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Inflation Thoughts – Part 2

December 28, 2021 by Lazy Man 2 Comments

Phew, we made it through Christmas. My wife got back 7 days before, so we crammed as much Christmas in as we could. She’s still working on sending out the holiday cards. Our 7-year-old is turning 8 in a few days, so we don’t have a lot of time to relax until after that.

I was still able to follow most of the news and the big topic on the financial front is inflation. It’s a big topic to get into during this holiday week, so I’ll be keeping this as quick and light as possible. Before Thanksgiving, I wrote about inflation blame and fixes. It may be helpful to read that article first and I still stand by everything in it. It covered a lot of reasons for inflation. If you are just curious about reasons why gas is so high read this. In any case, it’s worth another look because we got more inflation numbers and once again inflation went through the roof. Some polls are saying that inflation is a bigger threat than COVID.

As I mentioned last month, we haven’t felt the effects of inflation too much. Our mortgage stays the same and cars are paid off. Our food is a little more expensive, but we still have a chest freezer full of food that we are trying to eat down. Every time we make a little progress I find some good deal at Aldi or our local Shaw’s supermarket and it fills up a bit again. There are certainly fewer deals to be found nowadays, but we shouldn’t be forced to pay high prices for quite some time. Our gas prices are up, but I’m not sure if they are that much more than last year. I expect to spend $250 during the winter and that’s what we’re spending. Maybe as it gets colder in February we’ll have some $300 or $350 bills that hurt.

I realize that we are not most people. We probably have it better than 90% of the people. If you have to renew a rental lease or buy a car you’ll feel the pain of inflation. I want to be clear that just because we don’t personally feel it, it doesn’t mean it doesn’t exist and it doesn’t mean it can be a big problem.

I was talking with a friend about this and she was worried about how people on lower incomes are going to deal with inflation. After all, if you make a big income you can withstand food that is a little more expensive. If you are on a low income a raise in rent can be very tough.

I didn’t want to dismiss those concerns, but I think lower-income people have had some positive changes lately. The Child Tax Credit has reduced child poverty tremendously. For people on a limited income, several thousand dollars goes a long way to offset inflation. Unfortunately, that’s going away soon since it seems we can’t get 51 senators to agree to continue it. Also, the Child Tax Credit only helps if you, umm, have children of course. It doesn’t help senior citizens for one example. Senior citizens collecting Social Security will see an increased paycheck in 2022. I’m reading that it will be a 5.9% increase which should counter the effects of inflation.

Another thing to factor in is that we’ve seen a good deal of wage growth lately. I’ve read a lot of stories about it on a national level. Locally, in Newport, Rhode Island, nearly every place (has a help wanted sign promising $15/hour and several with bonuses. That includes fast food, gas stations, and places like that. I know that wages haven’t grown everywhere, so those areas that aren’t keeping up would be the ones I would be concerned about.

There’s another thing about inflation that isn’t getting much attention. When I started this blog back in 2006 the accepted average inflation calculation was about 3.5% or 4%. It was just assumed that would be the long-term inflation number. We’ve had 15 years of about 2.2% inflation according to some government numbers. When I ran the math it showed that prices could DOUBLE overnight and we’d just be where we all thought we would have been years ago. Is it possible we got too used to low inflation? Are we giving back a small fraction of the great, great fortune we’ve had over a long time? If so, is that so bad?

Finally, there’s another thing to consider. It seems that many Americans are doing fairly well. Holiday sales were up the most in 17 years, “fueled by purchases of clothing and jewelry.” That’s usually a sign the economy is doing quite well or at least that consumers aren’t stressing about putting food on the table.

So what do you think? Is inflation a reason for huge concern? Is it temporary, while we work through the Great Resignation caused by COVID? Is it mostly media coverage because people have price shock at the stores? Let me know in the comments.

Filed Under: Economy Tagged With: inflation

Inflation Blame and Fixes

November 16, 2021 by Lazy Man 7 Comments

Politics plays a role in macroeconomic issues such as inflation. I understand that some readers don’t want to read about more politics, but it is necessary to discuss the financial topic that’s on everyone’s mind.

Inflation is here. I’ve always said that I’d find some way to adapt to inflation. I’ve since come to realize that isn’t always possible. However, we’ve been doing fairly well to battle inflation. Take most people’s “big three” expenses:

  • Housing – Our housing costs aren’t rising as our mortgage has stayed the same. We haven’t needed too many services such as plumbing, but I think we’d see rising costs there.
  • Transportation – Our cars have been paid off for a little while now. The price of gas is high, but we are still working from home and not driving very much.
  • Food – The price of chicken hasn’t risen nearly as high as the price of beef. We’ve been eating more chicken for a while now. It’s starting to get boring, so I may need to pony up for more beef. Ground beef is still cheap. I can notice prices are higher, but Aldi still keeps prices fairly low.

As bonus, computers are very cheap despite a lot of talk about how chip shortages are supposed to make them expensive.

As you can see, things have been good for us, but I can see how it is bad for others. I’ve seen rent go up. People trying to buy cars have to pay more now too. If you have a long commute the price of gas can be very challenging.

I hope you are only seeing mild effects from inflation. It might help you feel better to blame someone. However, blaming doesn’t make things better. We need true solutions.

Blame Joe Biden for High Inflation?

There are a lot of people looking to blame Joe Biden for inflation. While the President of the United States has a lot of power, he doesn’t control everything. He promised to end COVID through vaccines, but there are still a lot of people who haven’t taken them. Also, the delta variant made things ten times worse.

Consumers are upset that gas prices are rising. However, NPR explains quite well, Biden, or any US President can’t do anything about gas prices. Biden wasn’t the cause and can’t fix high gas prices. Over the long term, Biden’s policies on electric vehicles and solar power would drastically cut the cost of commuting.

What about food prices? The Conversation says that fuel prices, bad weather, and COVID are to blame. We covered fuel prices. Scientists have conclusively shown time and again that “bad weather” is due to climate change. Biden has pushed for better climate change policies, but again, this is a long-term solution. We might never be able to reverse the damage climate change has done, but the more action we take and the earlier we take it, the better we’ll be in the future. Finally, the closer we get everyone to being vaccinated, the fewer effects of COVID on the economy. Biden has done everything he can to try to get all Americans vaccinated.

What about housing prices? The American Action Forum explains that it’s all about COVID. There’s a combination of unprecedented demand and a labor shortage to create new housing. It seems like this was a limited-time phenomenon – I haven’t seen prices go up in a few months. As mortgage rates rise, prices likely fall and maybe get more acceptable.

Taking all these together, I don’t think it’s fair to blame Joe Biden. Any US President would have seen the same circumstances leading to the same inflation. However, there’s one last thing out there…

Biden (and his administration) approved a $1.9 trillion COVID stimulus package. This was on top of the 2.2 trillion CARES package and a $900 billion bipartisan stimulus that Trump signed in late December 2020. At the time Trump was disappointed that more money wasn’t given in the form of direct payments and called it a “disgrace.”

So putting specific politics aside, it’s easy to say that both parties agreed to put a lot of money out there. I don’t think this was a bad thing, it helped many people get by during a global crisis. There have been some very positive things to come out of it such as child poverty rates dropping to 5.6% from 14.2%. I’m not going to criticize the stimulus because I think everyone made the best choice they could at the time and I’d rather err on the side of helping people in a crisis and worry about inflation now.

All that said, it does need to be noted that there’s a lot of money out there and fewer products available due to the supply chain.

The Real Blame for Inflation?

Robert Reich, a contributor to The Guardian gives his compelling analysis for inflation, big corporate America. Specifically, he points out how industries have consolidated over several decades. This has left little competition. For example, he points out that Proctor & Gamble and Kimberly-Clark control the diaper market. When P&G said they were prices, Kimberly-Clark did the same. P&G’s profits are extreme, they don’t need to raise prices. P&G had enough money to spend $3,000,000,000 to buy its stock back. He gives a similar example with Coke and Pepsi.

What can fix this problem? He says the answer is better antitrust law. If that’s indeed a solution, the Biden administration is the first one I’ve seen in a long time that is looking to real antitrust action.

CNN has an inflation explainer. It places all the blame on COVID and getting vaccines, the result of going from 0 to 100 in the blink of an eye.

Final Thoughts on Inflation

Inflation is complicated. It doesn’t seem like there is a short-term solution. The good news is that the economy looks like is back on track. In addition to that, the stock market is hitting new all-time highs seemingly every week now. I know that there’s more to the economy than the stock market and retail sales numbers, but it also seems like Americans have more savings than they’ve had in years, maybe decades. Combine that with the aforementioned drop in child poverty and I feel like the economy is in a very strong place.

I’m even more optimistic about the future. The longer-term solutions (limiting climate change problems, limiting reliance on fossil fuels) seem to be heading in the right direction.

Maybe I’m looking at things through rose-colored glasses? What do you think? Let me know in the comments below.

Filed Under: Economy Tagged With: inflation

Inflation, Inflation, Inflation

June 22, 2021 by Lazy Man 9 Comments

Before we get started on today’s topic, it’s day two of Amazon Prime Day. So far I’ve found it underwhelming. I often have most of my Christmas shopping for the kids done and quite a few new electronic toys to play with. I think I find it underwhelming for two reasons:

  1. I don’t really need anything new. If I was looking for a computer, cellphone, or wireless earbuds, I would be happy at the savings.
  2. The prices aren’t as good. I’m not sure if it’s because Amazon has become so big it doesn’t have to discount as much or if the international chip shortage means that there isn’t room to lower prices as much.

That second point is a perfect transition into today’s topic – inflation. You might have gathered as much from the title, but did you get the reference to the famous Brady Bunch line?



Jane isn’t wrong. Nowadays all anyone wants to talk about is Marcia… er… inflation.

In fact, as I was writing this, I came across this article on CNBC where economist Mark Zandi says, “It could take a year to break even after a 10% to 20% market correction.”

It makes sense. I’ve been seeing inflation everywhere locally. My area of Newport, Rhode Island depends on summer tourism. After missing last year’s season, prices for everything are higher and people are paying them. It might be because people have stimulus money. It might be because they are anxious to get out after a year stuck at home. It might be that the luxury tourism that Newport is known for caters perfectly to the white-collar workers who could keep their income through the pandemic. It’s likely a combination of all three.

I’m also seeing the other side of inflation first-hand. My dog-sitting business is setting new records almost every day. I have so much demand and raising prices doesn’t slow it down at all.

Taking all these signals together, it’s hard for me to come to any other conclusion that inflation is here. That’s typically bad news for your stock portfolio. However, I feel like this time could be different for two reasons:

  1. Consumer spending is high. When people spend, companies make profits. Profits are good for stock portfolios.
  2. We are starting to wages go up. When people are paid more money, they can spend more money. See #1 on how that leads to more profits. The downside for companies will have more expenses, so this may negate itself.

If you agree that inflation is coming and that it could hurt your portfolio. The natural question to ask, “How can I protect myself?”

Protect Your Portfolio During Inflation

I have to admit that I had to do some research on this one. In 15 years of blogging, I don’t know if I remember a time when inflation might go up. The costs of some things rise, but computers, cell phones, chicken, cell phone plans, and a bunch of other stuff has gotten cheaper it seems.

Here are some ideas to protect your portfolio:

  • Hold More Cash – If the market does drop 10-20%, having cash means that you can buy low. When the market recovers, you’ll come out ahead. However, if the market doesn’t drop, you’ll have money that isn’t invested which is a missed opportunity.
  • Invest in Financial Companies – Financials will profit because they’ll earn more interest on their holdings. However, I’m reading that they’ll make less on mortgage-lending and stock trading revenues. This may turn out to be a draw. Personally, I’m going to buy a financial ETF (maybe XLF) because I’m underweighted in that category.
  • By Gold and Commodities – Gold and commodities tend to go up during inflationary times. However, they’ve both gone up a lot. I don’t like buying things at the top of the market.

You may be tempted to hold more bonds than stocks, but it seems that high inflation hurts both bonds and stocks.

Another alternative is to do nothing. This might be the best overall plan. If it takes a year for stocks to recover to these levels after a drop of 10-20% it won’t be too disastrous for many people. I’m 45 which means I still hopefully have decades of investing left. After how much stocks have gone up over the last 11 years or so, I don’t think taking a one-year pause is necessary a bad thing. If a big drop occurs, I’ll focus more on working for my money than making my money work for me. If I’m part of the inflation cycle by charging more for dog sitting or other freelance work, then the high prices are simply balanced by higher income.

In the end, I’ll likely do a combination of holding more cash (maybe 3-5% of my portfolio) and investing in financial companies. I’m also going to use a couple of psychological tricks. In addition to realizing that I’m invested for the long term, I’m going to look at our overall net worth. By the beginning of this month, it was up more than 15% and it was diversified into real estate and other holdings. If the market drops 20%, our net worth will probably just reset to January.

Easy come, easy go, and a chance to build more assets at a lower price. Got any other ideas, let me know in the comments below.

This article contains links that I may earn a commission if it leads to a sale.

Filed Under: Investing Tagged With: inflation

Are We Financially a “Lost Generation”?

September 18, 2013 by Lazy Man 18 Comments

My friend Glen Craig from Free From Broke shared an interesting article on Facebook last night. With a comment of “wow”, and former Lending Club friend Rob Garcia chiming in with “whoa”, it got my attention. The article The typical American family makes less than it did in 1989 from The Washington Post has nearly 900 comments as I write this.

I read the article and shrugged. I must be missing something.

The article compares inflation-adjusted median household incomes between now and 1989. It even gives showing all the years in between. The author states:

In 1989, the median American household made $51,681 in current dollars (the 2012 number, again, was $51,017). That means that 24 years ago, a middle class American family was making more than the a (sic) middle class family was making one year ago.

This isn’t a lost decade for economic gains for Americans. It is a lost generation.

Why should we expect to make gains on median household income on an inflation-adjusted basis? It’s like getting on a treadmill and being upset that you walked for a half hour and went nowhere. I guess according to the author this is a lost half hour and yet millions and millions of people find value in it every day.

It seems quite an over-reaction to a loss of 1% of income… or about half a percent after taxes.

The Value of Living Today

Glen on Facebook brought up and interesting point, “After reading the article I also wondered what the cost of living is compared to back then. What if we just don’t need as much money for some things as we did back then, like computers?”

My family was one of the earlier families on the block to get a personal computer (The awesome PCjr) back around 1985. Even as we upgraded to 286, 386, and 486 computational behemoths, we never had more than one computer. Today we have numerous laptops, mp3 players, and tablets. The $2000 that my family spent on a computer back then is pretty similar to the $2000 that we spend on various similar technologies today.

We can look back at what my family paid for a landline. I think it was around $40 a month and there were extra charges if you wanted to call long-distance. Today we have Ooma Telo free home phone service, but it piggybacks on a cable bill that has grown from around $20 a month to $125 a month. In addition, many people spend another $100-$110 a month on cell phones and service.

The price of cars have gone up over that time. However, when you adjust for inflation they are pretty much the same (at least through 2006 in that chart). The price hasn’t changed, but you get many more safety features, better gas mileage, increased technology, and comfort.

Lost Generation? Really?

Are we really saving money on computers nowadays? Probably not. Are we really saving money on cars? Nope. However, in both cases our money gets us exponentially more than it did back 1989.

The mere fact that an ordinary person with no journalism degree like me can write to thousands of readers and convey this article is noteworthy.

Does that sound like a “lost generation” to you? Me neither.

Filed Under: Economy Tagged With: inflation, median income, technology

Inflation: It’s Not Just About Money Anymore

April 24, 2012 by Lazy Man Leave a Comment

A couple of weeks ago, The Economist took a step back from discussing money, at least directly. The Economist article covered the devaluation of everything. What’s that? It’s the way marketing has crept into our lives to get us to buy product or otherwise influence us financially.

Let’s take the sizing of women’s pants. The Economist did a little research and found that:

… The average British size 14 pair of women’s trousers is now more than four inches wider at the waist than it was in the 1970s. In other words, today’s size 14 is really what used to be labelled a size 18; a size 10 is really a size 14. (American sizing is different, but the trend is largely the same.)

It makes sense if you think about it. Let’s say that Gap has their jeans a half an inch bigger than Levi’s. Some people are going to fit in the Gap at a smaller size than Levi’s and feel pretty good about how they look and buy those. It’s a competitive advantage. The Levi’s people aren’t going to take it lying down and are likely to leapfrog the Gap. So it continues for a number of years and all of a sudden you have size 10s that are size 14s.

The Economist points out some other examples. “Starbucks coffees are Tall, Grande, Venti or (soon) Trenta.” Notice there’s no small in there? Having worked at Papa Gino’s, a New England pizza chain, 20 years ago, I can tell you it was confusing when a customer ordered a small and the closest options were a kids size and a medium size. Also 5-star hotels have been replaced by 6 and 7 star hotels. “Standard” rooms have been replaced with “deluxe” rooms.

These are all marketing gimmicks to make the customer feel like they are getting some extra value. In reality they aren’t. It’s some kind of Orwellian Newspeak.

It doesn’t end with the products we buy. It’s also in our job titles. It’s far cheaper for your employer to give you a fancier title than a pay raise. The Economist gives an example of a “Director of First Impressions”, which is commonly known to be receptionist. Of course this is nothing new. I can’t remember the last time I’ve heard anyone call a flight attendant a steward or stewardess. That’s one that’s always confused me. Why did we need to invent flight attendant and not meal attendant to replace waiter and waitress?

It’s as if we want to make sure that everyone feels special. Of course if everyone feels special no one is special. But hey, we live in a world where we have to protect everyone’s feelings. Students of New York Prep schools can’t celebrate getting into great schools anymore because they’ll hurt their classmates feelings. And a coach was forced to resign because he played more talented freshmen instead of the less talented upperclassmen.

It’s a messed up world and as the Economist put it, you can’t put the toothpaste back in the tube. It’s here to stay. If you can’t beat ’em, join ’em, right?

Lazy Man
CEO, Lazy Man Media

Filed Under: News Tagged With: inflation

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