer is high. Saskatchewan is known worldwide for its lentil production and they are already expecting a record number of acres going into peas and lentils next year. So much so that inoculant shortages are already expected for next year. I have heard 2nd hand of some extreme examples of guys who booked Nitrogen early or had carryover selling their nitrogen and planning on growing 100% legumes. This is extremely risky as all one crop can go really wrong in our challenging growing environment but still tempting.
 
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Marigold

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So you mean seeding some kind of legume into an existing crop? A few neighbours tried some tillage radishes a few years ago but didn’t have a lot of success. I think one of the problems was the limited chemicals you could use in that environment.

Some guys have tried clearfield peas with clearfield canola, and then harvest 2 crops at once and clean the canola out of the peas. On paper that makes a lot of sense but the 3-4 people I know who tried this stopped doing it so I assume it didn’t work great. I think there were harvest issues as the peas are at least 10-15 days earlier and they were getting over ripe. However the economics of these things may change with fertilizer being so high.

You make a good point with legumes though, as a stand alone crop they are an excellent option when fertilizer is high. Saskatchewan is known worldwide for its lentil production and they are already expecting a record number of acres going into peas and lentils next year. So much so that inoculant shortages are already expected for next year. I have heard 2nd hand of some extreme examples of guys who booked Nitrogen early or had carryover selling their nitrogen and planning on growing 100% legumes. This is extremely risky as all one crop can go really wrong in our challenging growing environment but still tempting.
The fertilizer shortage is going to be problematic. The knock down effects are why they're predicting food shortages.

Time we all started growing food.
 

farmer79

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The fertilizer shortage is going to be problematic. The knock down effects are why they're predicting food shortages.

Time we all started growing food.
You’re not wrong. I would say the risk of starvation shortages is unlikely, but if there are certain things you like that store well or you can grow you should. Take oats for example. There is an extreme shortage of oats this year. Canada and Russia supply 30-40% of the world oat market and western Canada had a Biblical drought this year. We got $2.75 per bushel 2 years ago, I sold ours for $5.50 in September because that was the highest price I have ever received, and right now you could get $10.75 a bushel only 3 months later. Took 125 years of oat growing in Saskatchewan to hit $5.00 and then 3 months to go to $10. Despite the price I bet there is none trading at that price because there is none left. I would point out our crop was less than half of normal. So the processor whose product relies the least on the price of oats and is able to sustain very high markups or who has inherently high margins is getting all the oats. So there probably won’t be a shortage of Oat Milk, but you might not be able to find Quaker Quick Oats. So no oatmeal for breakfast but at same time you’ll have no trouble finding Cream of Wheat because the shortages don’t seem to be hitting the wheat market as badly.

Next years fertilizer prices and shortages I think will intensify these shortages and perhaps even oversupplies in food next year. Pea and lentils have too much supply because they got overgrown due to not needing Nitrogen, but you can’t find canola oil anywhere because there was no sulphur fertilizer available.

Same thing for mustard, I could see shortages of mustard specifically, but we’ll have ketchup galore. Again from a quality of life point of view if there are things you love and that store or you can grow, stock up.
 

Marigold

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You’re not wrong. I would say the risk of starvation shortages is unlikely, but if there are certain things you like that store well or you can grow you should. Take oats for example. There is an extreme shortage of oats this year. Canada and Russia supply 30-40% of the world oat market and western Canada had a Biblical drought this year. We got $2.75 per bushel 2 years ago, I sold ours for $5.50 in September because that was the highest price I have ever received, and right now you could get $10.75 a bushel only 3 months later. Took 125 years of oat growing in Saskatchewan to hit $5.00 and then 3 months to go to $10. Despite the price I bet there is none trading at that price because there is none left. I would point out our crop was less than half of normal. So the processor whose product relies the least on the price of oats and is able to sustain very high markups or who has inherently high margins is getting all the oats. So there probably won’t be a shortage of Oat Milk, but you might not be able to find Quaker Quick Oats. So no oatmeal for breakfast but at same time you’ll have no trouble finding Cream of Wheat because the shortages don’t seem to be hitting the wheat market as badly.

Next years fertilizer prices and shortages I think will intensify these shortages and perhaps even oversupplies in food next year. Pea and lentils have too much supply because they got overgrown due to not needing Nitrogen, but you can’t find canola oil anywhere because there was no sulphur fertilizer available.

Same thing for mustard, I could see shortages of mustard specifically, but we’ll have ketchup galore. Again from a quality of life point of view if there are things you love and that store or you can grow, stock up.
Absolutely fascinating getting real-life farming feedback. I think farmers are the real heroes these days!

The food supply is more tenuous than many are aware. That's the biggest threat we face right now, not a pandemic!
 
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boots on the ground:
we get Stainless buckles from China / Tiawan / timbuktu, and we buy from brokers/warehouses (we don't import directly) Current leadtimes are as follows:
Tiawan: 12 month lead time
China: 6 months, but you pay 25% more than Tiawan
So, we are now ordering our stainless steel buckles a full year out ahead of when we'll need them.
Oh, and the costs? just went up 12% across the board on Stainless buckles (chinese or Tiawanese)

We don't import directly, we pay "stocking companies" decent money to be our bank and warehouse, but right now they are sold out on some things and will be a while till they re-stock, in the meantime, we look for people that have a few thousand of an item that we need and buy them out, or we air-freight it from Tiawan to cover our needs.
 

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I wonder if they’ll put the 75% increase in price for a large Diet Coke at McDonalds in the CPI. Doubt it.

It’s official folks. No more dollar sodas at Mickey D’s… I just paid $1.89
 
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MJ DeMarco

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Highest CPI in 40 years, market shrugs it off...

In one year, used car prices went up 37% ... when accounting for depreciation, that's real adjusted number is more like 50%. Amazing time we live in when my old Toyota Tacoma with 140,000 miles went from being worth $10,000 to $15,000.

The SPDR S&P 500 ETF Trust (NYSE:SPY) traded higher by 0.4% on Wednesday morning after the Labor Department reported a 7% increase in the consumer price index in the month of December, the fastest inflation growth since 1982.

What Happened: The headline CPI rose 7% in November, in-line with economist estimates and marking the highest growth rate since June 1982. The CPI was up 0.5% on a monthly basis.

Core inflation, which excludes volatile food and energy prices, was up 5.5% in December, exceeding economist estimates of 5.4%.

Shelter costs were up 0.4% month-over-month and 4.1% compared to a year ago. Used car prices were once again a major inflation driver in December as well. Used car and truck prices increased by 3.5% in December and are up 37.3% over the last 12 months
 

thechosen1

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Highest CPI in 40 years, market shrugs it off...

In one year, used car prices went up 37% ... when accounting for depreciation, that's real adjusted number is more like 50%. Amazing time we live in when my old Toyota Tacoma with 140,000 miles went from being worth $10,000 to $15,000.
don't forget this important factor: new cars have TERRIBLE features that lots of people don't want.

Sitting at a red light and the engine shutting off to "save the environment" as an example..

People down here in Texas hate this. I do too. They'd rather drive a 10 year old clunker than this BS.
 
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lludwig

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Highest CPI in 40 years, market shrugs it off...
Because it was in line with expectations and already priced in. If we got 7.5% that would have been a whole other issue. Not that I believe the number 7.0% either.
 
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Kak

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don't forget this important factor: new cars have TERRIBLE features that lots of people don't want.

Sitting at a red light and the engine shutting off to "save the environment" as an example..

People down here in Texas hate this. I do too. They'd rather drive a 10 year old clunker than this BS.
Agree. But the work truck trims are still there thankfully.

Brittany’s Mercedes was getting serviced the other day and I sat in the new S580. I could almost feel my pancreas failing just siting there. The thing is pure diabetes. It was also $141k and an ugly a$$ interior color. Screw that.

Autotrader classics is more appealing by the day.
 

ValueSystems

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Highest CPI in 40 years, market shrugs it off...

In one year, used car prices went up 37% ... when accounting for depreciation, that's real adjusted number is more like 50%. Amazing time we live in when my old Toyota Tacoma with 140,000 miles went from being worth $10,000 to $15,000.

Yeah, crazy numbers...

Found this tweet summarizing key points (not mine):

2022-01-13 13_44_51-Charlie Bilello sur Twitter _ _Price increases over last year (CPI report)...png
 

MoneyDoc

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Yeah, crazy numbers...

Found this tweet summarizing key points (not mine):

View attachment 41565
Most of the stuff listed are really due to supply chain...

Anyone currently actively importing knows that routes are CLOGGED. Vessels keep getting delayed. Another factor is oil... it's added to food costs. They have to be transported to Grocery stores somehow, right?

Anyways, that's just my thoughts.
 
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ValueSystems

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Most of the stuff listed are really due to supply chain...

Anyone currently actively importing knows that routes are CLOGGED. Vessels keep getting delayed. Another factor is oil... it's added to food costs. They have to be transported to Grocery stores somehow, right?

Anyways, that's just my thoughts.
Interesting, good to know. Crazy that routes are still impacted this far into the pandemic..

I'm wondering if it's only the pandemic that make shipping extra arduous or if there are other macro influences at this point?
 

Lyinx

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got an email today - 10% up for a supplier that we don't buy much from.
I've seen this with other companies, 8%, 7%, 5%... keeps going on and on
Screenshot_3.png
 

thechosen1

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just a meme. delete if too off topic lol

271888400_425202825965681_5724659983117196074_n.png
 

GPM

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I have had my eye on a UE Hyperboom for a while now, but did not think that it was worth the $500 (CAD) price tag.

I checked today just to see what was up, and they are now $550. No thanks, I will pass.

I guess that means I might find it on a great sale for $500 now! lol.
 

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