Jeff Miller: Here is How You Should Think About Inflation

Every Sunday night I make it a point to include Jeff Miller’s A Dash of Insight blog as part of my weekly prep.

The blog is always good but I’ve come to appreciate his regular “Weighing the Week Ahead” series the most. In addition to giving us a cogent summary of what’s just happened along with his best guess for what the markets may be “talking about” during the coming week, Jeff usually throws in a final thought at the end. This weekend’s was excellent: a no bullsh*t heuristic for how investors should be thinking about inflation. I’ve excerpted it below, hope you learn something or this shifts your perception somewhat – Josh.

***

Writing about inflation is a thankless task. Readers begin by thinking they know all of the answers. We all shop, right? It is the most popular subject for bamboozling people, since it is easy to find examples of rapidly rising prices. It is by far the most deceptive trap for those who might confuse politics with investing.

You have a simple choice:

  1. You can reinforce your beliefs and take joy in how stupid our leaders are. You and your favorite blogger, pundit, Congressional candidate, etc. have all of the answers. You are all smarter than the isolated, ivory-tower academics at the Fed. Please note that this was the trap that ensnared leading experts and wise observers like John Hussman and the ECRI – just to mention two of the most prominent examples who have had disastrous results over the last few years.
  2. You can accept the fact that the Fed has the power to set policy. It is wiser and more profitable to understand what they are doing and just go with the flow. You can grumble with your friends at the bar, vote your conscience at elections, and still profit from your investments.

I have been extremely accurate in my Fed forecasts, but I am not claiming any prizes. It has not been difficult. I simply read information carefully and understand that it is a committee at work. Here are the key takeaways. You will disagree. You will hate them all. Keep reminding yourself that even if you are right and Yellen is wrong, you will lose on your investments. The Fed has the power. Figure out how to use the knowledge to your advantage.

  1. The Fed is attempting to increase inflation. They seek 2% on the PCE index. This runs about 0.5% cooler than the CPI.
  2. The Fed does not measure inflation through commodity prices.
  3. The Fed believes that 2% is price stability. They think that traditional measures overstate inflation. They do not subscribe to ShadowStats (and neither do any of the people they respect). They also see a touch of inflation as easier to fix than deflation. They bias is toward stimulus.
  4. The Fed will tolerate as much as 2.5% inflation (on the PCE index) for a time.
  5. The Fed has a dual mandate – inflation and employment. It does not protect savers or emerging markets. Learn to live with it and ignore pundits who think this is important.
  6. The Fed sees food and energy as noisy components of inflation – wild movements that do not relate to the dual mandate. If food prices are up because of a drought or disease in hog herds, how could this be controlled by raising interest rates? Middle East geopolitics and oil? Same question. These price changes are certainly real, but they are volatile and not relevant for policy.
  7. The Fed does not shift policy based upon small monthly changes in data. Longer trends are demanded.

     

The conclusion is that Fed policy is on a relatively stable course, but data dependent. The market does not like this, since the preference is for certainty.

If you think about it, even just a little, you can see an obvious edge for investors. You need only accept the reality of the obvious course of policy and ignore the pundits. The Fed has always succeeded in creating inflation – eventually. It will happen again, but given the overall economic weakness it is taking longer. My current guess is late in 2016 or so. Meanwhile, there are some profitable investments to enjoy.

Monitor data, not pundits.

***

Awesome, well done Jeff!

Source:

Weighing the Week Ahead: Is the Fed behind the Curve? (A Dash of Insight)

Follow Jeff Miller on Twitter

This content, which contains security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment.

The commentary in this “post” (including any related blog, podcasts, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Ritholtz Wealth Management employees providing such comments, and should not be regarded the views of Ritholtz Wealth Management LLC. or its respective affiliates or as a description of advisory services provided by Ritholtz Wealth Management or performance returns of any Ritholtz Wealth Management Investments client.

References to any securities or digital assets, or performance data, are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.

Wealthcast Media, an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. Investments in securities involve the risk of loss. For additional advertisement disclaimers see here: https://www.ritholtzwealth.com/advertising-disclaimers

Please see disclosures here.

What's been said:

Discussions found on the web
  1. Maurice commented on Dec 10

    .

    áëàãîäàðþ!!

  2. Johnnie commented on Dec 19

    .

    áëàãîäàðþ!

  3. Lee commented on Dec 19

    .

    ñýíêñ çà èíôó!

  4. michael commented on Feb 06

    .

    ñýíêñ çà èíôó!!

  5. taxi from cheltenham to birmingham airport commented on Sep 17

    … [Trackback]

    […] Read More Information here to that Topic: thereformedbroker.com/2014/06/24/jeff-miller-here-is-how-you-should-think-about-inflation/ […]

  6. bitcoin loophole review commented on Sep 29

    … [Trackback]

    […] There you can find 25290 more Info on that Topic: thereformedbroker.com/2014/06/24/jeff-miller-here-is-how-you-should-think-about-inflation/ […]

  7. immediate edge commented on Oct 01

    … [Trackback]

    […] There you will find 3858 additional Information to that Topic: thereformedbroker.com/2014/06/24/jeff-miller-here-is-how-you-should-think-about-inflation/ […]

  8. Ruger firearms for sale commented on Dec 02

    … [Trackback]

    […] Read More here on that Topic: thereformedbroker.com/2014/06/24/jeff-miller-here-is-how-you-should-think-about-inflation/ […]

  9. rolex replica commented on Dec 21

    … [Trackback]

    […] Find More on to that Topic: thereformedbroker.com/2014/06/24/jeff-miller-here-is-how-you-should-think-about-inflation/ […]

  10. marijuana for sale online commented on Dec 22

    … [Trackback]

    […] There you will find 34305 additional Information to that Topic: thereformedbroker.com/2014/06/24/jeff-miller-here-is-how-you-should-think-about-inflation/ […]

  11. bmo credit card login commented on Jan 12

    … [Trackback]

    […] Find More to that Topic: thereformedbroker.com/2014/06/24/jeff-miller-here-is-how-you-should-think-about-inflation/ […]

  12. Frigidaire CFPWD15W manuals commented on Jan 20

    … [Trackback]

    […] Here you can find 92302 more Info on that Topic: thereformedbroker.com/2014/06/24/jeff-miller-here-is-how-you-should-think-about-inflation/ […]

  13. Sennheiser Surrounder manuals commented on Jan 22

    … [Trackback]

    […] Information to that Topic: thereformedbroker.com/2014/06/24/jeff-miller-here-is-how-you-should-think-about-inflation/ […]