T
The Byre
- Original Poster
- #1
If you run an online shop, you need to read this. Actually, if you even buy stuff online, you need to read this. I was talking to the elderly owner called Ken of a medium-sized online shop and wondered at his low prices. He was charging less than the wholesale price and included next-day delivery in that price. The items he sold are chainsaws and other forestry and gardening tools that very strictly only go out to bricks-n-mortar shops and have an average retail price of around £750.
We got chatting and I knew how difficult it was for our local dealer to get these items and how hard it was to match any online prices. Our local dealership, despite having a turnover of over £40m, just cannot match this guy's online prices. They just don't buy enough stuff and they would be better off buying online than buying from the manufacturer! So I had to ask my new friend how he manages to sell at such low prices - and after some umming and erring, he told me - and I'll tell you in a minute.
Inflation is up. Interest rates are heading north, but by no means can they go anywhere near any figure that could tame true inflation. And as it takes about two years for newly printed money to enter the real economy, all that QE from the past two years will only start to erode your bottom line this year.
True GDP as measured by the amount of goods and services created (i.e. NOT nominal GDP as measured in pounds) has fallen since 2019. Homeless figures are up everywhere. True unemployment (as measured by the percentage of people not in full-time employment) is up and rising. An energy price shock is coming down the line and is unstoppable. House prices are off to the races.
But it is all that loose money that is still washing down the mountainside that is scary! It has to go somewhere - and that somewhere may be in more stockmarket craziness.
When the fund managers see that none of the central banks are able to tame inflation without bankrupting their governments and that reserve rates will remain well below inflation levels - even well below the bogus figures put out by government departments like the ONS - those fund managers may start to say to themselves "Jeez, the Fed, the BoE and the ECB are toothless, clawless and clueless tigers. Let's load up with cheap money and have another share buying binge before the bubble bursts!"
We all know that PE ratios are too high and the world's stock markets are in a bubble as prices are too high for the underlying fundamentals of the companies involved. We also know that some of the big tech companies more or less doubled in value since the outbreak of C19 madness.
I'm not saying that is what will happen - I'm just saying that is what MAY happen when the markets realise that the only central bank that is going to fight inflation is in Moscow. All other central banks have negative interest rates in real terms - i.e. nominally positive but far less than inflation. And don't forget that true inflation is always about double the official figures for CPI because the basket of goods and services used to measure inflation is constantly being changed.
All that QE currency has to go somewhere and the market may melt-up before it melts down!
There is an old saying in economics - the cure for high prices is high prices. In other words, the market regulates itself. The cure for high share prices is a market correction. You may call it a bubble bursting or just a price deflation. You can call it whatever you like, but what goes up, must come down. The cure for Alphabet Inc. at $3,000 is Alphabet Inc. at $1,000.
The cure for high energy prices is high energy prices - and not price controls. But our schoolboy chancellor will have noted the support from former chief whip Mark Harper, (who praised his "realism and honesty"), and Blue Collar Conservatives founder Esther McVey (who said she was "grateful we have a chancellor who is in touch", with families struggling on low incomes). Sunak is within touching distance of becoming Prime Minister. One Tory MP close to the 1922 Committee believes they are "within single digits" of the 54 threshold.
Johnson himself rejected calls to resign over 'partygate', telling The Sun that he will seek re-election in 2024, as he strives to 'level up' the country with The Govenator Plan. Tories are wondering if the prospect that Johnson could be out of office soon is the reason why Michael Ashcroft is publishing his biography of Carrie Johnson on March 22, instead of just before the Conservative Party conference. After all, few people will want to buy a biography about the wife of a former prime minister. The cure for Johnson's tomfoolery is even more of Johnson's tomfoolery.
And the cure for my local dealership wanting £1,600 inc. VAT for a chainsaw is an online shop selling me one for £1,125. If we strip out the VAT, that is £22.50 under wholesale list price. Along with many manufacturers, the manufacturer of my choice of chainsaw has realised that online box shifters with sophisticated websites sporting in-depth video reviews of everything they sell and even comparing brands are more important to their bottom line than local specialised dealerships giving pointless advice that is just thinly disguised up-selling.
So what is different about this brave new world of retail? With his last order, elderly Ken bought one thousand chainsaws.
Thanks Ken!
We got chatting and I knew how difficult it was for our local dealer to get these items and how hard it was to match any online prices. Our local dealership, despite having a turnover of over £40m, just cannot match this guy's online prices. They just don't buy enough stuff and they would be better off buying online than buying from the manufacturer! So I had to ask my new friend how he manages to sell at such low prices - and after some umming and erring, he told me - and I'll tell you in a minute.
Inflation is up. Interest rates are heading north, but by no means can they go anywhere near any figure that could tame true inflation. And as it takes about two years for newly printed money to enter the real economy, all that QE from the past two years will only start to erode your bottom line this year.
True GDP as measured by the amount of goods and services created (i.e. NOT nominal GDP as measured in pounds) has fallen since 2019. Homeless figures are up everywhere. True unemployment (as measured by the percentage of people not in full-time employment) is up and rising. An energy price shock is coming down the line and is unstoppable. House prices are off to the races.
But it is all that loose money that is still washing down the mountainside that is scary! It has to go somewhere - and that somewhere may be in more stockmarket craziness.
When the fund managers see that none of the central banks are able to tame inflation without bankrupting their governments and that reserve rates will remain well below inflation levels - even well below the bogus figures put out by government departments like the ONS - those fund managers may start to say to themselves "Jeez, the Fed, the BoE and the ECB are toothless, clawless and clueless tigers. Let's load up with cheap money and have another share buying binge before the bubble bursts!"
We all know that PE ratios are too high and the world's stock markets are in a bubble as prices are too high for the underlying fundamentals of the companies involved. We also know that some of the big tech companies more or less doubled in value since the outbreak of C19 madness.
I'm not saying that is what will happen - I'm just saying that is what MAY happen when the markets realise that the only central bank that is going to fight inflation is in Moscow. All other central banks have negative interest rates in real terms - i.e. nominally positive but far less than inflation. And don't forget that true inflation is always about double the official figures for CPI because the basket of goods and services used to measure inflation is constantly being changed.
All that QE currency has to go somewhere and the market may melt-up before it melts down!
There is an old saying in economics - the cure for high prices is high prices. In other words, the market regulates itself. The cure for high share prices is a market correction. You may call it a bubble bursting or just a price deflation. You can call it whatever you like, but what goes up, must come down. The cure for Alphabet Inc. at $3,000 is Alphabet Inc. at $1,000.
The cure for high energy prices is high energy prices - and not price controls. But our schoolboy chancellor will have noted the support from former chief whip Mark Harper, (who praised his "realism and honesty"), and Blue Collar Conservatives founder Esther McVey (who said she was "grateful we have a chancellor who is in touch", with families struggling on low incomes). Sunak is within touching distance of becoming Prime Minister. One Tory MP close to the 1922 Committee believes they are "within single digits" of the 54 threshold.
Johnson himself rejected calls to resign over 'partygate', telling The Sun that he will seek re-election in 2024, as he strives to 'level up' the country with The Govenator Plan. Tories are wondering if the prospect that Johnson could be out of office soon is the reason why Michael Ashcroft is publishing his biography of Carrie Johnson on March 22, instead of just before the Conservative Party conference. After all, few people will want to buy a biography about the wife of a former prime minister. The cure for Johnson's tomfoolery is even more of Johnson's tomfoolery.
And the cure for my local dealership wanting £1,600 inc. VAT for a chainsaw is an online shop selling me one for £1,125. If we strip out the VAT, that is £22.50 under wholesale list price. Along with many manufacturers, the manufacturer of my choice of chainsaw has realised that online box shifters with sophisticated websites sporting in-depth video reviews of everything they sell and even comparing brands are more important to their bottom line than local specialised dealerships giving pointless advice that is just thinly disguised up-selling.
So what is different about this brave new world of retail? With his last order, elderly Ken bought one thousand chainsaws.
Thanks Ken!
