A Hidden Market Danger | Watch for This.

richard cookson an economics professor

just wrote an opinion piece

in bloomberg and suggests that we might

get blindsided by a certain type of

inflation

that could end up crashing markets let's

talk about this because

as of the latest poll that i ran on my

twitter here on june 4th a couple days

ago

i asked do you believe that inflation is

transitory that is inflation will be

back or

under two and a half percent by mid-2022

or do you believe that inflation is not

transitory that it will be

over two and a half percent for the next

few years and beyond

57.2 percent of you so the majority of

you

believe that inflation will be

transitory in other words the federal

reserve's message

is working and inflation is expected to

be transitory however 49

i'm sorry 42.9 percent of you do not

believe the fed

or quite frankly janet yellen in fact

janet yellen

just this weekend doubled down on her

beliefs and i'm going to give you a

quick summary of her belief so that way

we can compare

so here's the thing janet yellen

believes that inflation

in the short term much like the federal

reserve

believes that inflation is going to sit

around three percent on a year-over-year

basis

throughout the rest of 2021 so when we

compare 2021

to 2022 we'll have about that three

percent inflation

she much like john powell also says

quote i personally believe that this

represents

transitory factors in other words hey we

were in a recession last year

prices fell now prices are up supply

chain issues

are creating bottlenecks because

everybody's buying stuff again much

faster than expected that also leads

prices to go up

and that these things are short-term

we're not always going to be looking

back to a recession and we're not always

going to be dealing with supply chain

pressures and this is true

generally supply chain issues take about

two years to resolve themselves

but they resolve themselves and on this

channel we've regularly said that we

would expect both of these things to

start

resolving themselves by september as

schools reopen people can go back to

work

wage pressures go away supply pressures

start easing up because companies start

figuring out how to manage their

supplies more appropriately

and we're not comparing to the pit of

last year anymore so that's kind of

the catch-up we already know this and we

also know

that janet yellen has just come out in

the last two days

saying look basically joe biden can even

print as much as

a 400 billion dollars a year just keep

cranking the money printer and

we'll still probably not have a lot of

inflation and janet yellen says this

because

we've been fighting deflation for the

last 10 years

this is very similar to the kathy woods

argument or kathy wood argument

which is hey look we have technological

changes that are pushing prices down

and as companies become obsolete because

new companies replace them

old companies end up dropping their

prices and

third reason we end up having products

that end up

becoming so much better and more useful

for us not only do those products become

cheaper

but we might not even need the high

level of a product we previously had

allowing us to take another step down

the cost curve

in other words a lot of reasons why we

are fighting

deflation however that is the catch-up

part

what is this richard cookson saying well

he has uh well he's an economist and

he's a professor and he believes

that the federal reserve and janet

yellen are using flawed logic

he says that look the fed's argument is

that we've been fighting deflation

for so long but the problem is their

thinking

is entirely wrong the reason he gives

for that is because

he measures domestic services

rather than manufactured goods now this

is interesting remember a good

is a product right like a coffee mug

this is a product

or mr wall street bets diamond hands

these are products cell phones tvs these

are products

but what about real estate agents or

doctor services

health care services cleaning services

cpa services dental services photography

services

wedding services you name it a lot of

our economy

is driven by services in fact one of the

things that i talk about regularly in my

programs is you got to figure out how to

provide value to people with a high

paying service

and you can always build wealth very

quickly when your income goes up

because you can invest more faster and

retire

sooner right number one goal if you're

making under 60 000

a year should be go make more money

figure what what can you do

to make a hundred thousand dollars a

year or more right now this video isn't

about you building your wealth my

channel is about that

but i wanted to slide that in here

services can be a great way to build

your wealth if you can figure out how to

provide a really good service like being

a real estate agent pretty profitable

these days

but anyway this individual is saying hey

look the fed

and janet yellen all they seem to care

about is the consumer price index

now in fairness the cpi does include

some

measures of services but mostly it has

massive items for food

energy energy services then we have

things like apparel

cars medical commodities alcohol tobacco

smoking

we do have shelter so housing which in

theory is considered a service

uh some people consider it a good

because you're receiving

a actual building but they do include

some measures in here

of services like motor vehicle

maintenance and repair motor vehicle

insurance

airline fares hospital services

physician services so some

services are in here and this is by no

means a comprehensive

list these are more the expense

categories you could actually break

these out

very very detailed into even like this

fresh sweet rolls coffee cakes and

donuts

yeah because i'm buying those every day

not really but i mean

they look at look how detailed this goes

telephone services postage and delivery

services

so in fairness like there are actually

services

in the cpi but this particular economist

believes no no

no no they are completely underweighting

the impact of services

because if you take out the manufactured

goods and you only look at services

prices have remained stable at two

percent over the past few decades

and even though the prices of these

tradable goods have been fluctuating

they've fallen and now they're going up

like crazy because of supply shortages

and worker shortages and this is where

the economist says

very succinctly the question now is

whether prices in the ravaged services

sector

start to pick up smartly as the economy

reopens and his definition of smartly is

raise your freaking prices

i think they will because the companies

left standing will need to make up for

their losses by raising prices and

because being fewer of them they can he

goes on to say that all of this

wouldn't be such a big problem if

markets weren't at such nosebleed levels

like they are now

back in 2018 we had a higher stock

market but it was

nowhere the level where we sit now and

the market still sold off

12 to 13 percent when the fed started

raising

rates and this is why he ends with if

i'm right about inflation

the fed however reluctantly will be

forced

into an about face at that point

asset prices will fall probably probably

a lot as the fed has

forced into raising rates substantially

and that

is the big danger and this author

believes the fed

is aware of that so folks this is an

interesting argument that we haven't

really heard before

that maybe in addition to just paying

attention to broader indices like the

cpi and pce which we don't really love

just paying attention to those anyway

it's also important to start paying

attention to some of those services

are things for medical services going up

is our car maintenance are those prices

going up

kind of like we see certain prices of

like lumber or

copper or other materials going up or

other like chips for example computer

chips right are we seeing that happen in

services as well

and have we been blind to potential

service

price inflation folks let me know what

you think in the comments

down below this could have big

implications for the market

i personally am still leaning with my

september october

70 to 80 shot that the markets are going

to be very nicely

recovered by september and october as we

start seeing inflation

trend it down and i'm not so sure we're

going to see this service price

inflation

but it's something to keep an eye out

and i love reading and finding these

things because i'm always trying to look

at

what am i not paying attention to i have

to say i wasn't paying as

much attention to services as i probably

should have so i will more now

thank you so much for watching we'll see

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