Memorial Day Perspective

Memorial Day Weekend is a special time for most Americans. As citizens we honor the military personnel who have died performing their duties while serving in the United States Armed Forces. The holiday is, in its essence, an expression of recognition and gratitude. Recognition of and gratitude for the blessings we have been given, and recognition of and gratitude for those Americans who sacrificed their lives in the service of those valued blessings. When I reflect on the meaning of Memorial Day, I always think back to a scene at the end of the movie Saving Private Ryan. After having been mortally wounded, leading his mission to save Private James Ryan, Capitan Miller, moments away from death, grabs Private Ryan and pulls him close. With his dying breath, he implores Private Ryan to “earn this.” The scene conveys a beautiful sentiment that can inspire Americans to live our gratitude by aspiring to “earn” the blessings we’ve been given everyday anew.

While Memorial Day is always special, it likely carries even more significance this year after Coronavirus conspired to largely cancel the social aspect of last year’s holiday. Along with the advent of the summer months, this year we can all be additionally grateful that road trips and barbeques are back on, and that many people are free once again to share time with each other.

So, there are many wonderful year-over-year changes to be thankful for this year, to be sure. Unfortunately, however, there are some year-over-year changes starting to show up, and now on display this weekend, that may be less welcome. Looking at the latest U.S. bureau of Labor Statistics numbers for US city average retail food and energy prices, this year’s road trip and barbeque may be noticeably pricey.

If you’re heading out for the long weekend, you may be relieved to be getting out of the home where residential fuel oil (+36.3%), utility piped gas (+13.4%), and electricity (+4.5%) prices are all up from last year. That relief may be short lived, though. Before even getting to the grocery store, you’ll be filling up the gas tank with regular unleaded gasoline that’s 51.3% more expensive than last year. If the gas prices sour your mood a bit, then, unfortunately, your mood is probably not going to improve much at the grocery store. Strolling the food aisles, you’ll be confronting more of the same. Some of the notable price increases you will find are white bread (+7.4%), ground beef (+4.6%), beef steak (+8.9%), boneless pork chops (+7.8%), boneless chicken breasts (+7.9%), and bacon (+16.3%). If you pair the beef steak with wine, that bottle on average will cost about 11% more than last year. Ground coffee for the morning will cost you an extra 8.1% from a year ago, and if you want to add milk and sugar, be prepared for those items to both cost 5.5% more as well.

Higher than expected prices have been the story with all the latest government inflation statistics. The most recent CPI data shows inflation running at a 4.2% clip, while producer prices have shot up 6.2% from a year ago. On Friday, we got another data point as the Commerce Department released Personal Consumption Expenditure (PCE) data. PCE is generally considered a wider-ranging measure for inflation, capturing a broader scope of prices than the Labor Department’s consumer price index. Core PCE (excluding food and energy) for April came in at +3.1% year-over-year verses expectations for a 2.9% increase. The 3.1% increase is the highest reading since 1992. All three inflation measures, CPI, PPI, and PCE, have all come in higher than expectations as analysts continue to underestimate the degree of price increases.

Some other notable news on global commodity prices this week involved the Chinese government’s continued warnings over onshore commodity price speculation. After months of surging prices, the recent pullbacks in a number of commodities have been linked to market jitters over the attention China has been giving to cracking down on surging commodity price inflation.

This past week, in response to the China/commodities developments, Goldman Sachs weighed into the fray. Goldman’s head of commodities, Jeffrey Currie, released a note saying that the pullback in commodities after China’s warnings to speculators is a “clear buying opportunity,” adding that the “bullish commodity thesis is neither about Chinese speculators nor Chinese demand growth.”

As for weekly performance: The S&P 500 was up 1.16%. The yellow metal was up 1.52%, ending the week above $1,900. Silver added 1.89%, closing the week over $28. Platinum was up 1.11%, while palladium was higher by 1.63%. The HUI gold miners index slipped 0.43%. IFRA, the I Shares US Infrastructure ETF, was up 0.39%. Energy commodities were higher on the week. Oil rallied 4.31%, while natural gas prices were up 0.30%. The OIH oil services index was up 0.06%. The CRB Commodity Index was higher, up 2.40%. Copper bounced back, up 4.46%. The Dow Jones US Real Estate Index ended the week higher by 1.87%, while the Dow Jones Utilities Index was down 1.23%. The dollar was flat on the week, down 0.01%. The yield on the 10-year Treasury was down 5 bps.

Have a wonderful weekend!

Best Regards,

David McAlvany
Chief Executive Officer
MWM LLC