Home > Uncategorized > Two inflation metrics – U.S. 1991 – 2020

Two inflation metrics – U.S. 1991 – 2020

2 inflation metrics

Source   “In the picture below I show the growth of $100 due to inflation using the traditional inflation metric (PCE deflator) used by the Fed in red, and an asset price adjusted metric, where the PCE deflator and the S&P 500 are equally weighted.”

  1. September 17, 2021 at 6:54 pm

    so we’re in the middle of the “mother of all stock price bubbles??”

    • John Behrens Jensen
      September 17, 2021 at 9:21 pm

      We might have a crash if Neoliberalism is overtaken by a “we care for you” generation where wages increase to reflect a more natural rate of wage inflation similar to what it was between WWII and 1980 – just because corporate profits will plunge. For now the markets are likely to peak as the DOW reaches around 38,000 points. That’s because this is a natural risk adjusted rate of equity from 1929 until now (of around 9%). But, let’s say that wages were to quickly inflate at a rate about 2% per year above the PCE Deflator for each of the past 40 years (to a minimum wage next year of around $22) it would mean greater optimism, savings and greater demand for housing = a greater demand for equities. Then it’s more likely we might be facing an up to 15,000 pt. crash in the DOW during a short transition period as everyone adjusted to “we actually care that people have a living wage”). In other words, I’m guessing we have a major adjustment coming up but unless all DOW listed corporations are drastically revalued (their assets are restated or their revenue prospects are impaired) the DOW listed stock market prices are not really in “long term” danger. All that said I’m still planning on moving to around 40% cash around the end of the month. I figure we could easily have a 20% correction and “A crash is great if you’re in cash.” The NASDAQ is more likely to crash since it’s grown nearly 500% in 2 years and that’s where earnings have nothing much to do with share prices – so don’t be there if the P/E is too high,

      Correct me if you think I’m wrong!

      • Ikonoclast
        September 18, 2021 at 12:53 am

        The markets can remain irrational longer than you can stay solvent. – John Maynard Keynes.

        Markets can also be pumped longer than you can stay solvent, including by government pumping like Q.E. Also markets can be dumped at the time the major market players decide to orchestrate the dumping. Pump and dump by the big players controls runs both ways. Small players have to play a different game and not one which presumes that markets work to objectively to value “real values”, whatever they are.

        As the Capital as Power analysts indicate, the major players administer prices. The stock market prices are also administered, albeit complexly, by a cabal of large corporations and oligarchs and by captured governments giving them lots of free money (corporate welfare, and free creation of negative externalities) plus interest free money (Q.E.)

        The whole system is corrupt and rigged. Proceed on that assumption. However, they control the timing of major moves, not you as a small investor. So you have the timing problem. How long are you going to stay in casg to await the crash? That’s a valid question.

        My son is an investor. He made 45% annual returns for several years in a row but in this calendar yea his returns would be lucky to be 5% so far. The stock market is a calculated gamble for the small active player. For the big players it’s a money printing machine.

        As an active small player you need targeted due diligence on tech start-ups, undervalued techs and real estate, commercial and residential, to name some basic areas. You need to be really good at this. My son spends weeks to months on due diligence for each investment. He also uses kelly betting and hedging techniques. You need advanced tertiary math qualifications which he has. He’s not quite a finance “quant” (Quantitative Analyst) but he’s not far off.

        Otherwise you hedge in standard investment instruments (portfolios which hold tranches of assets) and hope that the whole CDO (Collateralized debt obligation) issue does not rear its ugly head again at least in relation to real estate. 40% in one asset (cash) does not sound like hedging, it sounds like gambling. Get the gamble right and make a lot of money (in the differential movement and divergence of cash and shares). Get the gamble wrong and you mark time or lose money. Marking time can be good enough if you are not young. Just my views and I am not an investment adviser. Most who claim to be investment advisers are shysters anyway, IMHO. The whole system is very close to a new round of gangster capitalism, even or especially in the West.

        https://monthlyreview.org/2000/02/01/the-necessity-of-gangster-capitalism/

  2. Dave Raithel
    September 18, 2021 at 3:11 am

    “I sense some physics envy from macro-economists in their effort to make economics like Newtonian physics with a few simple equations. But since people with moods, manias and panics make the economy and the markets, not inanimate unthinking atoms and molecules, it seems silly to try to boil economics down to physics.” I do love me some irony.

  3. John Behrens Jensen
    September 18, 2021 at 7:57 pm

    You seem to use a lot of terms that equity investors like myself don’t bother with and you offer a lot of advice which is all biased towards not having any skin in the game. So you use your son’s investing as a guide. And, yes your son did well while you’re too scared to try. So, you use a number of straw men to change the argument to favour your opinion on something you know very little about and wish to avoid. BTW, your son gets 5%, what did you get on your bank account and what Banksters are you using?

  4. Ken Zimmerman
    September 21, 2021 at 11:43 am

    Now explain inflation like the ‘person in the street’ knows it. Bet you can’t.

    • John Behrens Jensen
      September 21, 2021 at 5:42 pm

      Investors are not people on your street – they are on Wall Street. So why would they understand that investors require a return of 9%/year on average to assume the risks associated with equities. Your risk avoidance level is so high you are not even in the markets. So, I did explain why there is likely no unexpected inflation of the DOW – we need 9%/year. But, the Wiltshire 5000 is too broad to comment on – it’s so broad that it includes the market value of all American-stocks actively traded in the United States (and, it’s history is too short to base predictions on). The 5000 includes the Nasdaq, which I do feel is over-valued. But, we do know that people with money in the DOW and TSX (like your son who made 45% last year) “are” making money – which you were brave enough to mention.

      Now, why don’t you logically explain why you disagree – bet you can’t?

      • Ken Zimmerman
        September 23, 2021 at 11:13 am

        John, people other than the ‘Wall Streeters’ have their lives impacted and changed by something called inflation. For many of them, it’s more a matter of survival rather than a disruption of recreation; or a renewal of recreation.

        The inflation index created during the 1930s with its evolving ‘typical” basket of goods was once the ‘go to’ assessor of inflation. Since it was the only inflation indicator. For many parts of America that link is ever more tenuous, however. Amazon.com, eBay, Google have some connection to consumer incomes and employment, but much less than you’d think. Their need to gauge future spending based on the traditional indicators is marginal and becoming more so with every passing day. The questions they have are best answered by their own expanding database of information that flows to them from their customers, and not on whether inflation is up or down and whether the GDP of any particular country or market is expanding.

        Inflation and other indicators are changing. How and how fast remains still unclear.

  5. Craig
    September 21, 2021 at 6:25 pm

    To start with financialization/playing the market needs to be much better regulated. Secondly, why not have the formation of “Green” government bonds at a rate of 4-5% which would capture a lot of the increased savings generated by the dual policies of a universal dividend and (twin) 50% discount/rebate policies at retail sale and point of note signing. A new paradigm of Monetary Gifting opens up so many opportunities to do the rational and problem resolving thing. It enables an investment zeitgeist of stability, wisdom and ethics rather than “what is the next killing?.”

    • John Behrens Jensen
      September 22, 2021 at 7:41 pm

      What would be better regulation and who are you regulating better? A bond should reflect the ability to earn and pay out interest. Do you really think there is a 4-5% return possible on green investments – please tell us where? I have 15% of my portfolio sitting in green focused utility companies and not getting a 5% return. How are you proposing to create a green bond issue that won’t default? I know it’s easy to dictate a “should” but I’m just curious if you actually know something the rest of us don’t?

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