LUC KBOX LE A N S I N W I T H
ED YARDENI
Measuring Misery
BY J E F F J O S E P H
Yardeni, an investment industry veteran known as the “Wall Street Seer,” has held positions with the Federal Reserve Bank of New York, the Fed Board of Governors and the U.S. Treasury Department. He served as the chief investment strategist at Prudential Equity Group and Deutsche Bank and as chief economist at Prudential-Bache Securities and EF Hutton. He’s currently president of Yardeni Research and has written seven books on the markets and the economy. His latest, In Praise of Profits, is profiled on p. 49. The Misery Index, one of the indicators that helps Yardeni analyze the economy, combines unemployment and inflation rates. Higher readings indicate increased economic and social woes. Just before press time, Luckbox leaned in with Yardeni to discuss October’s inflation numbers and the latest Misery Index reading.
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You’ve observed the Misery Index for decades. What is it telling you right now? It’s clearly flashing orange. It’s always better to see the Misery Index near its historical lows. And now, we’re seeing wages going up, costs going up, supply disruptions and, as a result, the CPI inflation rate has been moving higher. The inflation rate is a very regressive tax on everybody. It’s important to see wage increases in nominal terms, but if they’re eroded by rising inflation, it doesn’t do anybody any good—all you get is a wage-price spiral. For the stock market, a falling unemployment rate should indicate a very solid improvement in earnings. On the other hand, a rising inflation rate tends to be negative for the valuation multiple. So
now we may see the market challenged by concerns about inflation because the Fed cannot continue to maintain ultraeasy monetary policy when inflation is clearly accelerating. If the Misery Index is flashing orange, what would cause it to flash red? If it begins to appear that the inflation we are seeing here is similar to what happened in the 1970s instead of just a passing problem related to the pandemic. But we have had experiences where soaring energy prices caused recessions, so I would be concerned about that possibility. We clearly have seen fossil fuel prices increase dramatically in China and Europe and even in the United States. If prices continue to
Luckbox | December 2021
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