Fearflation: When Leadership Wobbles, Uncertainty Rules

August 27, 2021

Real Estate

Fearflation: When Leadership Wobbles, Uncertainty Rules
In last week’s post, I mentioned the conference that I attended in Dallas. One of the speakers was Ivy Zelman, founder and CEO of Zelman & Associates. If you watch the news and investment shows or listen to podcasts, you may be familiar with her and her work — she’s widely regarded as one of the best analysts in the real estate industry.

From CNBC (via Yahoo!Finance), January 2016
At the conference, Ivy spoke about inflation, including the nature of “transitory” inflation (which she indicated our country may be experiencing now) and its potential impacts on the real estate industry.
We hear a lot about inflation in general, but much less about the concepts of transitory and persistent inflation, so I thought it would be interesting to take a look at those today, given July’s year-over-year consumer-price index (CPI) increase of 5.4%.
Then, I’ll give you my take — something I’m calling “fearflation.”
What does “transitory inflation” mean?
Although even our beloved Investopedia shies away from defining it, from my perspective and generally speaking, “transitory inflation” is inflation that’s evident during periods of economic transition. Transitory inflation:
  • Is anticipated (or proves) to last a brief time, such as 6-9 months, and/or
  • Includes price volatility with pronounced increases and decreases, and/or
  • Typically has pronounced causes or drivers that, once alleviated, result in a decrease in the inflation rates and/or prices settling back a bit
Clearly, a single major event — the pandemic — has driven changes in every facet of our lives and there’s been a domino-like impact, from supply-chain disruptions through stimulus-fund distributions, all of which drive inflation.

From The Wall Street Journal, Aug. 23, 2021
“Persistent” inflation
Another nuance in the realm of inflation is “persistent” inflation. As the term suggests, in this scenario, the inflationary drivers that arose during an initial (and potentially transitory) period persist longer than anticipated and for whatever reasons, supply can’t meet demand and prices rise and remain higher for longer than predicted.
Where are we now?
We know that we’re in an inflationary period, but only time will tell how long it’ll last.
Fed Chair Jerome Powell is trying to walk a fine line between transitory and persistent inflation as he tries to navigate uncharted waters. A Wall Street Journal article this week reported:
Mr. Powell heads into the Kansas City Fed’s annual conference this week at the center of the debate over how long the currently higher inflation will last, and what the Fed should do about it.
He is managing internal disagreement and weathering external criticism, with economic recovery thrown into renewed turmoil by the rise of the Delta variant.
Some central bank officials expect the recent price surges to reverse on their own, allowing the Fed to stick to the approach Mr. Powell outlined a year ago, intended to generate inflation slightly above 2%. Others see dangers that high inflation will persist, requiring the central bank to consider raising interest rates sooner or more aggressively than they had anticipated to force it down.
Further, the article states:
At stake is the fate of an economic recovery that has been far stronger than Fed officials forecast, with output exceeding its pre-pandemic level by the spring, but unemployment still higher and jobs far fewer than before the coronavirus prompted large swaths of business and social activity to shut down last year.
If Mr. Powell gets Fed policy right—reversing its easy-money policies at just the right pace—inflation should recede over time, the economy will continue growing and the labor market can fully heal. If he gets it wrong, pulling back too slowly or too quickly, Americans could struggle for years with higher inflation or a sharp economic downturn.
In this environment, trendlines are hard to read because with so many anomalies in day-to-day life, trendlines and benchmarks and moving averages are essentially very difficult to read. Pretty much all we know is that we’re still facing several potentially significant economic setbacks and challenges to our physical health and collective psyche, eroding our sense of optimism and well-being. 
Reading the tape, then, I believe that we’ve entered a period I’m calling “fearflation” — a general, frenzied and increasing scuttle of behaviors and emotions that are evident in just about every daily activity, from how and where we work and live to how and where we spend our leisure time. There’s an undercurrent of uncertainty, a sense that the rug could, once again, be pulled out. For that reason, we’re ditching our jobs, moving to never-even-visited towns, partying harder, traveling more often and trading for today, rather than investing for tomorrow.

Photo: Mile Ribeiro, obtained from Pexels
How do we overcome “fearflation”?
When real threats exist, they require decisive action to help mitigate them.
Let’s take drunk driving as an example. 
Drunk driving is such a serious offense with such damaging consequences — injury, hospitalization, rehabilitation, loss of income, loss of jobs, even loss of life — that not only do we hold drunk drivers accountable for actual damages, but we impart strict punishments against them, even when they have simply driven under the influence of alcohol, regardless of any actual accidents or damages. 
We do this because we understand, as a society, that by not taking this preventive step, there would unnecessarily be many, many more accidents, injuries and deaths.
Why, then, is the issue of whether or not eligible people must be vaccinated even a discussion at this point, when the same damaging consequences — hospitalization, rehabilitation, loss of income, loss of jobs, even loss of life — are at stake? 
Is it too big of a leap to require that we protect each other?
What are you doing to lead?
Unknowns induce fear; to overcome it, we need decisiveness and courage, aka, leadership. That’s true whether you’re running a business, heading a family or leading a country. For example, we can’t truly move forward as a society, as an economy and as a global partner until we get Covid under control — and the only way to do that is for people in leadership positions to step up and make the right decisions, regardless of whether the right thing to do is unpopular, inconvenient or otherwise challenging.
Here are three acts of courage that I’d very much like to see:
  1. President Biden needs to implement a national mandate for all eligible Americans to get the Covid vaccine. It’s the only way we’ll get through this without more unnecessary illnesses, hospitalizations and deaths. 
  2. I’d like the federal government to stop flooding the economy with capital. Instead, stick to investments that have short-term benefits, like good jobs, and long-term ROI (fiscally and socially) that build a better America for all. Infrastructure bills and federal budgets would be much easier to pass, implement and pay for if we eliminate nonsense pork-barrel spending. 
  3. We must ensure that the current debacle in Afghanistan is resolved. I know that it’s far more nuanced than I can imagine and a pull-out at any point would be difficult at best and potentially disastrous. But we’re in it now and for the sake of all the citizens — American, Afghani and others — who are currently trapped there, we have to unravel the mess before we move on (and right now, as I write this post, CNN is reporting news of blasts at the Kabul airport).

    There’s an Opinion piece by Ezra Klein in the New York Times, “Let’s Not Pretend that the Way We Withdrew from Afghanistan Was the Problem,” that’s worth a read for the perspectives presented on this dire situation. As he says, “To state the obvious: There was no good way to lose Afghanistan to the Taliban. A better withdrawal was possible — and our stingy, chaotic visa process was unforgivable — but so was a worse one. Either way, there was no hope of an end to the war that didn’t reveal our decades of folly, no matter how deeply America’s belief in its own enduring innocence demanded one.”
Throughout history and for the long-term greater good, our country’s best leaders have faced unpopular decisions — Lincoln and the question of slavery and FDR and America’s entry into World War II are two examples — and put everything on the line because they believed that there was only one path forward, only one right decision about war, peace, genocide and human and civil rights.
Let’s hope that, once again, we come out on the right side of history. 
See you in September.

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