Lessons From The Real World On Inflation

Our earlier commentary, Thomas’s Ham & Eggery Guide to Inflation, was picked up by Dow Jones Market Talk:

11:18 (Dow Jones) Barry Ritholtz rails against the core-CPI crowd by taking
it to the street, literally. "Over the weekend, we spoke to numerous business
owners," he writes at The Big Picture (
/). "What
they told us is very consistent with an economy that has reflated, and whose
prices across a broad spectrum of areas have increased." He cites one
restaurant on Long Island whose owner reported price increases on electricity,
food, sugar, paper goods, insurance and rent, although wages have remained
stable. He urges economists to "get out from under the fluorescent glow," and
observe the price increases that are driving real inflation.

My wife would tell you that I endlessly amuse myself, and that last line about "get out from under the fluorescent glow" is perfect example of that. 

I need to get a hobby that doesn’t involve a computer (seriously).

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  1. Larry Nusbaum, Scottsdale commented on Mar 7

    I live in Maricopa County (Phoenix/Scottsdale) AZ and we all received out 2007 Property Valuation notices. This valuation will be the basis for our property taxes in 2007 (paid in arrears)
    I had heard about it on the radio, but now I see it in person. 40-45%% value increase across the board. (I got 11 such notices, one for each parcel).
    THIS WILL HURT A LOT OF PEOPLE HERE…..RIGHT AT THE WRONG TIME. BUT, IT HAS NOTHING TO DO WITH INFLATION. Inflation is created by the printing of money. Period.

  2. Jay Walker commented on Mar 7

    Your posting is right on Barry – in fact, if you go to the most recent Warren Buffett letter to shareholders, there’s a linked interview to the RV maker that Berkshire acquired in 2005. In there, the former owner states that there’s going to be much broader inflation than expected over the next 18 months – as virtually all of his more expensive inputs begin working their way into finished product prices.

    In fact, I believed that this was going to happen as early as early summer 2004 – all the talk then of gas price increases being deflationary seemed to be utter nonsense. Never really seen any price increase work that way – don’t really expect I ever will.

    Jay Walker

  3. cm commented on Mar 7

    Larry: How do people pay for house purchases in your parts? Small bags filled with glittering glass beads?

  4. anon commented on Mar 8

    whatever you say, sounds good. it just does not matter. you write and explain the common man story, but stats are stats, right or wrong and the market reacts to what is presented. not what it should be. other minds have been griping for years on the stats released by the gov’t, calling them inaccurate. bill gross has been bitching for years on hedonic pricing and john crudele has been on the case of the birth/death ratio for who knows how long. Interesting how the media is fooled into you having them believe that you are the expert on these topics, when your best skill is taking other fellow’s topics and re-hashing them in a better wriitng style. i cannot remember the last time i saw a unique chart or graphic that you developed from theory. it is always someone else’s (properly credited) that you use. why is that?

    you are falling into the trap of being a media commentator rather than a researcher and money manager. if that can get you to sell your blog for a nice sum, then that is great. i would think that your investors in your fund would want to see less wit and more original substance, and of course profit. that is how you will ulitmately be judged by your investors. and back off of the Kudlow show, it is becoming buffoonish.

  5. cm commented on Mar 8

    anon: Please remind me why being a commentator and issuing at least in part original opinions, even though not presented to scientific standards, is a bad thing?

    And don’t forget that much (social) research is really regurgitation, recombination, and correlation of research/data published by others, almost by necessity. When did you last commission a nationwide survey? Heck, that’s probably true in all disciplines. Nothing bad about that either.

  6. Eclectic commented on Mar 8

    Stop a moment and imagine the likely course of this action:

    Suppose the Federal Open Market Committee decided that, come what may in terms of political or emotional pressure exercised against them, that they would increase short rates… next time… and the time after that… and the time after that, so that it would soon become obvious that they’d simply continue the process uninterrupted.

    Also, assume they’d use all the other tools available to the FOMC; moral suasion of bank lending and mortgage lending practices, changing bank reserve requirements, changing margin lending requirements and conducting open market transactions in government securities [I am but a mere amateur (m)acroeconomic observer; the list may be incomplete]… all these, along with short rate increases, to continually withdraw liquidity from the economy.

    What would happen to working capital?

    What would happen to worldwide demand?

    What would happen to U.S. GDP?… Worldwide equivalent GDP?

    What would happen to stocks?

    What would happen to bonds?

    What would happen to rates?… to mortgage rates?

    What would happen to oil?

    And finally, what would happen to inflation?
    I think if one works through all these questions, it should become obvious that inflation is entirely in the hands of the Fed…. and if that Fed loses control of inflation, it will permit the destruction of the middle class, right when it is least likely to be able to recover, right when it is in the middle of retirement.

    If you inflate them to oblivion (that is; de-flate the purchasing power of their fixed income asset base), you’ll convert an already almost certain situation of coming retirement inconveniency into a real Baby Boomin’ Destitution.

    I am glad I am not Mr. BB or a member of the crew.

  7. Eclectic commented on Mar 8

    Anon, we all got the memo. His wife’s already nailed him for “endless self amusement.”

    C’mon, give him a break… I mean, he’s catchin’ it at home… and admitting it.

    He’s made half your points for you.

  8. Barry Ritholtz commented on Mar 8

    A little cranky today?

    Funny thing about Anon’s comments — he’s right in para 1, and wrong in para 2.

    Misleading headline data has been widely identified for years — and ignored for just as long. It wont matter until it does, and then people will be wondering why no one realized that ___ was so bad until it was too late.

    When I am travelling, the posts are lighter and more news driven — but that’s a few weeks a quarter at most.

    As to substance — a project I am working on required me to identify instances where original research and analysis led to a finding away from the mainstream. (Its nice if its profitible too). The list of new influential memes and original ideas were quite long. I hadn’t thought of posting them on site, but perhaps I will.

    Of course, if The Big Picture were just another commentor without original ideas, it would not have achieved its level of success (whatever THAT is), and Anon would not be here posting comments since 2004.

  9. Mark commented on Mar 8


    Don’t lower yourself to anon’s level. He wants to see your original research and conclusions? Great. He can become a client of your hedge fund. But since he’s just a troll, I doubt he has the bank account to do that. I don’t see “whiner/freeloader” on my list of success attributes.

  10. Larry Nusbaum, Scottsdale commented on Mar 8


    Barry: I love the complaints from anon. Why? Because, while he complains about your style and content and lack of original thinking (he simply wants you tell him what to buy and sell and when), here he is, day in and day out reading the site, hangin’ on your every subject and posting. Oh, the implications! (I just wonder how he was able to sneak the laptop past Nurse Cratchett)

  11. Larry Nusbaum, Scottsdale commented on Mar 8

    Larry: How do people pay for house purchases in your parts? Small bags filled with glittering glass beads?
    Posted by: cm | Mar 7, 2006 10:24:17 PM

    CM: I HOPE YOU ARE JOKING! (maybe he’s in Elmira, NY)

  12. B commented on Mar 8

    What is blogging if you cannot express your views? I think that equivalently be the American public under the Bush Administration. Patriot Act. Phone tapping. Blog searching. Holding people indefinitely without charge. Keeping Federal cases private. Gitmo. Pay for positive media print. Iraqi torture chambers and on and on and on. Our society is getting a little freaky about individualism IMO. Don’t make waves. Validate everyone’s views. No test scores. Less freedoms. More state control. That is what blogging is about. An escape from the clutches of big brother state manipulation that many times includes the prevailing media.

  13. Larry Nusbaum, Scottsdale commented on Mar 8


  14. rwbil commented on Mar 8

    I think anon is expressing what improvements he would like for this Blog site. Nothing wrong with that, though the way he wrote his comments were a bit unfair. He seemed to state what his vision for a Blog site should be. As far as I am aware, Barry never has stated this Blog site was suppose to provide detailed analysis of what he is buying and selling for his clients.

    I very much appreciate the way Barry does this Blog site and I enjoy Barrry’s Appearances on Kudlow & Co. Somebody needs to be on that show that lives in the Real World.

    But to anon improvement suggestion, Barry I also am a very analytically person and would love it if you did provide more of your detailed analysis on both the big economic picture and on particular stock picks. But I would understand if you said that was not the purpose of this Blog.

  15. Larry Nusbaum, Scottsdale commented on Mar 8

    rwbil: You want to know what to buy and sell and when? OK, BUT, THE STANDARD PAYMENT IS A SOUL.

  16. rwbil commented on Mar 8


    This site is another information source for me. In addition to reading the WSJ, Barrons, Forbes and watching all the financial shows I read the Barry Ritholtz Blog site. And yes, I like to know the analysis behind a recommendation no matter who is recommending it. But in the end I decide what to buy and sell based on my own analysis.

  17. Rusty commented on Mar 8

    The comments from the breakfast shop owner are consistent with the idea that, although there is inflation in commodities (and therefore material inputs), the “deflation” of labor costs has for the most part balanced that out.

    But how can that be?

    It is because labor is by far the biggest input into unit costs for most of our businesses, especially as the US has become such a service-based economy. The stuff costs more – the assembly costs less. voila.

    I’m not saying that this is an absolute truth, only an idea as to why broadbased statistics seem out of joint with our personal, anecdotal perceptions of prices. Maybe Barry could dig a little into this in a future posting.

  18. JWC commented on Mar 8

    Barry, I love your blog and read it every day. I can’t imagine how you have the time to write here and run a business, but I feel very lucky that you do so. As far as appearing to Kudlow is concerned, I don’t watch his show except occasionally when I know you are on there ahead of time and am doing nothing more interesting.

  19. cm commented on Mar 8

    Larry: Yes, I was being facetious, and no offense please. But your 40%+ value incerases are very much the result of money printing. Money is not literally printed, but created by setting the conditions in the financial system so that a certain volume of loans is extended. And it’s not just the “first wave” of home purchases generating some bang, but perhaps more the subsequent home equity withdrawals (via HELs and HELOCs) by people who don’t sell, and then go spend their new “income” on fancy cars, remodelings, etc.

  20. areyburn commented on Mar 8

    I’ll throw out an anecdote. I live in (yes there really is a) Kalamazoo. It’s a small city, surrounded by rural land in SW MI. The fanciest restaurant in Kazoo probably pales in comparison to nice lunch spots in Manhattan. My lunch spots are fairly pedestrian; many are the kind of places that have a little bowl for spare pennies at the cash register. Until very recently, I’d never seen anything other than pennies it those bowls. Now I’m seeing not only nickels, but occasional dimes.

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