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Technology Keeps Inflation In Check, Shellady Says

Full Employment Doesn’t Equate to Higher U.S. Wages

Things sure are heating up aren’t they?

Recently, U.S. economic reports have been conflicting, at best, and confusing at worst.

Inflation

This has been a very frustrating time to be a central banker. The leaders of these banks around the globe have been trying to cheapen their currencies in an effort to ‘import’ some inflation or, as some would say, ‘borrow’ inflation. The problem is that when these banks act in concert with other central banks around the world, it becomes a self-defeating prophecy.

And then you have Britain, who overnight saw its currency crash after the Brexit vote, giving them exactly what they’d been trying to achieve with a loose monetary policy. The problem is that once their wish came true, they began to complain about how expensive it made things abroad. Go figure – be careful what you wish for.

The CPI and PPI indicators that came out in the U.S. last week were once again muted. We just can’t seem to catch fire when it comes to those price indices. Average hourly earnings in the last employment report are hardly running away from us even though we are technically at “full employment.” Why would this be the case?

It just could be a part of this new economy.

Truck driving is the number one employer in about 27 of our states. Truck driving is also the most common job for those with only a high school education. So why aren’t those unions asking their own government why they are trying to put 8 million people out of work with the driverless car?

Where is this coming from? Who is driving this effort? What will these ex-truck drivers do for a living? Sometimes you just have to take a step back and think about the consequences of some of these new and improved ways of living.

I am all for technology when it morphs on its own, but I scratch my head when I think about what the government really is doing by going down this road so fast – pardon the pun. There have been some reports in the car insurance industry this month about how this sector has been losing money as of late. The cars in these crashes are much more technologically advanced, so the repairs are more costly. More people being put back to work results in more people driving to work and yes, more accidents. 

Take it one step further and how well do you think these insurance companies will do in an environment when the cars are all driverless, run by computers, and have no accidents? How will these insurance companies make money? I really do believe that the knock-on effect from some of these mandates that would see driverless cars very prevalent in three to five years will be huge.

You have to ask yourself whose idea this is, and what will happen to all of the cars sold over the next three to five years that actually require you to drive them. Will they be obsolete? These types of sweeping decisions need to be better thought out. It just isn’t going to be that easy.

Driverless cars will be all about the technology. In light of recent developments in the economy, it looks as though technology is showing its teeth. I think that is why we don’t see a ton of inflation.

Look at all of the self-serve kiosks in the McDonalds in London. Wait until that is the norm across the U.S. That is part of the wage inflation problem. Technology is keeping these things in check and keeping central bankers up at night around the world.

Just look at what some basic technology is doing to the retail sector. I have spoken about the percentage of online sales only amassing 10% of total retail sales. What does the retail sector look like when that number gets to 50/50? It is only a matter of time. Amazon will not be the only online retail success story, but there will be a lot more casualties in that space over the next three years, and that will be ugly before we see some daylight.

The supposed impending doom in a dust-up with North Korea as well as the Charlottesville riots we have seen in the states as of late are to name just two. The only common denominator is that the markets seem to take little notice. As I write, stocks are moving higher yet again.

Stock Market Performance

So we are on to new all-time highs. Everything is all right, nothing to be nervous about, and the world is OK. It seems like it is just a bit too obvious and a little contrived to me. I often talk about the issue, but how much toothpaste can you squeeze out of this tube? If it wasn’t for the fact that everyone and their brother is calling for a correction, we might actually get one. Too many people are expecting it and with the amount of liquidity on the sidelines, every little break in the stock market is met with a wall of money all too happy to pick up yesterday’s bread for a bargain. All I would say is this: We are pretty much priced to perfection. Stock markets, or any markets for that matter, don’t always go in a straight line higher. Markets are allowed to go down. There just seems to be so much ill-informed liquidity out there right now that is helping to keep stocks looking good and traders comfortable. One needs to be reminded that calling a top in the equity market is a mugs game, and the rest of the world can stay crazier longer than you can stay solvent.

In an effort to stay positive, there looks to be some signs of growth, globally. Japan just had an excellent GDP number at 4% and it seems that Europe may be slowly awakening, too. The question I am now faced with is this: Can we have decent global growth with no inflation?

Watch this space.

 

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