Some Thoughts on Inflation

Spending a lot of time online I see a lot of jokes and memes about topical events. One of those topics lately has been inflation.

With interest rates so low, with financial markets booming, with stimulus checks having been sent out, it all makes sense to see it or think it. Inflation is also kind of a scary thing. No one wants their money to be worth less as each day passes.

Money printer go brrr. Inflation go up.

But I’m not sure that’s what is going on. What I am saying is are we seeing inflation or are we seeing a price squeeze because of a shortage across a large and diverse basket of goods? These are two very, very different things.

If 50% of all goods are made overseas, and if those goods can’t make it into the country because of backed up ports or lack of workers or something else, well that’s going to create a price squeeze. A lot of demand for a small amount of things. Or even a shrinking supply of things.

It might also be self-reinforcing. It’s like toilet paper during Covid. As people start to realize the quantity is shrinking, it squeezes price even higher.

So I guess the point of this post is that macroeconomics are so much bigger than a meme or a headline or an observation. Yes prices are going up, but potentially not in the typical inflation sense. I saw this picture the other day of boats, carrying tons of goods, backed up at a port:

Record number of backed up ships waiting at various ports to unload

For my own investing or trading strategy, I am keeping this in mind.

I have a few positions on right now. I’ll explain them later.