Click to enlarge.
From 1960 to 2013:
1. 2009 was the worst year for disposable personal income growth per capita. It was also the record low year for consumer price inflation.
2. 2013 was the second worst year for disposable personal income growth per capita. Once again, inflation came in below expectations.
The following chart shows recent annual disposable personal income per capita growth. I'm using the monthly data instead of the annual averages this time to more adequately show all the gory details.
Click to enlarge.
January 10, 2014
Fed's Bullard: Inflation to pick up in 2014
WASHINGTON (MarketWatch)-- St. Louis Fed President James Bullard said Friday he expects inflation to pick up this year, despite having been surprised by lower prices last year.
1. Good luck on that inflation theory!
2. Brace for more surprises!
jjchandler.com: Tombstone Generator
Click to enlarge.
This is not investment advice, but damn.
Source Data:
St. Louis Fed: Custom Chart #1
St. Louis Fed: Custom Chart #2
My current take on inflation is that basket of goods the Fed considers for inflation calculations simply can't inflate due to demographics, credit saturation (all credible future promises have been extracted from the willing) and wealth inequalities.
ReplyDeleteWhat's interesting about the current dynamic is that wealthy people can (as a group) create inflation in specific areas on a whim. Since 2008 we've had massive runups in oil, gold, farmland, agricultural products, prime real estate (e.g. Hamptons or London), famous artwork, digital currencies, etc. Inflation in many of these asset classes is completely benign, but when speculative interest centers on something used in the real economy (e.g. oil) the effects are catastrophic.
So, I think we might be stuck in a weird situation where attempts to acquire claims against the future by buying things most people consume quickly blow up because the natural consumers of those things are completely tapped out. OTOH, while inflation in the remaining asset classes is relatively benign, there's no fundamental support for a particular price level so there's always a fear that the current fad will end.
Nathan,
ReplyDeleteYour take very much matches my own.
What's interesting about the current dynamic is that wealthy people can (as a group) create inflation in specific areas on a whim.
I think this is a key point. It also applies to deflation. I offer myself as an anecdotal data point.
I don't consider myself to be wealthy (I can't afford not to be frugal), but on one day in 2004 I put 1/3rd of my investment net worth in physical gold and silver. It was definitely on a whim.
In 2006, I undid that trade after a 50% gain. It too was on a whim. It took a phone call to buy and a phone call to sell.
OTOH, while inflation in the remaining asset classes is relatively benign, there's no fundamental support for a particular price level so there's always a fear that the current fad will end.
At least for me, I have that fear regarding all asset classes that could require me to find a greater fool, be it stocks, housing, oil, gold, or silver.
I fully intend to hold long-term bonds (TIPS and I-Bonds) to maturity. The return won't be great, but at least I have a good idea what I'll be getting (apocalypse notwithstanding).
The little guy with few assets has little opportunity to lock in a long-term standard of living like the wealthy.
Once again, I'll use myself as an anecdotal data point. When I was 24, I had no net worth. At that time, had I thought physical gold was a great asset, I could have scrounged up enough to buy a single ounce at most. Additional ounces could have been only accumulated over time (which can be extra risky if the price rises at a steep pace as others accumulate too).
Accumulating over time is not a concept the wealthy need to worry about. They have the resources to go all in and/or all out, as you say, on a whim. That can be a huge advantage.
Bonus thought.
ReplyDeleteI graduated college in the late 1980s and was debt free at the time (no net worth).
My anecdotal example at age 24 actually makes me cringe. With skyrocketing student debt, many people graduating college these days aspire to have zero net worth. Sigh.
I didn't buy my first house (and only house so far) until 1997. I was 33 years old. I wanted a stable job and at least some financial security before doing so. I put 20% down. In hindsight, my job was far less secure than I thought. Although I worked there for roughly 6 years, there were many rounds of layoffs (kept surviving them) shortly after I bought the house. Talk about bad timing.
To make matters worse, I got married when I bought the house. Thought I could count on two incomes. That was sure a pipe dream. I've never seen so much spending. And no amount of spending seem to satisfy.
The marriage didn't last long (less than 2 years). Had I not had other investments at the time, even my relatively conservative strategy could have easily led to bankruptcy. What a stressful time that was.
And people wonder why the housing bubble popped?
If you look at ZIRP in real terms then shouldn't we say that borrowers are being subsidized by over-aggressive investors? Maybe everyone is just trying to move their way up in the capital structure after the big stock crashes in 2000 and 2008.
ReplyDeleteI think what we really have is 10 years of NIRP and...I don't know what else we may have.
Luke the Debtor,
ReplyDelete10 years of NIRP indeed. You might find the next post interesting.
I will be comparing the 3-month treasury bill yields in the aftermath of the Great Depression to the 3-month treasury bill yields in the aftermath of the Great Recession.
NIRP is alive and well. In my opinion, we'll have it for a LONG time.