Wednesday, September 14, 2011

Where are we?

A book that I recently re-read (The Great Wave: Price Revolutions and the Rhythm of History by David Hackett Fischer). Fischer goes through history to determine commonalities in all price movements. Whether you know it or not, your everyday life is dominated by prices: the price of gas, food, soda, milk, public transport, and stocks.

Yesterday the US Census published its 2010 report. The report showcased something very clear: real wages (those adjusted for inflation) have contracted for 11 years at a total of 7% (SEE BELOW). Oddly enough, a marker of all price revolutions has included negative real wage growth. In addition, food and fuel has led the upward price movement. There are many other indications that confirm where we are in price stages. We have many of the markers of a stage 3 or 4: population growth in the developing world, money supply expansion, class inequality, real wage deflation, and the recognition phase that the price move is secular. At the same time we have some odd differences: social unrest in many parts of the world which would suggest a crisis phase and very low interest rates reminiscent of equilibrium times.

Over time price waves have changed in complexity due to technology and other factors, but its seems like one thing is clear, we are in fact in the midst of a price revolution. Daily news flow may suggest otherwise, but that is just noise. Focus on the bigger picture.

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