Thoughts on Inflation

Welcome to This Week’s Leyendecker View

Government’s view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.
– Ronald Reagan

THINKING OUT LOUD

Thoughts on Inflation

In June of 2022, monthly inflation peaked at 9.1%. As of last month, inflation had subsided to 2.7%.That’s a measurable drop, and a very welcome drop for the average person. But for some reason, the Federal Reserve really wants to get inflation down to 2.0%. Let’s assume they know why more than we know why.

Inflation seems to be plateauing above the Fed’s 2.0% goal. Are we in a situation where the low hanging fruit has already been picked, and now it will be harder to tackle that last bit of inflation? Just a few months ago in September, inflation was at 2.4%. Now it’s tracked back up a bit.

Or are we about to experience another bout of inflation as incoming President Trump uses tariffs to reduce our massive trade surplus and return some manufacturing back to the US? Tacking on tariffs would seemingly cause prices to rise again.

Lots of pundits are calling out Trump on this tariff approach to MAGA. Should he implement any tariffs, they would certainly have an inflationary influence. They likely would cause prices to rise but then theoretically stop rising as the US updated its manufacturing base. The former seems a sure thing. The latter, maybe not so sure.

Could there be another reason we are about to experience a new bout of inflation?

I was recently reminded of this possibility after seeing a chart of current inflation overlaid onto  1970’s inflation data. Today’s trend lines look eerily similar to those of the 1970s. If the same 1970s situation plays out today, then we could have another bout of inflation in the next couple of years.

How would this story play out? Let’s ponder…

Some catalyst(s) would cause inflation to rise. Then central banks would tap down consumer demand with higher interest rates, which would then help inflation subside. This is what we saw play out in the past couple of years.

But there’s a lag effect. 

Once workers feel the pain of higher prices, they naturally demand higher wages. Unless there is massive unemployment, where workers have little leverage, then companies are forced to increase wages. To pay for those increased wages, companies increase prices.

Now we have two inflationary forces to trigger a second bout of inflation—consumers with more wages and companies raising prices.

This may have been what happened in the 1970s. After that second bout of inflation surfaced, then Fed Chairman Paul Volker pushed the country into a hard recession. This recession caused unemployment to reach post-war highs. With high unemployment, labor no longer had the leverage to demand higher wages. This killed a potential wage-price inflationary spiral.

Are we about to experience something similar? Maybe, but maybe not.

Because of technology, our current “fix” should, theoretically, be higher productivity—more output for less labor input. If productivity increases, then companies don’t have to raise prices, and labor doesn’t feel the pinch to ask for higher wages again.

But how does increasing productivity play out in our services-based economy? How do doctors, dentists, housekeepers, yard crews, electricians, plumbers, fishing guides, massage therapists, restaurants and entertainment industries increase productivity enough to halt price rises? Has anyone seen any price declines in service industries?

Even if technology and AI does improve productivity enough to counteract any inflationary influences, when would that be? Would it be now, as labor seeks greater wages that may lead to price increases?

After Volker tamed 1970s inflation with a hard recession that put labor on the defensive, globalization—with its unprecedented scope and scale in productivity and efficiency gains—showed up, putting American labor even more on the defensive.

Globalization really killed inflation, but not enough to save the American middle class from an efficiency onslaught. This Pew Study suggests our middle class has been shrinking for five decades now, which means wages have not kept up with inflation for decades. But globalization showed up AFTER Volker had to tame inflation.

Technology and AI may replace globalization’s hammer on labor and wages. But just as we experienced in the 1970s, this increase in productivity may not occur in time to tame another bout of inflation. Even when these potential productivity tools do start reducing inflation, if the trend of a shrinking middle class continues, we may have an even bigger problem on our hands. 

THE ECONOMIC VIEW

Inflation ticks up in November
November PPI also ticks up
Home insurance costs will keep rising

More restaurants are going bankrupt
Is cooking at home trending?

Lower-income consumers in trouble
Credit card borrowing surges
30% of credit card users
Still haven’t paid 2023 holiday debt.
Personal savings rate is not good

THE LABOR VIEW

The secret to hiring great leaders
Warren Buffett wisdom.

New grad job market is not great.
Over 40% are underemployed

Layoffs are growing.
Over 55K in November

MEANWHILE IN EUROPE

Trump wants European troops in Ukraine
It’s not the US’s job.
EU states discuss upping NATO spending

Winter will not be kind to Europe.
Gas and power prices go back up
A trade war will not be kind either

The EU keeps bankrolling Putin
What a bunch of hypocrites!

THE GLOBAL GAME

Donald Trump, the new imperator
Is Trump the catalyst for global change?

Argentina’s turnaround is happening
Suggests Milei, one year after inauguration.
His “contempt for the state is infinite”

Top bankers are bullish on US
Europe has “structural challenges.”

THE UKRAINE FIRE

Ukraine’s energy infrastructure pummeled
Putin is going all in.
Russia’s bombardment is relentless

Ukrainians are sick of the war
But 70% support entry into NATO
Ukraine struggles to recruit soldiers
While Russia recruits from allies

Russia has killed 43,000 Ukrainian soldiers
At least, perhaps tens of thousands more
And what about the civilian deaths?

THE GAZA FIRE

Israel building bases in central Gaza
Planning to be there for a while.

Can Elon Musk restart Gaza talks?
The Israeli president asks for his help.

THE FIRE SPREADS

Syrian rebels take Damascus
Damascus erupts in joy
An 11-day blitz brought down Assad

Are Iranians starting to question their leaders?
Are the Mullahs going to get ousted?
Iran made a historic mistake
The Middle East’s dangerous new normal

THE SLIPPERY SLOPE

US conducts ballistic missile defense test
Preparing for the inevitable?
Mysterious drones fly over sensitive US military sites

Taiwan is on high alert
Is China about to make a play?

Has the war in space already started?
Sure looks like it.

FINANCE

PE secondaries market is booming
Investors think higher values are coming.

IPOs are so passé.
Private deals make shareholders rich

The new titans of Wall Street
They’re changing the ecosystem.

REAL ESTATE

Shopping malls-turned-apartments
A video tour.

Characteristics of new housing in 2023
Some interesting data.

Chicago homeowners are losing big
Who wants to buy a house in Chicago?

THE TECH WORLD

Amazon is starting to sell cars
Look out, auto retailers!

Google has a new quantum computer chip
With mind-blowing speed.
Its applications may be endless
It points to a world of multiple universes

Meta rolls out AI tools for business
Where’s the AI consumer pop?

THE CHAT ON AI

AI wants more of EVERYTHING
Is AI a black hole?

Google releases your AI personal assistant
Apple counters with its new AI release
The “agentic” era is around the corner

Nvidia’s CEO avoids $8B in taxes
Who will fund universal basic income?

OUR GOOD FRIEND, FAILURE

The Washington Post and LA Times
Are about to change their “news”

U of Michigan went all in on DEI.
$250MM later, they are backtracking
The fight to abolish DEI

Japan’s robot eldercare effort
Was a failure.

THE WAR ON CARBON

Exxon is getting into the power biz
With a gas plant fitted with carbon capture
Hundreds of gas-fired plants are in development
Exxon is also going big on oil production

Argentine O&G companies tap US capital
There’s a gold rush brewing down south.

The UK’s “habitat-preservation” market
Could be an example for others to follow.

THE ENERGY TRANSITION

US power demand set to soar
We need more big tech because…

Wind power in the UK
Is turning into an albatross
BP pulls back from renewables.
Puts wind assets into JV with JERA
No more offshore wind for us

Says Shell PLC.
Offshore wind stumbles badly

THE CHINA SYNDROME

China vows to ramp up stimulus
The Commies need capitalism.
Xi prioritizes consumers over chips

Aging cities are losing their youth.
Making birth rate problems worse

China is building its own Starlink
How long before the space war gets noticed?

THE WASHING-TONE

Trump invites Xi to his inauguration
A brilliant diplomatic move?

Biden admin gives Micron $6.2B
Do our chip makers suck that badly?

Trump will pardon January 6 defendants
Did you read my essay last week?
Biden sets a clemency record

THE DOGE

Work 80 hours a week—for free
DOGE has lots of applicants.

DOGE is an outside advisory group.
Congress needs to act, too
Telework monitoring may be in the works

THE MIND

How to get better at remembering
Necessary, in our TMI world.

Being thankful
Helps make life better

How much fun do you really have?
Maybe you should conduct a fun audit

THE BODY

There’s no need for a healthy lifestyle.
All you need is a new weight loss drug

The 9-minute warm up
That’s better than stretching.

Tim Cook wants to save your life
Buy more Apple products and apps!!!

THE EXTRAORDINARY

There’s a plant hacker out there
Who is creating whole new flowers

Wizard of Oz’s ruby slippers
Just sold for $28MM

The weirdest roadside attractions
In each state.

MUSIC BOX

“All My Love”
Chris Martin and Dick Van Dyke.
A precious must see and listen.

How about some Good elevator music?
Come on now, really?

CASTING AROUND THE PODS

Marc Andreessen talks with Bari Weiss
AI, tech, censorship and dining with Trump.

Bari Weiss is on a roll.
She sits down with UK rising star, Kemi Badenoch

The childhood mental illness epidemic
Joe Rogan interviews author and professor Jonathan Haidt.

VIDEOS OF THE WEEK

Becoming Led Zeppelin trailer.
Baby, oh, baby!

The Return trailer.
Ralph Fiennes channels Odysseus.

Babygirl trailer.
Nicole Kidman with a young stud.

FROM THE HEADHUNTER’S KITCHEN

Get ready, time for some groovy Christmas recipes…

Spinach and mushroom quiche
Pear, gorgonzola and walnut salad
Baked brie with jam in puffed pastry
Melting potatoes
Orange and almond coffee cake
Slow-cooker balsamic short ribs
Shaved Brussels sprouts salad

Cranberry brie bites

Most popular holiday pies
In each of the 50 states

THE RANDOMS

There’s an old saying that the stock market rises on anticipation but then falls on realization. If so, this suggests the US market is rising as it anticipates Trump’s MAGA economic policies but then could fall once we find out which of those policies are and are not realized.

It seems that progressive ideologues are fond of saying that conservatives are especially vulnerable to conspiracy theories. But what if the opposite is true? What if progressives have become true believers of the biggest conspiracy theory of all—that every last conservative is evil?

Not to fear, citizens of the world, Kemi Badenoch is a star whose brilliance is growing by the day.

How is it that Western democracies allow dictators like Syria’s Assad, Venezuela’s Maduro, Iran’s mullahs, and North Korea’s Kim Jong Un to exist? Is it because other dictators like Russia’s Putin and China’s Xi support them economically? Or has it been this way because President Obama was a foreign policy putz?

If someone is elected president, no matter what we think, they surely have some worthwhile qualities in them.

The S&P 500 index will likely continue to rise until the day I decide to buy it.

IN CASE YOU MISSED IT

The Half-Life of Politics
December 6, 2024

Eating Crow
November 29, 2024