Not a Whole Lot of Inflation Going On
I get a kick out of the media’s search for a reason for every movement in the stock market Knowing the numbers that are driving the markets like I do, sometimes I wonder what they have been smoking. Last Tuesday’s headline was typical:
“Inflation Jitters Hit Stocks“
Most of you know me well enough to know I have a contrarian streak, and that I can be a critical reader of news, especially financial news. I am skeptical because the news is often the tool used by institutional investors to get us down here on main street to take the other (wrong) side of the trades they want to do. Remember, each seller needs a buyer and each buyer needs a seller. It takes a lot of individuals to buy all they are selling, and the media is their way of recruiting us all.
When I see something that sounds good on the surface, but contradicts the facts, like this headline did, it makes me worry that someone is trying to pick my pocket.
Here are the facts:
The Consumer Price Index shows what we have been paying recently for various goods. The CPI shows inflation in the 2-3% range. Not bad at all. The average since World War II is about 4.3%, so by that measure we are doing better than average by quite a bit.
The Producer Price Index is the wholesale version of the CPI and often provides a glimpse into the future for consumers like you and I will have to pay for goods being produced right now. A 1% rate means that there is not much inflation to be worried about, and deflation may be the bigger problem.
If you search Google News for the term “inflation pressures” you will see 2,511 entries. Inflation often accompanies overheated economies, and the press is certainly concerned about that, with over 2,500 articles about inflation pressures. Interesting, since inflation, from the data, is a non-event.
Furthermore, if you search Google News for “deflation pressures” there are no responses.
Hmmm. The contrarian in me says that if everyone is doing one thing, and the data says that ain’t happening, perhaps we would be better off investing for a different outcome.
As the media has been talking up inflation, I’ve mentioned in several past articles that the bond markets were telling me to prepare for a business slowdown next year. Business slowdowns cause the price of goods to decline, not rise, as business demands less energy, copper, office space, employees or whatever.
The charts above are one more indication that business is actually slowing, and when that slowing begins to show up in company earnings reports, watch out!
Stay tuned . . .