Inflation is when the price of things goes up right? No. Inflation is when the supply of money is greater than the demand of money. Insert head explosion image here.
The Fed said, “Healthy Inflation”. So that means inflation is good, right? No Inflation is bad. Inflation robs you of your hard-earned dollars. Ronald Reagan said, “Inflation is as violent as a mugger, as frightening as an armed robber, and as deadly as a hitman”.
If inflation is bad, then why have it? Because deflation is worse. Deflation is obviously the opposite of inflation. Goods get cheaper. Without getting too deep into this, let’s just agree that an economy does well when everyone’s buying goods and services. Everyone is busy, making money and jobs are prevalent. Governments get more receipts in taxes from all the trade and wages, and everyone feels happy. When an economy is in deflation, people put off purchases because the presumption is that things will be cheaper later. Less trade, means less jobs, means everyone’s unhappy. Stimulus measures are less effective because people will tend to hoard cash rather than spend it.
The Government’s role in inflation is to try to balance the speed of inflation by their many available tools. The most widely known tool is the Fed Funds rate, which is the rate at which banks borrow money from the Fed. The easiest way to slow growth is to increase the cost of borrowing. The more expensive it is to borrow, the less loans people are willing to take.
CPI is the measure of inflation. Core CPI is the same thing without energy and food prices. The reason most economists look at Core CPI is it takes out the two most volatile products. People are starting to see inflation in gas and food prices, but these I would argue are not generated from economic growth, but rather governmental environmental policies, and employment and supply shortages left over from the shutdown.
Most of us remember the 80s with mortgage rates that were in the high teens. CDs were paying 14+%. That’s the fear that most have when we think of the effects of inflation. My view is that today’s government (Fed) has a better handle on the tools that are available to not let situations like this occur again. Not saying it can’t happen, but we have the benefit of hindsight this time around. If they only took the microphone away from Jerome Powell, I think half our problems would go away.
The technological age has and will continue to help keep inflation in check. Phones, computers, TVs are all way cheaper than they were before, and the price continues to drop. These tools (well except for TVs) make us way more productive than we were in the last inflation boom. The next era, fueled by AI (artificial intelligence), will continue the inflation hedge that this technological cycle has given us. Driverless cars, remote surgeries, robotics to manufacture, the applications are endless and can span to almost every sector of the economy.
Ok. Here we go to summarize.
Inflation is not things going up, it’s a greater money supply than the demand for money.
Inflation is bad, Deflation is worse. The Government’s role is to keep inflation from getting out of control, and preventing deflation.
Core CPI doesn’t have food and energy in it because it’s volatile and is easier to manipulate depending on the will of an Administration.
Technology will continue to be a welcome wet blanket on inflation.
Family….Remember, for those of you that don’t have a husband, wife or kids (lucky you – you probably still have your hair), friends count in this area. I read a book this week from a hilarious couple, Kim and Penn Holderness. They have a very cool Podcast self-titled, “the Holderness Family”. They discuss everything from parenting and relationship advice and answer listener questions, even the inappropriate stuff. Nothing seems off limits, but they do it with self-deprecating humor, which is probably the trait I look for in long-term friends. You just can’t take yourself too seriously.
Although they released a book titled, “Everybody Fights, So Why Not Get Better at It?” That is basically a book on their relationship story, and how they managed to not only stay together through their many, many fights, but thrive through it. Their real claim to fame is the videos they release of the family in matching pajamas. They did a YouTube that went viral a couple of years ago right when the song “Baby It’s Cold Outside”, was in the news for being inappropriate. Their skit on it literally made me cry with laughter. Check it out Baby, Just GO Outside – YouTube
Anyway, listening to their podcasts and reading their book, in an effort to be a better husband, father and friend, I stumbled across a few ideas that I hope to deploy (can’t say them out loud till after I’ve done them with my family), and a number that we have actually already done. In my case, buying the RV just to force my kids to hang out with me was something they have done. Ensuring you have traditions was not something I implemented till the kids got older, (looking back I wish I would have started earlier), but also something that’s never too late to start. Get ready for the another TurkeyTrot 5k on Thanksgiving morning, kids.
For decades now I’ve read books educating myself on economics, portfolio management, and consume everything written by a handful of investors I respect, because I thought that money was the most important thing to my family’s success. I’ve never read anything committed to improving my relationship skills with friends and family. This was my first but won’t be my last. Family is in the center of most of our lives, but at least in my case, has not received the commitment to improvement it deserved. Those days are over. Also take a look at their website has all the funny videos and some merchandise that’s funny in itself. Home – The Holderness Family
Mick Graham, CPM®, AIF®
Branch Manager Raymond James
Financial Advisor Melbourne, FL
The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Mick Graham and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Individual investor’s results will vary. Past performance does not guarantee future results. Future investment performance cannot be guaranteed, investment yields will fluctuate with market conditions.