Morning Kick February 1

For those of you that subscribe, a new Morning Kick is up on Spotify, Amazon, Apple, and when they get to it, Stitcher and Google. South Korea and Norway in the news, but this Morning Kick is about Inflation, and how difficult it is to calculate or estimate, no less forecast. I don’t know anyone that has a great track record, and if you do, head to Wall Street to trade bonds. That’s your highest and best use.

One of the challenges with the inflation discussion is that every price increase is treated in the news as “inflation” unlike price declines which can be differentiated into disinflation or deflation buckets. And then there are so many measures of inflation, from CPI, trimmed mean CPI, two year CPI, core inflation, and others. There’s expected vs unexpected inflation. Lastly, the government’s calculation of inflation is subject to human adjustments called hedonics, or quality adjustments.

It’s best just to try and invest in a way that generates the returns you forecast whether inflation is 2% or 6%. For instance, stocks will do better than bonds if prices continue to accelerate, and certain stocks will do better than others. Companies with big market share and pricing power will pass on those higher costs and preserve margin. Companies in markets considered “hard assets” like real estate, infrastructure, and base metals will do better. But never forget commodities are not long-term outperformers when compared to the S&P 500. I don’t believe in hedging for hedging’s sake. Your investment case should be that there is a secular tail wind behind those hard commodities, and they’ll give you extra protection should inflation get away from the Fed. There’s more in the Morning Kick, so listen. And share. And email me with things you want to hear about: john@ktdpod.com And thank you!