Fear can be defined as False Evidence Appearing Real. Inflation is front and center again after two months of reduced interest. A Google Trends query shows that “inflation” is trending at higher levels than the lead up to Liberation Day and closing in on recent peaks on election day1. The media can be a double-edged sword. They offer needed information but deliver it in a jaded fashion as eyeballs translate into revenue. Much of the commentary escapes analytic scrutiny. Here are the main faux pas the media seems to be falling victim to.
1) Extrapolation
Warren Buffett famously said, “Investing is simple but not easy.” Many try to shortcut analytical thought with an overreliance on quantitative modeling. Numbers are an analyst’s syntax, but improper use of the syntax can lead one astray. Lazy analysts, or even media up against a deadline, tend to extrapolate the recent past into the long future. This assumes the “new” trend is the only trend, yet trends change all the time, and even long-term trends can have near-term fluctuation. Just because recent inflation numbers are high doesn’t mean higher inflation will trend indefinitely.
2) Biased Data Mining
Torture the numbers long enough, and they will confess to anything. Another culprit of lazy analysis is biased data mining. Data mining is seeking data to support one’s foregone conclusion. Analysts should be conscious of reviewing data objectively to guide one’s decisions and not simply seeking data that confirms one’s preconceived conclusion. Yes, the Federal Government has printed tons of money, but the Federal Government has printed copious amounts of money in the ‘80s, ‘90s, ’00, and ‘10s, but inflation has fallen over the decades. To be clear, excess money can be a contributor to inflation, but inflation pressures are more complex than the amount of available money.
3) Ignoring Fundamentals
The first two are often accompanied by the third… ignoring fundamentals. Good analysts seek the root cause. This is akin to diagnosing a couch as the problem, yet ignoring the patient has a viral infection. Recent consumer surveys may conclude that consumers are a little nervous about their future. However, a review of the labor market data, consumer spending, and business investment shows signs of a solid economy.
4) Contemplation
Which areas are driving June’s uptick? The answer was pretty well laid out in a Wall Street Journal article on Monday, July 21st, The U.S. Economy Is Regaining Its Swagger2. In summary, U.S. consumers have realized the calls for tariff frenzied inflation and a severe recession have not materialized. In the end, people have decided to enjoy their summer, adding to consumer spending via pent-up demand.
Could inflation be reignited? Sure, but the current data suggests inflation is controlled. Could economic data weaken? Absolutely, yet the hard data are not giving such signals. Could tariffs result in an international trade war and risk a global recession? It’s possible, but not probable and we do not see evidence of such. Thank you for your continued trust as we stay vigilant of economic developments and market dynamics. We hope you’re enjoying your summer!
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