In a “Whac-a-Mole Economy,” Here’s How You Dodge the Mallet
I was watching and making some notes on the State of the Union address for you folks Thursday night when my son Joey drifted into our living room and asked what I was doing.
I told him – and then watched as he glanced at the TV, shook his head slowly … and scowled.
“I was promised better gas prices … and what have you done for me,” Joey said – before heading off to the kitchen to find something cold to drink.
I was taken aback. Then I thought it through …
Joey’s 17 and a junior in high school. He runs track and is a pretty fair hitter in baseball. He made the National Honor Society this year. And he’s got a curious mind. So he’s a pretty bright kid.
I’ve been a financial writer, columnist and stock picker my whole career, and Joey’s always asked a lot of questions about my work. I got him started investing five or six years ago, buying a few shares each of companies like Apple Inc. (AAPL), Berkshire Hathaway Inc. (BRK.A, BRK.B), Microsoft Corp. (MSFT) and Netflix Inc. (NFLX). And he got a part-time job – making $15 an hour – way back last year. So he’s more enlightened about money than most kids his age.
And I gave him my Ford Fusion when he got his driver’s license late last year, underscoring that he take care of the car. Joey drives to work, makes forays to Chick-Fil-A and Noodles and makes regular trips to the gas pumps. So he’s getting his first immersion into The Amazing World of the American Consumer.
My son is a bright kid. He’s responsible. He’s protective of his money. And he’s angry about inflation.
And Joey’s got lots of company.
Welcome to the Whac-A-Mole Economy – where dour-and-scared American consumers just aren’t buying the storyline where the “real” economy seems to be strong.
No wonder a recent Wall Street Journal topped a recent economic analysis with the headline: “The Economy is Great. Why are Americans in Such a Rotten Mood?”
Will the Real Economy, Please Stand Up?
On Friday – so, we’re talking about the day after U.S. President Joe Biden’s State of the Union address – a new U.S. Labor Department report said the U.S. economy added a greater-than-expected 275,000 jobs in February. That’s the 38th-straight month of growth – and the third straight month of gains above 200,000.
“We’ve been expecting a slowdown in the labor market, a more material loosening in conditions, but we’re not seeing that,” High Frequency Economics Chief Economist Rubeela Farooqi told The New York Times.
Farooqi is correct. I mean:
The jobless rate rose to a two-year high of 3.9%, a jump from 3.7% in January. But it’s still under 4% – and has been since January 2022.
GDP clocked in at 3.2% in the fourth quarter, cruising past expectations of 2%.
And inflation is down year-over-year – from 6.4% to 3.1%.
Inflation is where that disconnect begins. A brand-new CNN survey – and others like it we’ve seen of late – portray a season of discontent.
Only 35% of those surveyed said the American economy was “doing well.” A full 48% say the economy is in a downturn and getting worse. That’s not much of an improvement from the 51% of folks who had that same dour view in July 2023, or the 53% who were downbeat in December 2022.
And of all the folks who say the economy is getting worse, half attribute their pessimism to the cost of living/rising prices/inflation, CNN said.
This is truly a “Great Disconnect” between perception and reality. Some analysts are even calling it a “vibe-cession,” speculating that in an economy 70% driven by consumer spending, bad vibes could spawn a spending pullback that becomes a self-fulfilling prophecy.
Heck, even that Sesame Street icon – the lovable Baron of Biscuits we know as the Cookie Monster – sees an economy that’s more crummy than crumby.
He spotlighted the “double-whammy” scenario “shrinkflation” – where product-makers raise prices … but simultaneously trim their costs by giving us less in each package.
Add that all together and you really understand the sentiment that was embodied in that WSJ headline mentioned earlier: “The Economy is Great. Why are Americans in Such a Rotten Mood?”
Here in true Stock Picker’s Corner (SPC) fashion, we’ll give you the real lowdown on this problem.
And we’ll show you how to beat it.
Hammered By Inflation
The one lesson the Inside-the-Beltway crowd (regardless of party) never seems to learn is as simple as it is powerful: The economy isn’t just numbers or reports.
It’s people.
People with perceptions. People who make decisions on emotion, not facts. People with long memories … like elephants … or Cookie Monsters.
That’s just human nature. And it shapes how people feel about their own lot in life … and the health of the American economy.
For instance, the folks in Washington or over on Wall Street obsess over what inflation has done over the past month, quarter and year. The latest: It rang in at 3.1% in January 2024, less than half the 6.4% rate from a year ago.
So the numbers like those in Friday’s jobs report seem to be saying … the economy remains strong … jobs are plentiful … wages are growing … price escalations are easing … so you should be able to enjoy a nice standard of living.
That’s a “snapshot” mindset – one focused on a single point in time.
But if you take a longer view – and look at what’s happened with inflation over an extended span, as consumers do – you can understand the downbeat prevailing view.
That’s cumulative inflation – a 20% leap in prices since 2020.
And it stings.
A lot.
Forget the Whac-a-Mole Economy … we’re experiencing Whac-a-Mole Inflation.
It’s ugly … it’s choppy … and it absolutely whipsawed American consumers into that distrustful, pessimistic mindset.
“V” is For Volatility
I’m intentionally oversimplifying this. But consumer sentiment is a kind of psychological balancing teeter totter – with job opportunities, wage growth and wealth/savings growth on one side … and prices/inflation on the other.
That 20% increase in prices I just mentioned?
Hourly wages surged an even higher 21.5% during that same stretch.
But inflation and wages have swapped places since January 2021, when President Biden took office. (And that’s a data point … not a political one.)
Since that point, wages have marched 15.4% higher. But inflation has surged an even higher 18%.
And when you break that down into some specific areas, the pain points become readily apparent.
Car insurance is up 44% (including 20% in the last year alone). Gasoline has soared nearly 35%. Electricity has zoomed 28%. And rent has jumped nearly 20%, The Washington Post says.
Groceries have jumped nearly 21%.
It’s been more than 30 years – that’s right, three decades – since food chewed up this much of our paychecks. Whether we’re eating at home or dining out, a full 11% of our income now goes to food – the most since 1991.
An added stressor is the volatile pummeling inflation has inflicted on us since the pandemic, Washington Post Columnist Heather Long.
One thing spikes in price. The price finally eases … but then we’re sucker punched by something else.
First it was rental cars. Then gasoline. Then eggs.
“It’s been Whac-a-Mole Inflation,” Long wrote in a superbly penned column. “It’s no wonder people are still concerned and wondering what’s next.”
Mix in shrinkflation – I prefer to call it “skimpflation” or “cheatflation” (you heard it here first) – and folks feel used because they’re paying more … and getting less … and their paychecks aren’t keeping up.
Want an example? Look at the vitriol triggered by the bungled recent attempt by Wendy’s Co. (WEN) to introduce “dynamic pricing.” Urged on by opportunistic politicians, big news companies and other equally enthusiastic pundits, consumers interpreted the hamburger chain’s plan as “surge pricing” – or being charged more during times of high demand.
The unpredictability of those “surges” – you know, the “when” and “how much” – infuriated folks, who viewed it as the latest spike in prices … as if Wendy’s was wielding the mallet and attempting to “whac” them again.
The Blueprint for Success
So, as an investor, what do you do? How can you avoid the damage, repel the infectious pessimism, and be a “Whac-a-Mole” survivor?
Take these three steps … and stick with them.
No. 1: Find the Storylines: It’s a mantra here at SPC: Find the best storylines, and you’ll find the biggest wealth opportunities. It’s a top-down approach. And it’s one that’s always worked for me. Right now, big investing storylines we’re tracking and “mining” for stocks include artificial intelligence (AI), blockbuster drugs, including the new weight-loss breakthroughs, “real” income, and the New Cold War. We’ll be talking more about them in SPC issues to follow.
No. 2: Be an Investor – Not a Trader: It’s all about what you believe … about knowing yourself … and playing to your strengths. We look for those powerful storylines because we know they’ll be with us for years – or longer. That means the stocks we choose will benefit for those same long stretches. Three, five, seven or even 10 years isn’t too long. Time spans like that neutralize mistakes, unlock compounding, and dilute the impact of tough stretches like cumulative inflation.
No. 3: Enjoy Your Time – Don’t Burn It: I coached Joey’s baseball teams, spent hours teaching him how to drive, take him to museums, ballgames, auto races and concerts. I go to all his concerts. And I’ll be going to all his track and cross-country meets this year … and next. How does that relate to investing and the economy? Simple. Immersing yourself in warmth and happiness is like a booster shot against pessimism.
And we’ll be here to help you find the stocks, income plays and strategies that will open the door to a life in which you can do what you want.
Cookie Monster for president, anyone?
See you next time …
