Another Week of Nothing - Except For This...
Like last week, it's been another week of a whole lot of nothing - with one exception. We'll get to the exception shortly. But first...
OK, so yields have marched higher. But it's not like there was a huge jump. Then again, in aggregate, yields really have likely confirmed when we already knew: the great bond bull market that started 1980-1982 has ended, it's safe to say. So bonds are destined to decline in value for some unknown period of years. That YEARS.
Just as the Bond Bear before 1980 lasted roughly 40 years, so too did the Bond Bull last 40 years or so. So does that mean that the Bond Bear we're clearly in now will go on for 40? Maybe, maybe not. But whether or not it's 4 decades, the important takeaway is YEARS. OK?
But with that in hand, the fact is this week wasn't a story for the ages. Just a whole lot of nothing.
But there's this exception to the whole lot of nothing that's really important. It's called "inflation." You've heard of it, right? It's something that more or less disappeared some time after the great Bond Bull commenced all those years ago. It was so relatively suppressed for so long that any reference to it was minimized - compared to those inflationary years that started in the mid 1960s and continued until the early 1980s. Back then, mostly everything was gauged "adjusted for inflation." Since then, that phrase faded away - for the most part. But it's back now, ever since things heated up with the COVID mess.
But wait! Hasn't inflation "cooled"? Isn't it back into the doldrums again? Setting aside the fact that even the suppressed inflation of the last few decades still wore down the purchasing power of our money, the fact is that low inflation was pretty much kicked out of most conversations when it came to markets and the economy. It came up from time to time, but simply wasn't deemed very important or impactful. Not saying that's a correct assessment, but it is what it was.
Now inflation has stuck its nose under the tent.
And with that, it would behoove us to get back into the mode of understanding what it has done and can do to our money, markets, economy and our own personal financial plans. So in that spirit, for those of us who haven't given inflation a lot of thought beyond our having to deal with higher food and gas prices, you may want to take a gander at a most interesting website that to which one of our Brain Trust devoted an entire issue. Here's are some highlights from our notes. There's lots here to think about. Best to go to the site after perusing these notes. Then fire up your brain and see you can make some sense out of all this.
- Review of Campbell Tomato Soup prices/Inflation: From 1898, with some changes up or down (WWI, Depression, WW2, etc., the price was 10 cents a can. From 1971 – 1980, price rose 150% to 25 cents. Current price: As recently as 2020, it was 80 cents – would have had to rise to rise to >$2.00 to match 1970s inflation; but it’s now $1.67 avg/>$2 CA and we’re only 3 years into the decade.
- NB how long the price remained stable – so much so that poor people were able to use Campbell’s products (not just tomato soup) to survive. (References Andy Warhol story: grew up poor/ate lots of Campbell’s soup – supposedly accounts for his obsession with painting those soup cans; and note he apparently always was stocked up in his home on Campbell’s soup).
- Ref WTFHappenedin1971.com website, a compilation by economists to show how things changed in many ways after 1971.
- Cites sampling of the charts, e.g….(charts through 2017)
- From 1948 to 1971, wages and productivity grew in tandem; after 1971, productivity grew, wages remained stagnant. Productivity rose 246%, wages 115%
- Claim: During period of gold standard in 19th century, more Americans grew out of poverty into the middle class than at any other time in history.
- Most people are busy earning a living and are unaware of what’s happened to their money.
- Increase in women working after 1971: more needed to work as they never had before
- Households where only the male works have fallen in half.
- NB: Whatever boost to the economy from more women working (dual incomes) has already happened. No one left to go to work. So, from now on stagnation will be widespread.
- See list of prices of items in 1971, e.g., New House $25,200, Avg Income $10,622/yr., New Car $3,560, avg. rent $150, Gas $.040/gallon, etc.
- Before 1971, and the subsequent increase in house prices, houses were not considered an investment; but are now as they basically keep up with inflation. In 1950, took 2.3 yrs to save for a house; in 2020, takes 7 years.
- Income has stagnated, but house prices have soared.
- The phrase “adjusted for inflation” was hardly ever used before 1971; now used all the time.
- Before 1971, government borrowing was low and steady; after it exploded (bills, notes, bonds).
- When a country goes off the gold standard, becomes a financially oriented nation, rather than a manufacturing one. After 1971, people began to speculate to regain the standard of living they had before.
- No part of the economy has grown as much as the financial sector, which benefits mainly the wealthy.
- When people expect prices to rise in the future, they spend more and save less.
- As income stagnates, people grow angry – connection between 1971 and people taking more extreme positions. People focus more on basic, often base sentiment: Politician give them what they want.
- Cloture has exploded since 1971 – an example of how Congress doesn’t work anymore/anger has replaced working together.
- People more concerned about “being well-off financially” than ever – leads to coarsening of life/people willing to cut corners.
- Spending on schooling has mushroomed, but test scores and knowledge have not increased
- Spending on health care has soared.
- Male income has stagnated; men in jail has exploded.
- Mass shootings barely happened before 1971, now a sign of societal decay.
- Economic uncertainty and income stagnation has caused median age of marriage to increase; claim: marriage best indicator of happiness: after 1971, rate of divorce takes a big jump
- Poverty rate of children risen by hundreds of percent since 1971/more single mothers
- Rate of unwed mothers soared since 1971.
- Rate of children born falls dramatically
- Rate of obesity also soars since 1971.
- Total global indebtedness has risen from under $1 Trillion before 1971.
- Precious metals has been moving between a range of higher and lower.
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