Saturday, December 15, 2007

News Flash: Professor Cecchetti Does Not Read NotMakingThisUp

Inflation Accelerated Last Month On Higher Prices for Energy
—The Wall Street Journal

Yes, that’s right. G
overnment statisticians have figured out that inflation is rising!

According to the online Wall Street Journal,

An unexpectedly large jump in consumer prices last month suggested inflationary pressures haven't receded and the Federal Reserve may have less latitude than markets believe to lower interest rates to cushion the economy.

The Labor Department reported that its November consumer price index rose by a seasonally adjusted 0.8% from October, the largest monthly gain in two years and a 4.3% yearly increase.

While last month’s consumer price increase may have been “unexpected” to readers of the Wall Street Journal, they were not to readers of NotMakingThisUp.

In fact, we have been accused of writing so frequently about emerging inflationary pressures from China that the blog should be renamed “Cute Stories About Inflation.”

Nevertheless, judging by the reaction of financial markets to yesterday’s news, inflation is no longer cute. Indeed, an astonishingly large number of people seemed shocked—shocked!—by the Labor Department statistics.

According the the Journal:

Stephen G. Cecchetti, a global finance professor at Brandeis International Business School, called the consumer price index numbers "scary" because price pressures were widespread in the report. Apparel prices jumped 0.8% in November while shelter and medical care costs also rose faster than expected.

Professor Cecchetti might have been less “scared” had he read “China’s Newest Export: Inflation” on these virtual pages three months ago.

If he had done so, he would have found nothing in yesterday's numbers at all surprising, least of all the apparel price inflation, which we flagged well before the bean-counters at the Labor Department—on September 5th, in fact:

While it is no secret that labor costs, and environmental costs, and energy costs are rising, along with the cost of just about everything else China needs to feed the manufacturing beast that now supplies American with 8 out of 10 everything, according to government statistics I just made up, the magnitude of the overall cost increase is certainly a shock to at least one major retailer of Chinese-sourced goods.

Like, 50% shocking.

I am not making that up: word out of one significant retailer is that some of the China-sourced merchandise they were expecting to cost, for example, $10 a unit prior to packaging, shipping, handling and mark-ups, is coming in at $15 a unit.

—“China’s Newest Export: Inflation” September 5, 2007

It might be churlish to wonder aloud why a "global finance professor" was not aware of what has been happening on the other side of the globe from his ivy-covered tower on the hills overlooking the Charles River for the better part of two years.

But we wonder anyway.

Jeff Matthews
I Am Not Making This Up

© 2007 NotMakingThisUp, LLC

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews' recommendations. This commentary in no way constitutes investment advice, nor is it a solicitation of business in any way. It is intended solely for the entertainment of the reader, and the author.


Walt French said...

My reaction was "hyperbolic," not "churlish."

That's because I, like many others (if my dictionary is a good guide), read "scary" as "alarming" or "of concern." (The latter seems most appropriate in the context; the Chinese horde has not physically attacked us.)

Most of us would say that the BLS report of inflation is more of concern than Jeff Matthews' prediction of the same, even if -- maybe, especially if -- it was such an obvious call. (The obviousness would distance you from assuming the role of Cassandra.

Nothing to see here... move along, folks.

Sam E. Antar said...


"It might be churlish to wonder aloud why a "global finance professor" was not aware of what has been happening on the other side of the globe from his ivy-covered tower on the hills overlooking the Charles River for the better part of two years.

But we wonder anyway."

Is it because too many people don't look beyond their noses like too many Wall Street analysts and auditors? Why should college professors be different?


Sam E. Antar (former Crazy Eddie CFO & convicted felon, mug shot on file with the FBI)

PS: As a crook, I took advantage of short sighted vision.

whydibuy said...

One has to look no further than the current bust of the housing bubble to see just how myopic wall street actually is.

For the last two years, in the face of strong evidence of massive fraud in loan origination, wall street talking heads have denied and scoffed at anyone silly enough to think the situation would end up in a disaster. For anyone dumb enough to follow their advice and buy the stocks or CDOs is in a world of hurt.

The point being that just because it hasn’t happened YET doesn’t mean it won’t. Markets can stay irrational longer than you can stay solvent. Or as I like to say, wall street ignores until it doesn’t ignore.

Bonds, like the housing bubble, have continued to astound the skeptics in remaining low in the face of strong evidence of inflationary pressures building and building. No, don’t pay no attention to that 300% increase in oil prices. Yeah, that stuff that’s pervasive in the economy, be it a manufactured item or shipped or grow on a farm. Yeah, sure.

And like the housing crash now, reality will come to pass with bonds too. Markets like to give you a false sense of security and stability before ripping your guts out. Houses only go up right? Mortgages are safe, stable and secure instruments to leverage up with, right? As a Chinese philosopher once said, “ what has escaped you for now is but paved to come “.

The Inscrutable Chicken said...


(oh wait, you're not)