"...and when cuddling have someone bring me a doughnut.” - Commentary - September 2016
As a kid when I was faced with the option to play sports or read it was a no brainer…I played sports. It wasn’t until college that I started to love reading after being forced to take philosophy, drama and history classes as electives at Northwestern. When I say forced I mean it…until then my list of best reads were Sports Illustrated and books about sports. That’s said; today’s liberal arts degree gets bashed for these type classes for not only cost reasons but being irrelevant for the development of the skills necessary to succeed in today’s 140 character, multi-tasking, reward me now for little effort culture. If you asked me then I would have bashed them as well though today I am eternally grateful for the mandatory, forced introduction to the joy of reading.
Fortunately my kids are wired differently than I was at their age. They read anywhere and everywhere…an amazing attribute that I can stake no claim to from a genetic contribution standpoint. As example, my 8 year-old daughter Olivia and I have recently had a mandatory (for me) nightly reading of “Weird but True Fact-A-Day Fun Journal” by National Geographic. I don’t actually read but lie next to her as she reads everything aloud interrupted only by questions like how to pronounce chionophobia (fear of snow). The book also has questions that my daughter turns to me to answer first. I generally respond with doughnut or cuddle as an answer to virtually everything to which she laughs and then responds on her own. Well, last night one question was, “If you could have three superpowers what would they be?” I said, “Turn anything into a doughnut, be able to cuddle at any point of the day, and when cuddling have someone bring me a doughnut.” She laughed then responded, “Fly, play any instrument and make money.” Aspinctersayswhat?!?!? “Make money?” I asked. She responded, “Yes, so I could make $1 million.” I knew I was in there somewhere!
As expected my mind quickly began to wonder about money printing and how confounding it is to us to hear everyone talk about the lack of inflation out there. After all, we were also taught in college that printing money causes inflation: supply and demand…more money chasing fewer goods…etc. etc. See, Janet Yellen and her central banker Justice League of Superheroes around the world actually got wish number three eight years ago…and printed…get this Olivia…one million dollars…18 million times!!! Now those are superheroes worthy of a major film deal and Halloween costumes! So why is it every central banker and nearly every politician in the world continues to tell us there is no inflation? We have our own thoughts but let’s first look at the data.
Take a look below. We have compiled 10 year annualized, 5 year annualized (sorted by) and one year changes in a whole slew of commodities, services, and just plain everyday expenses. We also have a chart depicting the weightings of the PCE and CPI; the preferred metrics with which our beloved central bankers use to describe the inflationary picture in our economy. A few things clearly stand out. First, the three big winners are the Fed’s balance sheet, the S&P 500 and health care premiums/deductibles. As a small business owner I can speak to health care costs as I have been paying our premiums for our high deductible plan for 8 years. Now I’m no genius but as an employer facing increases anywhere near these amounts I would either push the cost onto the employees, raise the deductibles provided to lower the cost or not give anyone a raise. The data provided is in direct agreement. Paradoxically, as the government forces premiums higher in an effort to provide care for everyone they have removed all competition in the process. No competition, in conjunction with one of the only industries in the world without any pricing transparency and prices have skyrocketed, wages and growth have stagnated and the probability of their own policies down the road generating votes has fallen. Populism here we come…but I digress.
But if shelter, medical care and housing are all up significantly over a ten year period including 2008 then something must be going on more so than the remarkably consistent, slow and steady rise of owners’ equivalent rent, CPI and PCE as depicted by the BLS statistics. The real world is clearly missing from the government data set. Sure food prices are down recently but that doesn’t explain the smoothing of the composite returns. Has anyone noticed their meals out being any cheaper than a year ago? Not likely. See, central banks want/need inflation to force people to spend money and lessen the unabated global sovereign and corporate debt burden. Years ago, our central bank convinced other central banks that zero rates and more debt would solve the zombie-inducing effects of 0% inflation. Oh, the horror! But it didn’t! So they kept printing, enacted more regulations and killed wage growth in the middle and lower class. The problem now is it has taken too long and a large increase in inflation without growth would be disastrous for governments, corporations and individuals and the debt they have accumulated. As we have said before, if inflation does for some miraculous reason show up in the BLS data the markets are going to have a real bad day: likely resulting in Professor Yellen assigning the “True Fact” section about the origin of “between a rock and a hard place” to explain her position to all global investors.
I told Olivia about the money printing and told her the not so true fact that if she was Janet Yellen she could print all the money she wanted. She said, “Wait…really?” I said, “Well, yes but you wouldn’t get to keep it all.” “Awwww…Could I still buy a big stuffed bear and doughnuts?” I cuddled up and said, “Absolutely.” Stay hedged.
