Time This Happened, Stocks Crashed 50%.
Posted September 10, 2021
Inflation is ROARING.
I’ve noted many times in the past that the official inflation measure, the Consumer Price Index, or CPI, is gimmicked to the point of fiction.
The reason for this is simple: this is the number everyone looks at. And if it reflected reality, Americans would realize that "quality of life" in this country has been in decline for the last 40 years as real costs of living have dramatically outpaced the rise in incomes.
Remember, if incomes do not rise at the same pace as inflation, your real cost of living is rising. Wonder why everyone has massive mortgages, over $10K in credit card debt, and $50K in student loans? Wonder no more.
For this reason, if you’re interested in getting a more realistic measure of inflation, you need to look at the Producer Prices Index (PPI), the CPI’s less known, less watched, but more accurate cousin.
Unlike CPI, which is crafted by bean counters at the government, PPI is based on actual information from actual producers of goods and services who must adjust their costs based on inflation or lose profits in the real economy…
Which is why the latest PPI data point is catastrophically bad, clocking in at 8.3% year over year (YoY) for the month of August. This is up from 7.8% YoY for the month of July.
Stocks are moving higher this morning on the announcement because most fund managers and traders are not old enough to remember what happened to the markets during the last major bout of inflation in the 1970s.
At that time, stocks ripped higher for a few years before crashing ~50%. They finished the decade having gained ZERO in 10 years.
Are we due for another similar period of low returns? I’ll detail that in Monday’s article. Until then…
Editor, Money & Crisis