Don't Get Sucker-Punched by Jamie Dimon
The CEO of J.P. Morgan is making stupid statements about inflation!
He’s saying there’ll be six or seven interest-rate hikes.
But I’m here to tell you that he’s probably betting against that trade.
I don’t want you to be sucker-punched by this nonsense…
So in my latest video, I’m going to give you the real deal.
For a transcript of this video, see below. This transcript has been lightly edited for length and clarity.
Don’t Get Sucker-Punched by Jamie Dimon
Welcome to Moneyball Economics!
I'm Andrew Zatlin.
Once again, the conventional media is lying to you…
And guys like Jamie Dimon, the CEO of J.P.Morgan, aren’t giving you the real story.
Sure, inflation just hit 7%.
But that doesn’t mean there’s going to be seven interest-rate hikes…
Or that all your stocks are going to zero.
Today, I'm going to pull back the curtain, so you can see what’s really going on.
Back to Basics
I’m going to break this topic into a couple of videos.
Because we need to give this topic its due — and make sure that when we’re done, you know how to position yourself for what’s coming.
Let's start with the basics:
This chart shows the inflation rate.
As you can see, for a long time, inflation was around 2%.
Then, starting in 2021, it suddenly went from roughly 2%… to 4%, 5%, 6% — and now, 7%.
What’s going on?
A Great Big Stew
Well, it’s important to understand that inflation is like a stew.
A lot of different factors go into it.
It has meat, potatoes, carrots, mushrooms, and peas. (Please forgive this analogy — I haven’t had lunch yet, so I’m hungry!)
So if you really want to know what’s going on, you can’t just look at the overall stew…
You need to look at the meat, the carrots, the peas… individually!
Otherwise, the inflation number you keep hearing about is telling you the wrong story…
And it’ll mess up your investment strategy!
What’s Driving Inflation
To see all the “ingredients” that go into calculating inflation, look at this chart:
As you can see, there’s only about five components in there.
The biggest one is shelter. This means mortgages or rent. That’s 32% of the calculation.
Then we’ve got food, which is 14% of the calculation.
So between these two components, that's almost half of the total number.
These are the meat and potatoes in our “inflation stew.”
Then we have components like energy and cars. These are smaller components, the peas and carrots.
Generally speaking, if there are big moves with the meat and potatoes — i.e., shelter and food — that’s going to have a far greater impact on inflation as compared to energy and cars.
But today, something surprising is going on…
The Big Impact of Three Small Components
As I mentioned, shelter and food make up nearly half the overall inflation number.
But neither food nor shelter have jumped up by more than 5% recently.
So why the heck is the overall inflation rate above 7%?!?
Simple. Skyrocketing prices from three unlikely places:
- Energy.
- New cars.
- Used cars.
Let’s start with energy.
The price of energy is up 30% year-over-year.
And this increase is driving the majority of the overall 7% inflation rate.
It’s a similar situation with cars.
Even though cars are just a small part of the overall inflation number, the fact that we’re seeing 30%+ inflation rates (particularly for used cars) has a huge impact on the overall inflation rate.
So if we want to know what’s really happening with inflation, these are the three components we need to look at.
The Base Effect Is Distorting the Inflation Picture
Now let me introduce you to a term that economists use all the time.
It’s called the “Base Effect.”
It might sound complicated, but it’s pretty straightforward…
(And by the way, it can make you sound really smart at cocktail parties.)
The Base Effect is a way that economists look at inflation — basically, they compare its level today to its level a year ago.
But the way that the “math” here works, if the numbers a year ago were very low, even a tiny increase will make it look like inflation today is very high!
Let me show you an example:
When COVID struck in 2020, oil dropped to $20… that’s a very low number.
And when we compared that $20 price in 2020 to the $60 price a year later, we got a HUGE inflation number — it was hundreds of percent!
In other words, the historic low in oil prices completely distorted what was truly happening!
But now consider the state of affairs today:
At the moment, oil is hovering around $80. Last spring, it was around $70.
So if the price doesn’t move too much before the spring, we’ll have just a $10 difference from 2021. That’s a much more reasonable inflation number — about 14%.
In other words, inflation is slowing down for oil.
The moral of the story here?
The Base Effect is giving economists a very distorted picture about what’s really going on today…
And that’s the picture the media is picking up…
And that’s the picture Jamie Dimon wants you to believe — so he can bet against you!
How Much Does a Gallon of Gas Usually Cost?
Here’s another reason all the economists and the media are getting the picture wrong:
We’ll soon be heading back to what’s called “mean reversion.”
Basically, mean reversion refers to a product returning to its “normal” price. For example, how much does a gallon of gas usually cost us? How much does a loaf of bread usually sell for?
As prices for goods revert back to this level, the Base Effect will start to fade away…
And the picture for inflation will stop looking so bad.
When will that happen?
Soon — around the second quarter of this year.
Your Investment Outlook
Big picture: if you look at the math, you can see clearly what the future holds:
To some people, inflation looks scary today…
But the fact is, it’s on course to mellow out in the weeks and months ahead.
The media is telling you crazy stories about inflation.
But if you look at my “stew” of factors that goes into the inflation number…
And you consider the Base Effect and Mean Reversion…
Well, that’s when you see what’s really going on with the economy and interest rates…
And by extension, what will really happen in the stock market!
So be sure to tune in for my next video so we can dive in a little deeper…
And start getting our portfolios ready for action.
For now, Zatlin out.
In it to win it,
Moneyball Economics