Inflation, Wordflation, Binflation, Psychology, and Statistics
#Inflation is the “HOT” new topic these days. The business pundits on CNBC, Bloomberg, Cheddar and other channels are talking about inflation in nearly every segment; the Corporate Chief Officers are using this as a key factor in their earnings calls; and the comedians are also having a good time with this topic. John Oliver ran hot on Inflation in his July 25 episode on Last Week Tonight with John Oliver, in which he introduced the audience to words like lunchflation, boozeflation, milkflation, and meatflation. Shrinkflation has always been an expanding arsenal in corporate marketing might- keeping the outside package size the same but reducing the quantity that is inside. As one smart person put it, we have always been paying for air, and now we are paying for more air in a package. My own concoction is sinflation, the unit price increases of “sugary” products. In this case, sinflation might be a good thing if it reduces the amount of sugar we consume!
The current points of contention are whether we have hit “peak inflation”, how far the Fed would go in raising interest rates, and whether we are already in a recession. While these are complex topics of discussion, it is important to focus on three main points:
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Wordlation, using more words than needed, is also gaining serious ground. Part of this has to do with the language, as shown delightfully here!
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Not all “flations” are bad, including "bin"flation. Recently I was passing through Helsinki-Vantaa Airport and noticed six recycling bins- one each for plastic bottles, biowaste, mixed waste, paper, plastic and cardboard.?Similar systems are in use in a number of European countries including Germany. While this does not go as far as the Japanese sorting system, it does add to greater recycling and less waste in the landfill.
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Finally, the stock market gyrations. From 4796.56 on January 3 this year the S&P 500 dropped 23.5% to 3666.77 on June 16, a level last seen on December 11, 2020. Numerous stocks have lost more than 70% of their peak value, and some, like Peloton, are trading below their IPO price. Such a drop can cause serious anxiety and depression. Recently, analysts and TV commentators are bubbling with excitement as some stocks have gained 50% or more. While the stock market pendulum usually overshoots or undershoots, it is important to understand the numbers and deal with the psychology. If a stock is bought at $100/share, and it loses 70% of its value, it goes to $30/share. If it then gains 100%, it goes to $60/share, still down 40% from the initial purchase price. Even if it gains 200% from the lows, it still is at $90/share, down 10% from the purchase price. Thus analysts and commentators can get excited about 100% or 200% gains, but these can have different impacts depending on the individual’s situation. To paraphrase my friend and former manager Bob Cardwell, a great many things can be explained by just Statistics and Psychology...