Hofstatler's Law & The Misery Index

Why It’s Worse Than You Think
For months, economic Pollyannas have looked beyond the dismal headlines and promised a quick recovery in the second half. They're dead wrong.

This headline so reminds me of one Murphy's Laws.

Hofstatler's Law
Things always take twice as long as you anticipate, even if you take into account Hofstatler's Law.

Using a variant of Hofstatler's Law, the economy must be twice as bad as I think. Here's the rub. Now that I have concluded that the economy is twice as bad, the economy must therefore be four times as bad, and so on. No wonder things can easily spiral out of control.

That's just a theory though. The only thing we know for sure is that the economy is worse than I think. It says so right in the headline. I'm really sorry to tell you this. We clearly would have all been better off if I thought the economy was doing a lot better and/or I simply stopped thinking.

By the way, if you happen to think the economy is even in worse shape than I do (seems unlikely but it is always possible) then it would be even worse than YOU think. If so, please do us all a favor. Stop thinking. No good can come of it. Trust me on this. I'm already feeling VERY guilty. My misery (index) doesn't love companies.

The Unwelcome Return of the Misery Index

TIME TO BRING BACK THE MISERY INDEX? The MI was always a rather crude combination of a proportion (the unemployment rate) and a rate of change (the inflation rate). But the sum of these two unhappy indicators can serve as a rough measure of economic pain.

Take the recent 3.9% reading on year-over-year consumer price index inflation, add May's 5.5% jobless rate, and you get a misery index of 9.4%. While far below the peak -- which topped 21% in mid-1980 -- the MI can be regarded as a harbinger of the economic outlook over the next year or two.

That outlook is for stagflation: inflation combined with slow or stagnant growth and rising unemployment.

Once again using Hofstatler's Law, it seems I'll be keeping my stagflationary name twice as long as I originally thought, and so on. That isn't a good harbinger if true. I bought 20-Year TIPS and 30-Year I-Bonds in January. Heaven help the deflationists.