The Digest #210
Disinflation vs. Deflation, Zooming Out, Warren Buffett's Apple Sales, Teens without Smartphones, Adam Wright, Joel Greenblatt, Robert Kierlin, Bruce Berkowitz, Jeremy Grantham, and more ...
Quote of the Week
“The world is going to disappoint you. You’re probably going to fail more than you succeed — in anything. That’s just the way it works. Life is iteration. It is, by and large, trial and error. No one has ever lived your life before.”
Disinflation vs. Deflation
When ordinary Americans heard the Federal Reserve refer to the post-pandemic spike in prices as “transitory,” there is no doubt that this was interpreted to mean that prices would return to “normal” levels at some point. What the Fed actually meant, however, is that the rate of inflation was expected to fall, not that prices would decline.
The distinction between deflation, which refers to declining prices, and disinflation, which refers to a decline in the rate of inflation, might seem obvious to many readers, but it is not obvious to the majority of people. This distinction explains a great deal when it comes to voter dissatisfaction in a highly contentious election year.
There are reasons for the Fed to oppose outright deflation, but the dual-mandate calls for price stability, not 2% inflation, which was an objective unilaterally set by Ben Bernanke in 2012.1 The chart on the left in the tweet below, posted by the Wall Street Journal’s Fed reporter, does not look like “price stability” to any ordinary American.
With the CPI up by 2.9% and “core” CPI up by 3.2% over the past year, according to the July 2024 report published by the BLS, inflation is running meaningfully higher than the Fed’s conjured “2% mandate” and far above the statutory price stability mandate set by the United States Congress in the 1978 Humphrey-Hawkins Act. The Fed’s objective of 2% inflation is a dishonest attempt to harness money illusion.
The failure of the Federal Reserve to come anywhere near to fulfilling its statutory mandate is no joke for hundreds of millions of Americans, especially the poor and lower middle classes which are the least able to absorb the impact of inflation.
When will mainstream media reporters start asking Fed officials tough questions about the Congressional mandate rather than acting like government propagandists?
Articles
The Benefits of Zooming Out, May 7, 2022. Recent market volatility reminded me of an article that I wrote a couple of years ago. In May 2022, there was a period of similar volatility which, of course, is now long forgotten. I suggested that readers should avoid looking at quotes so frequently. The same was true last week. The more you look at daily price fluctuations, the greater will be the perceived volatility of your portfolio. Looking less often provides a much smoother subjective ride. (The Rational Walk)
Thoughts on Buffett Selling Apple by
, August 9, 2024. I agree with the following observation … price matters. “While Buffett is known for being a long-term investor, very few of his stock investments are actually permanent holdings. He views stocks of quality companies as safe when they are cheap, but those same quality businesses are risky stocks when they are expensive. And the rare occasions where he didn’t sell a stock that reached fair value, he has occasionally regretted it … ” (Base Hit Investing)Berkshire Hathaway’s 13-F was released yesterday which shows the size of the Apple sales during the second quarter. Berkshire owned 400 million shares of Apple at the end of the quarter. The filing also disclosed new positions in Ulta Beauty and Heico. The size of these new positions makes it very likely that they are picks made by Todd Combs or Ted Weschler rather than by Warren Buffett.
The Power of the Process with Adam Wright, July 2020. 47 minutes. “Adam Wright breaks down the power of the process on his journey to becoming President and CEO of MidAmerican Energy Company.” (Love Leadership Podcast) h/t
How Pilot CEO Adam Wright uses faith, family and football to lead former Haslam empire, August 7, 2024. (Knox News) h/t
11 Nuggets of Wisdom from Joel Greenblatt by
, August 11, 2024. This is a trend which is not often discussed: “The US market is over-regulated which is why there are just 4,000 public companies, vs 9,000 a few decades ago. Quoted stocks are larger and are bigger relative to GDP, but the costs of being a public company is now c.$3m pa so you need to have earnings of (well) over $10m.” (Behind the Balance Sheet)Picking the Hill for Your Snowball by
, August 10, 2024. “… Remember to pick your hill and then stick to your game. Don’t get upset because someone else picked a steeper (and riskier) hill and just so happens to be getting rich faster than you for a short period of time. Don’t hop from hill to hill, trying to chase the latest fad. People on other hills are playing a different game and rolling down a different mountain.” (Eagle Point Capital)Warren Buffett: Prioritize Sensible Management Over Great Businesses by Johnny Hopkins, August 7, 2024. “… I would say that if you really think you’re in with people that have got a good business, but they’re going to keep doing dumb things with your money, you’ll probably do better to get out and get in with people who’ve got a good business and you think they’re going to do sensible things with it.” (Acquirers Multiple)
What happened when I made my sons and their friends go without smartphones by Decca Aitkenhead, August 11, 2024. “‘It’s a trap,’ Edie says. ‘You’re stuck, because if you do escape, you’re classed as a weirdo, and you’ll fall behind on trends, you won’t understand what people are talking about.’ Rose jumps in, ‘But if you do watch TikTok, you’re going to get influenced. You know it’s all fake, but you still feel like it’s real. You still can’t help comparing yourself with everyone who looks pretty, and feeling bad about yourself. And you’re going to get addicted. It’s literally like a drug.’” (The Sunday Times) h/t
, August 9, 2024. A depressing view of American decline. This is not pleasant reading, but it shows a side of America that very few journalists and writers even pretend to care about. (Walking the World)Where Was Jesus Actually Buried? by
, August 14, 2024. I visited the Church of the Holy Sepulcher in Jerusalem in 2012, so I found this article very interesting. It is well worth the time to stand in line to see the tomb. (Culture Critic)Podcasts
Robert Kierlin: Founder of Fastenal, August 12, 2024. 57 minutes. Fastenal was one of my favorite companies to research when I published my series of company write-ups, so I was excited to listen to David Senra’s review of The Power of Fastenal People, a book that sells for hundreds of dollars. (Founders Podcast)
Fastenal Company, November 26, 2022. My detailed (and now free) write-up of Fastenal, available as a PDF file with historical data in Excel. (The Rational Walk)
Exemplars, In 2000, Robert Kierlin set up a stock option plan using his own shares to avoid dilution for other owners. November 17, 2022. (The Rational Walk)
Bruce Berkowitz: Avoiding Disaster and Generating Returns, August 8, 2024, 1 hour, 4 minutes. Bill Brewster interviews Bruce Berkowitz on a wide variety of topics and does not hesitate to ask about some of Berkowitz’s investments, such as Sears Holdings, that failed to work out as he had hoped. (The Business Brew)
Navigating the Sea Change with Howard Marks at Oaktree Conference 2024, 10 minutes. “Howard Marks opened Oaktree Conference 2024 with a deep dive into his sea change thesis, exploring the broad implications for the investment world.” (Oaktree Capital)
Stock Market Bubbles, AI, and Climate Change w/Jeremy Grantham, August 9, 2024. “Jeremy Grantham gives his updated views on the recent stock market run up, how today’s market compares to market bubbles of the past, and indicators that point to the potential bear market that lies ahead.” (We Study Billionaires)
The Deep State and the War in Ukraine, August 15, 2024. Jeffrey Sachs and Demetri Kofinas discuss the war in Ukraine in the context of three decades of post-Cold War history. Sachs presents a non-consensus diagnosis of the situation, one that has been almost entirely absent in our political debate. (Hidden Forces)
Civilization Owes Its Existence to the Horse, August 13, 2024. “The use of horses by humans began roughly 5,500 years ago on the windswept grasslands of the Pontic-Caspian Steppe when a daring man (or a woman – we have no way of knowing) jumped on the back of a docile mare. Thus began the horse’s unrivaled historical influence across millennia to the present day.” (History Unplugged)
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The text of the 1978 Humphrey-Hawkins Act includes the following text indicating a goal of achieving zero percent inflation (stable prices) by 1988, provided that this could be done consistent with the reduction of unemployment: “Upon achievement of the 3 per centum goal specified in subsection (b) (2), each succeeding Economic Report shall have the goal of achieving by 1988 a rate of inflation of zero per centum: Provided, That policies and programs for reducing the rate of inflation shall be designed so as not to impede achievement of the goals and timetables specified in clause (1) of this subsection for the reduction of unemployment.” [Emphasis added]