Cents and Sensibility: the Inflation Guy Podcast

Ep. 97: Inflation and Reinsurance - a Better Way

The Inflation Guy sometimes gets distracted by shiny things. Today, he was distracted by an article sent from a listener, detailing comments from the CFO of Travelers Insurance about the increased reinsurance the company is employing as a hedge against inflation risks to its property and casualty (P&C) businesses.

This is an illuminating comment, showing both that (a) insurance costs are going up not just because insured property values are rising, but also because the cost of reinsuring is rising as inflation risks rise; and (b) major insurance companies are still not hedging inflation risk in P&C businesses with inflation hedges but rather through increasing reinsurance coverage. That's inefficient, and the Inflation Guy explains why.

Insurance and inflation! What could be more interesting than combining those two exciting topics?

 

NOTES

Article: Inflation on insured values main reason for Travelers extra reinsurance protection, says CFO

Blog Post: Inflation Sherpa

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Ep. 96: Money Illusion - What it is and Why it Matters

"Money Illusion" sounds like the sort of thing your economics teacher droned on and on about, causing you to yearn for a nice nap during class. But is it a real thing? And if it is...why does it matter?

In this episode, the Inflation Guy explains money illusion, presenting some of the evidence that it is (at least some of the time) a real phenomenon. He uses current observations where you can see money illusion at work, and then explains why it is very important that policymakers understand how important money illusion is, and over what time scales.

NOTES

Article: Fox News New Hampshire Voter Analysis Poll

Article: AP Poll from October

Blog Post: Shortages Are Unmeasured Inflation

Blog Post: Inflation Sherpa

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Ep. 95: 2024 Call to Action

In this (longer than normal) episode, the Inflation Guy talks about the outlook for inflation - which, admittedly, he did last week with the CPI Summary episode but in this case he delves into more of the drivers of his 2024 and 2025 expectations - and for several asset markets. He frames the question as a balance of the risks and makes concrete suggestions for how he would tilt portfolios today.

Also, in response to listener requests, he lists several podcasts that he (very occasionally) listens to. "Recommend" is a strong word, but he likes these.

NOTES

Blog Post: 2024 Balance of Risks

Blog Post: Inflation Sherpa

Chart of Mortgage Origination vs Money Growth

Podcasts Referred to: Orion's The Weighing Machine, InsuranceAUM podcast, We Study Billionaires, Grant Williams Podcast, Demetri Kofinas Hidden Forces, What the Truck?!?, The Memo by Howard Marks, Fill the Gap.

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Ep. 94: This Month’s CPI Report - New Year, New Ewww

It's 2024, a fresh start to what is surely going to prove to be a golden year and the end to history! The SEC has approved bitcoin ETFs, the Fed is dovish and achieved a perfect landing, rates have come down a ton, and everything is beautiful.

At least, as long as inflation really does collapse immediately to 2%, as the consensus seems to suggest. Unfortunately, reality has a way of intruding in these sweet dreams and today's CPI report was frothy in some uncomfortable ways - not little one-offs, but big things like rents, and the stuff driven by wages. Listen to the Inflation Guy walk through the implications of today's number, and what it probably means for Fed policy and markets.

NOTES

Podcast Callback: Ep. 74: Inflation Folk Remedies

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Ep. 93: This Month’s CPI Report - Sorry I Could Not Travel Both

It's the monthly CPI report! In this podcast, the Inflation Guy discusses today's economic data and highlights why the market's expectations for substantial easing in 2024 sets up a difficult path forward. He discusses several ways that inflation could get back to target, and then what needs to happen with policy to make that happen.

Hint: it isn't what the market is pricing right now.

NOTES

Blog Callback: Beware the Price Controller

Podcast Callback: Ep. 74: Inflation Folk Remediesv (discussing among other things the ‘new’ rental indices that supposedly imply rents deflation in the CPI)

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Ep. 92: Safe Withdrawal Rates - Accounting for Inflation

The notion of a 'safe withdrawal rate,' being a real amount that can be taken out of savings in retirement each year without a significant risk of running out of money in some window of time, goes back to a 1994 paper by Bengen which enshrined the "4-percent rule." In this podcast, the Inflation Guy discusses improvements to that rule - including some that he popularized - especially when it comes to the need to add some inflation-proofing to an asset mix that needs to keep up with inflation! The IG still prefers personal liability-driven-investing, but investment do-it-yourselfers who like rules of thumb need to know that there are easy ways to improve on the 4% rule...and some not-so-obvious pitfalls in using it blindly!

The Inflation Guy also responds to an excellent listener email about last week's episode.

 

NOTES

Podcast callback: Ep. 91: Quality Adjustment (?) in College Tuition Inflation

The Inflation Guy's Society of Actuaries paper: Maximizing Personal Surplus: Liability-Driven Investment for Individuals

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Ep. 91: Quality Adjustment (?) in College Tuition Inflation

In this episode, the Inflation Guy considers the question of why college tuition inflation has consistently run drastically faster than headline inflation. Is it a productivity question, or a quality question? And what does 'quality' mean in the context of college education? There are a lot of complex issues to be considered here, which ordinarily would mean you shouldn't ask someone who does his best thinking in the shower, but because we are talking about inflation we are right in his wheelhouse. It's an interesting thought process, which brings up parallels to medical care, rides at Disney, and fins on automobiles!

The Inflation Guy also editorializes on Germany's recent decision to stop further issuance of inflation-linked bonds.

 

NOTES

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Ep. 90: This Month’s CPI Report - Miles to Go Before We Sleep

This month's CPI report was softer than expected, which is welcome. And there were some quantitative effects in the data which (while expected in the big picture sense) are encouraging. However, a lot of the improvement this month were from fairly obvious one-off categories that moved in the opposite direction from what third-party surveys (for example) were suggesting they would - and most of these will end up being paid back in another CPI report soon. The Inflation Guy walks through it all!

NOTES

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Ep. 89: Hedge ’Em All - the Price of Risk

The Inflation Guy has a little thing about risk. Not merely avoiding it, and certainly not seeking it - but counting it. By carefully decomposing risks into component parts, a portfolio manager can be better prepared for the sorts of risks that can befall a portfolio and also find cheaper ways to express the sorts of risk that he or she wants to have in that portfolio. In this episode, the IG talks about how he thinks of risks, and his mission to decompose everything.

Which sort of sounds gross when we say it that way.

NOTES

Podcast Callback: “Ep. 19: Dual Duration – Why TIPS are Exactly Half the Story”

Medical Care Inflation Security: Macro Shares Medical Inflation Up Trust (never issued)

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Ep. 88: Does Slower Jobs Growth Portend Lower Inflation?

This morning's Payrolls Report was weaker-than-expected; among other things it included an increase in the Unemployment Rate to 3.9% - fully 1/2% higher than April's low for that number. Does this mean that we are going to have slower wage growth, and slower inflation? Or possibly one of those and not the other?

And what does it mean for growth? The Inflation Guy reviews the historical record of prior periods when the Unemployment Rate rose off a prior low, and reaches an unfortunate conclusion.

NOTES

Blog Callback: “The Phillips Curve is Still Working Just Fine”

Blog Callback: “Money Velocity Update!”

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