Ice Baby

The great poet Vanilla Ice, in what was arguably his greatest work, commanded his audience at the outset to “stop, collaborate and listen” – the young man obviously thought he had something very important to say. A few lines later he describes the environment in which he finds himself, as follows: “jealous ‘cause I’m out getting mine, Shay with a guage and Vanilla with a nine”. For those readers not educated in such matters, the Poet is simply describing a set of circumstances that has resulted in his senses becoming intensely heightened. Of course, the “new age” understands this vernacular and it is no great offense if one is somewhat behind and requires some explaining in order to make sense of the message.

Onto the point at hand.

Just like the Poet, I happen to find the current set of circumstances worthy of attention. Different circumstances to be sure, but deserving nonetheless. In my opinion, the reported rate of inflation and the one “tried and true” cure for such, should be matters of concern for any responsible person trying to maintain or get ahead.

First, the reported inflation rate (as measured by the Consumer Price Index) for 2021 came in at 7% (as reported by Bloomberg and many other financial outlets) which was the highest recorded in 39 years. It’s hard for even astute onlookers to know what to make of the reported numbers. For example, the housing components in the CPI rose by a weighted average of 3.7% but according to the Apartment List National Report there was a 17.8% increase in the median apartment rent (Grant’s Interest Rate Observer 1.21.22). If one looks at the housing components inside the CPI they will find the items “rent of primary residence” and “owner’s equivalent rent”. Study as you might, there is an obvious contradiction at play. The points here are simply that 1) a real, live human often has drastically different experiences than what such reported numbers would suggest and 2) the numbers may well be worse than what official measures report.

Secondly, the “tried and true” cure for inflation has always been increasing interest rates. Historically, multiple increases in rates over a “prolonged” period tend to be negative for stocks in general and higher valued shares in particular (think technology).

No one knows FOR SURE the extent to which inflation will run or rates will rise. It has been my opinion since I first heard Federal Reserve Chairman Jerome Powell use the term “transitory” to describe the inflation numbers that he was silly for such an estimation and that the FED might be way behind the curve. Also, in my opinion, the current set of circumstances gives lots of cause for one’s “senses to become intensely heightened.” If you, dear reader, begin to be suspicious of my bringing an artist like Vanilla Ice into the same discussion as Mr. Powell and the Federal Reserve then you are astute. The way I see it, the FED has about as much of an understanding of the current trajectory of inflation and interest rates as “Vanilla” has on the term “collaborate”. A little heavy on cash would be my ammunition of choice.

Word to your mother.

Mike