As Lumber Prices Fall, the Threat of Inflation Loses Its Bite; The Week Inflation Panic Died; The Pandemic Stimulus Was Front-Loaded. That Could Mean a Bumpy Year; How Bad Is Our Company's Product? Let Us List the Ways; Advice to Grads: Be Warriors, Not Wokesters
1) I continue to closely follow the debate about inflation: Are we seeing a blip right now, or are we in for a period of sustained, broad-based, high inflation?
Below are two interesting articles I've read on the topic recently. As I read them, I tried to keep in mind that the plural of anecdote is not data...
As Lumber Prices Fall, the Threat of Inflation Loses Its Bite. Excerpt:
The housing-and-renovation boom drove insatiable demand for lumber, even as the pandemic idled mills that had already been slowed by an anemic construction sector since the 2008 financial crisis. Lumber futures surged to unprecedented heights, peaking at more than $1,600 per thousand board feet in early May.
But since then, the prices of those same plywood sheets and pressure-treated planks have tumbled, as mills restarted or ramped up production and some customers put off their purchases until prices came down.
It's a dance of supply and demand that has reassured many experts and the Federal Reserve in their belief that painful price spikes for everything from airline tickets to used cars will abate as the economy gets back to normal.
"Many of the extreme price spikes we've seen in recent months are likely to reverse for Econ 101 reasons," said Jan Hatzius, chief economist at Goldman Sachs (GS)...
But runaway inflation of the kind seen in the United States in the late 1960s and 1970s is a psychological process as much as an economic one. When inflationary expectations take hold, people become convinced that prices are on a never-ending escalator. They rush to buy now, at any price, and increases become a self-fulfilling prophecy.
Instead, the lumber market's behavior is a sign of consumer sanity, said Kristina Hooper, chief global market strategist at the investment management firm Invesco.
"We don't have that kind of buying frenzy that creates sustained inflation," she said. "To me, this is very, very different than the 1970s."
Officials at the Fed, who have long argued that any price rise would be temporary, view the situation in much the same way.
New York Times columnist and Nobel Prize winning economist Paul Krugman's take: The Week Inflation Panic Died. Excerpt:
Remember when everyone was panicking about inflation, warning ominously about 1970s-type stagflation? OK, many people are still saying such things, some because that's what they always say, some because that's what they say when there's a Democratic president, some because they're extrapolating from the big price increases that took place in the first five months of this year.
But for those paying closer attention to the flow of new information, inflation panic is, you know, so last week.
Seriously, both recent data and recent statements from the Federal Reserve have, well, deflated the case for a sustained outbreak of inflation. For that case has always depended on asserting that the Fed is either intellectually or morally deficient (or both). That is, to panic over inflation, you had to believe either that the Fed's model of how inflation works is all wrong or that the Fed would lack the political courage to cool off the economy if it were to become dangerously overheated.
Both beliefs have now lost most of whatever credibility they may have had...
Monetary doomsayers have been wrong again and again since the early 1980s, when Milton Friedman kept predicting an inflation resurgence that never arrived. Why the eagerness to party like it's 1979?
To be fair, government support for the economy is much stronger now than it was during the Obama years, so it makes more sense to worry about inflation this time around. But the vehemence of the inflation rhetoric has been wildly disproportionate to the actual risks – and those risks now seem even smaller than they did a few weeks ago.
2) Here's a related article about the challenges our economy faces going forward: The Pandemic Stimulus Was Front-Loaded. That Could Mean a Bumpy Year. Excerpt:
The U.S. economy is about to face a new challenge that has its roots in the arithmetic of growth: That which fiscal stimulus giveth, fiscal stimulus taketh away.
The $1.9 trillion American Rescue Plan enacted in March, as well as a $900 billion pandemic aid package passed in December, is heavily front-loaded. They were set up to get money out the door fast. But one consequence of that strategy is that fiscal policy in the quarters ahead will subtract from economic growth.
Economists mostly project that the economy, with strong momentum in the labor market and huge pools of pent-up savings by households, will be strong enough to keep growing despite the fading of the fiscal boost. To avoid an economic downturn, a huge handoff must occur from government-driven demand to the private sector.
The mainstream view is that this will be successful. But there are aspects of this unusual economic moment that could make the road ahead bumpy.
There is no modern precedent for such huge swings in sums the government is pumping into the economy. And there is a risk – recently acknowledged by a top Federal Reserve official – that if pandemic-era savings are disproportionately held by the affluent, they will sit on that cash rather than spend it.
"We're definitely going to see a huge drop-off in fiscal stimulus," said Nancy Vanden Houten, lead economist at Oxford Economics. "The question then is how well positioned is the economy to deal with that, and we don't really know for sure, which applies to so much about this period we're going through."
3) This story on the front page of yesterday's Wall Street Journal cracked me up: How Bad Is Our Company's Product? Let Us List the Ways. Excerpt:
Tobacco giant Altria (MO) is on trial, accused of breaking antitrust laws by abandoning its e-cigarette business at the request of rival Juul Labs. The Marlboro maker's defense: Our e-cigarettes were lousy.
To make its case, Altria has asked its own executives to disclose, in detail, their litany of failures.
On the witness stand, current and former Altria executives have recounted how the company threw hundreds of millions of dollars at developing a vaping product, yet failed to come up with anything smokers liked.
According to the executives' testimonies: Altria's e-cigarettes leaked. They generated high formaldehyde levels. They lacked the nicotine kick smokers were looking for.
The bad news was so frequent, according to trial testimony this month, that a scientist who updated executives on the company's e-cigarette products earned the nickname "Dr. Doom."
"It was exhausting. Every single meeting there would be a new problem," testified Murray Garnick, who is Altria's general counsel and oversees the company's regulatory sciences department.
Here's more on the case: Altria-Juul Deal Goes to Trial.
4) As usual, NYU marketing professor Scott Galloway has some seriously good advice, which I forwarded to my three daughters (especially the one who just graduated from Wake Forest last month and has already started working as a Retail Sales Representative for Nestlé): Advice to Grads: Be Warriors, Not Wokesters. Excerpt:
My bromide: Be warriors, not wokesters.
Be mentally and physically... warriors. Lift heavy weights and run long distances, in the gym and in your mind. Many tasks you'll be asked to perform early in your career will be tedious. Don't do what you are asked to do, but what you are capable of doing. Think of it as boot camp before being sent to battle, as there are millions of other warriors fighting to win the same regions of prosperity. Get strong, really strong. You should be able to walk into a room and believe you could overpower, outrun, or outlast every person in the room.
My first job was at Morgan Stanley (MS). I wasn't as well educated as the other junior analysts. (My fault: UCLA is a sink-or-swim place; I decided to do neither and smoke pot and tread water.) Anyway, at Morgan, every other week I'd go to work Tuesday morning and not leave until Wednesday night. Nobody was at home waiting for me, I had no real hobbies, and in your twenties, if you don't tell yourself otherwise, you can work 30+ hours straight... easily.
Send a message to your colleagues that you came to play. Many of you will have a gag reflex at my boomer capitalist mentality or some such bullshit. No, it's America – a platform to deploy skills and grit to add value and garner resources. Every day, America becomes more like itself and becomes a better country... for people who have resources and/or influence.
And what of "balance"? Fine – many people thoughtfully calibrate the trade-off and fashion a good life for themselves and their families without being obsessed with work and money. Assume you are not that person. If you're in your twenties and reading this newsletter, you don't want balance; you're after influence and relevance. The world isn't yours for the taking, but for the trying. Try hard, really hard.
Stoicism
Embrace a degree of stoicism for the first 24 to 36 months after graduation. I enjoy alcohol and THC, and used them every day in college. But I took 24 months (mostly) off both as I knew I needed to be in great shape physically and mentally. Whether it's shopping, gaming, swiping, posting, eating, porn, streaming, or ESPN, take as much of this energy and time for the next couple years and reallocate that human capital to three things: work, relationships, and fitness.
It's monotonous and likely not sustainable. However, the DNA of your career and professional trajectory is disproportionately, unfairly, set by the early years of your career. Some people blossom in their forties. Most successful people, however, burn a great deal of fuel in their twenties and thirties to ascend through a resistant inner space and make the jump to lightspeed. They cover greater ground in their forties and fifties thanks to the velocity established in their first 20 professional years.
Balance is a myth. There are only trade-offs. Having balance at my age is a function of lacking it at your age. Your call...
Reacting to every slight and demanding satisfaction from every insult is what the system wants you to do. Joining a Twitter (TWTR) mob seizing on a hapless middle manager or an out-of-touch English professor may feel like justice, but it's just a cheap drip of dopamine lost in an ocean of social media profits.
Be a warrior. Before you resort to violence, make a thoughtful assessment. Register the intention behind people's gestures, ideas, and words. Don't make a caricature of people's actions and speech so you can draw your sword and feel righteous. Be a highly skilled, devastatingly strong warrior who exerts their power by example and leaves their weapon in its sheath. Forgiveness is strength. Demonstrate it, every day. Be a warrior, not a wokester.
Best regards,
Whitney