We have come full circle and it’s the Holiday Season again. I see Christmas lights up in my neighborhood already. I think people are ready to celebrate. For some, the Covid is in the rearview mirror. For others, Covid has made them fearful every day they wake up in the morning.
I saw this article linked on Glenn Reynolds Instapundit page. The first paragragh reads,
Despite expectations that an early start to festive spend might herald a return to growth in October, online retail sales have continued to remain low, falling by -11.2% year-on-year (YoY).
Petty critics of the linked article will say “It’s the UK, not the US.” However, there are commonalities across all borders for many things right now. The Misery Index used to be a thing when I was a kid and it’s becoming a thing again. The current Misery Index is 10.19%. Economist Robert Barro calculates it differently. Barro’s index measures the change in misery during a president’s term. It sums four metrics which causes smoother data. The metrics are:
the difference between the average inflation rate over a president’s term and the average inflation rate during the last year of the previous president’s term
the difference between the average unemployment rate over a president’s term and the unemployment rate during the last month of the previous president’s term
the change in the 30‐year government bond yield during a president’s term
the difference between the long‐term, trend rate of real GDP growth (3.1%) and the real rate of growth during a president’s term.
These numbers are going to be terribly biased in Trump’s last year because of Covid. 2019 is a more accurate comparison. The other thing to remember is 2020 was so bad, that 2021 numbers will be artificially inflated. To compare Biden vs Trump, it might be better to compare 2019 Trump to 2022 Biden.
If we compare 2020 to 2021, inflation is higher in 2021, bond yields are slightly higher, but unemployment is better and GDP is better. Barro’s misery index doesn’t look so miserable.
But, when you go to the gas pump or grocery store people aren’t smiling.
It is interesting that the article came out the same day as inflation numbers. America is having its highest inflation in thirty years. So are other countries. I believe some of the inflation is transitory. Shutting down the worldwide economy has created gigantic bottlenecks that take a lot of time to solve. In many places, government policy works in a way that stops market forces from solving those bottlenecks.
However, the ramp-up in government spending since Covid and the recent policy pronouncements of the Biden administration have also fueled inflation. Those things are NOT transitory.
Prices won’t return to where they were even if the transitory inflation is solved.
Inflation is a funny thing because, with things like commodities, you see it and feel it. With things like electronics, there is never inflation because even if you pay the same price or slightly higher price for something the technology from year to year advances so quickly it is actually deflationary.
What the centralized bureaucrats infected with groupthink in Washington DC don’t realize is the average person isn’t dumb. They can think for themselves. Inflation is in their face every day in their daily activities.
When they see food prices escalate as they have, gas prices escalate as they have, and the inability to get goods and services happen, they change their behavior.
Immediately, they do the mental calculation that prices in future price hikes on the stuff they are buying and bring it into today’s frame of reference.
Hence, Black Friday is coming up. Already, every major retailer is discounting and telegraphing what they will have on sale. The data from the article shows this,
Andy Mulcahy, strategy and insight director, IMRG says: “The potential for Christmas shopping to get underway early this year did not really materialise in October, but it is evident that retailers are certainly trying to get it moving in early November. Of the 317 retailers IMRG is tracking every day, 25 had their Black Friday campaigns live on Wednesday 3rd November versus only 14 on the same day in 2021. In terms of sales performance, it seems to be a mix at the moment, and this may be what characterises peak trading as some are better positioned with their stock levels than others. A poll IMRG ran of 50 retailers on 4th November found that half were seeing activity on their sites ‘below expectation’, while it was ‘above expectation’ for around a quarter. There could end up being quite a sharp divide between who does well and who does not this festive period.”
I think a lot of families all over the world this year will simply “do without”. They will cut back knowing that inflation isn’t going to let up. They see no public policy changes for at least a year, possibly more. All that gets priced into their actions today.
The same goes for all markets. They are efficient and all public information gets acted upon today. The price system influences behavior. That behavior influences the price. If an exogenous shock like Covid happens, markets bounce around as information changes but once there is a trend, behavior follows.
We have a huge inflationary trend sweeping the world right now.
I remember 2003 really well. It was one of the most interesting years of my life, and financially one of the worst. We had moved from the suburbs to the city. We were renting a small apartment in Chicago because we were rehabbing an apartment. I had a terrible year trading. We cut back on Christmas. We used our daughters’ American Girl tree as our tree since all our Christmas stuff was in storage. It was the first year in my life I didn’t get a Christmas gift. I just told my wife not to bother because we didn’t have the dough.
I think a lot of people will have the same experience this year.
It’s important to remember. They don’t care. What they are doing is intentional, and by design. For your own good of course.