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unless you've been in the upper amazon basin rapidly fleeing humanity you know that there's been quite a lot of media attention from all kinds of angles on inflation lately some about this some about that but inflation's gotten a lot of headlines the one that is a perennial is inflation versus wages and you can see why this would be a popular thing for people to get all excited about because on the one hand if inflation rate is exceeding increase in wages that's tougher on people on average if the other way around people are gaining people never like to see inflation gain on them and so there's this chicken in the egg kind of a question which is do wage increases cause inflation does inflation cause wage increases and the reality is neither is true the reality is that inflation is really all about the degree to which we have total prices which include wages of course rising from the degradation of the value of our money now the reality of that topic is a lot more convoluted than almost anyone wants to give it credit for and in fact more convoluted than i would have said it was if you'd asked me this question 5 10 15 20 years ago because in fact as i've said in commentary that i've made over the course of the last 18 months we increasingly don't really think of money the way we used to think of money the way we used to think of money was it was when i'm a young man cash checking accounts savings accounts that was money then increasingly people were using credit cards now we have so many different forms of near money that are counted in the money aggregates that the federal reserve releases and in fact it is not actually clear which of those are real monies versus near monies because what real money is is what we use to engage in transactions but what we know is that normally whatever the actual level of real money is if one price gets pushed up by any form of obstruction from things like a lot of the irregularities in supply chain that we've seen recently or governmental interruption associated with pandemic or any other form of dislocation if that price goes up some other price goes down to offset it you actually only get sustained inflation if that actual real quantity of money is increased faster than the production of goods and services increases what i would say at this point in time is that we've actually got a world where some prices are going up some prices are going down overall prices are clearly up because the dislocations have been associated with the pandemic and its aftermath most particularly that which has been very well publicized the supply chain problems uh temporary energy problems uh in europe china even in america that have had no connection to each other but it caused the price of energy to rise and in fact almost all other forms of commodities had rising prices as we came out of the depths of the pandemic but all of these things will be worked through they will average out and wage increases alone contrary to what people want to think don't cause inflation they can be a result of inflation but they don't cause inflation any more than the price of energy rising causes inflation in america for example total energy consumption as a percent of gdp is a single digit percentage so if you increase it quite a lot it still has very little impact on total pricing wages are much bigger but wages are a result they're not really a cause so what should you think about that as it relates to gdp as it relates to the stock market as it relates to interest rates and bond prices you should largely not get too excited about it and in the months ahead because media right now has a big focus and infatuation on gyrations around inflation you're going to see a lot of attention focused on all of this i want to point out that as it relates to capital markets capital markets are particularly good at pre-pricing all widely known information and all those things that media talks about a lot the fact of the matter is that this one has been talked about so much focused on so heavily that it's virtually impossible for that which has been talked about not to already be in security prices and today as i sit recording this video s p 500s sitting right at all-time highs having already seen these numbers therefore you know that they are not terribly problematic because the market the stock market is always pre-pricing the next three to thirty months and that's telling you that it's not terribly bad stuff ahead thank you for listening to me on this topic
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