|INSIGNIFICANT INFLATION Recently, a raft of inflation measures have been reported, all totally benign. Overall GDP-wide inflation is just 1.4%; the Fed’s favorite measure of inflation, Personal Consumption Expenditure inflation is running at just 1.6%, and wage growth, no matter how measured, is running at 3% or less and declining. And, after subtracting productivity growth (which reduces wage inflation) of 1.2%, that leaves inflation-adjusted wages growing at 1.8%. Don’t worry about inflation.|
|TRANSPOSED TRADE In 2019, the US trade deficit shrank for the first time since 2013, from $628 billion to $619 billion; just 1.7%. Exports fell 0.1%, imports fell 0.4%. Imports from China fell 17.6%, but it was made up by a huge rise in imports from Vietnam and meaningfully higher deficits with six other nations. Our trade deficit in petroleum, the lowest ever and almost zero; with other stuff, the highest ever.|
|GDP GOUGE While 2020 US GDP growth should be about 2%, two threats that could meaningfully impact the short run are Boeing, which will reduce 20Q1 GDP by 0.4% and the Wuhan Coronavirus, which may reduce GDP by around 0.3%. Fortunately, the economic losses should be made up relatively quickly once the MAX gets recertified and the virus spread slows or a vaccine is developed, thus negatively impacting overall 2020 GDP modestly.|
|GLOBAL GROWTH The IMF is predicting global growth of just 3.3% in 2020, but that’s up from 2.9% in 2019, the slowest growth since the Great Recession. The improvement is due to aggressive global monetary easing, the US-China trade truce, diminished fears of a no-deal Brexit and an uptick in global trade growth from 1% in 2019 to 2.9%. Despite these positives, US growth is expected to slow to 2% from 2.3%.|
|MEDICAL MONEY From 1998-2017, the cost of medical services doubled, and hospital services tripled; the CPI rose by just 50%. Why? Healthcare bills are paid by third parties like insurance companies and the government. Consumers have no incentive to monitor prices or be cost-conscious. Conversely, price inflation for the 20 most popular cosmetic procedures including Botox, eyelid surgery, facelifts, and nose jobs was 25%! It’s because these are paid out of pocket.|
|TURBULENT TESLA The share price of Tesla has more than tripled since the end of July and Tesla is now the world’s second most valuable automaker at $160 billion, behind Toyota at $200 billion. The only problem: it’s a consistent money loser. It has never made an annual profit, ever, and 19Q3 was only the fifth profitable quarter in its 16-year history. This rise is a textbook short squeeze and looks bubble-esque.|
|Source: Elliot Eisenberg, PhD is Chief Economist for consulting firm GraphsandLaughs, LLC, serving a variety of clients across the United States. All rights reserved.|
Amir Vahdat with Berkshire Hathaway.