This Time Is Different

Softer CPI does not mean rushing out and buying all new patio furniture or refurbishing your fireplace. [Unsubscribe]( [Wiggin Sessions] August 11, 2022 This Time Is Different “When little people are overwhelmed by big emotions, it’s our job to share our calm, not to join their chaos.” — L.R. Knost [Addison Wiggin]Dear Reader, The legendary Sir John Templeton – American-born British banker, fund manager, and philanthropist – said the four most dangerous words in the English language an investor can utter are: “This time is different.” CPI data from the Bureau of Labor Statistics has the common investor smiling, even jumping for joy, as flagrant inflation in the United States seems to slow from a 40-year peak. That means cheaper stuff… generally. À la Templeton, Stephanie Pomboy at Market Mavens tweets: Markets celebrating softer CPI as meaning less Fed rate hikes. But they are missing a critical part of the story. What does it mean for margins? We will find out w PPI tmrw. Right now input costs (PPI) outpacing the ability to pass along (CPI) by widest ever – worse even than the 1970s. Pomboy’s comment, put another way (more digestible for my oldest son and his friends): [Click here to learn more]( Perspective is key. Besides Fed-watching, monthly CPI data has become the new “it” thing in the markets. But what was in vogue yesterday is often misleading today. Softer CPI does not mean rushing out and buying all new patio furniture or refurbishing your fireplace. Templeton and Pomboy are right. Macro is in play. So let’s not make any rash decisions. As Zach Scheidt said [in our Session this week]( you’ve got to keep your head on straight despite the high: [I've actually been looking at how this dynamic is working out.]( And to be honest, it looks a whole lot like what we saw in the '70s. And what you may not realize is that during the '70s, we actually beat inflation several times. Inflation got really high and then the Fed raised interest rates, and then inflation backed off. And then the Fed said, "Okay, all right, well, let's let the economy recover." And then inflation perked up again. And they said, "Oh wait, wait. We've got to put the kibosh on this and we've got to help slow things down." And we had this, what I call a [whipsaw inflation environment](. And that is exactly what I think we're setting up for here in the United States. But this time is different, right? Zach continues: The problem is that as the Fed takes a breather, watches to see what's going on, watches to see if the economy is holding up okay and if inflation is settling down, that gives more of a chance for inflation to pick back up again. I love this analogy. You know when you get sick and you're supposed to take antibiotics. The doctor tells you: "[You have to take the full dose](. You're going to start feeling better, but don't stop taking the antibiotic." Well, if you take half of that antibiotic, you feel better. And then you go ahead and go about your business and stop taking it. The sickness is going to actually flare back up. And not only that, it's going to learn to actually be resistant to the antibiotic. And that's why we have antibiotics that have to continue to evolve to face the diseases that are going out there. [Well, inflation is a lot like that](. If the Fed gives the economy half the dose that it really needs and then backs off, then that inflation picks back up and it becomes more persistent because consumers now expect, and it's ingrained in their heads, we are expecting inflation to continue to be high, which means we're going to spend money now, while a dollar is worth something, because we know that our dollar is not going to be worth as much later. So this whole whipsaw inflation is a really serious threat, and it's something that we have to think about. Not just as investors, but also as consumers. [Be careful how we save our money,]( how we spend our money, where we spend our money, and what's going to happen with that. In classical economics and praxeology, this is known as the buyer’s dilemma under uncertainty. It’s about weighing your options, knowing what’s best to protect your wealth. If you’re a longtime reader, you know the spiel. [Click here to listen to my full discussion with Zach Scheidt.]( He breaks down the current investing environment with ease and clarity. Plus he gives some good stock picks towards the end. Follow your bliss, [Addison Wiggin] Addison Wiggin Founder, The Wiggin Sessions P.S. Here’s a cool picture I saw from a NYT op-ed on mafia boss Frank Costello. He’s sitting in court refusing to answer questions about his assets, invoking the 5th. [Click here to learn more]( We should take a page from his book. Then people will be asking you: “Where’s the paper at?” You’ll smile knowingly, [ducks in a row](. --------------------------------------------------------------- [Click here to learn more]( Do you really understand how inflation works? [Listen to an ex-Goldman banker explain it clearly, by clicking here](. Ed. note: Got something to say? Send your feedback to The Wiggin Sessions, [here.](mailto:WigginSessions@5minforecast.com) Follow the Wiggin Sessions on Social Media! [Facebook Group]( [Twitter]( [Instagram]( [YouTube]( [LinkedIn]( [The Financial Reserve]The Wiggin Sessions is committed to protecting and respecting your privacy. We do not rent or share your email address. By submitting your email address, you consent to Consilience, LLC. delivering daily email issues and advertisements. 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