Multifamily Investor Expo - Feb 15th
Inflation has taken center stage in 2022, but its causes are a lot more complex than many investors assume. Moreover, it’s not yet clear to what extent higher inflation will sustain into 2023 and beyond (i.e., whether the peak is already in the rear-view mirror).
Cullen Roche, founder and CIO of Discipline Funds and author of the Pragmatic Capitalism book and blog, joins AltsDb host Andy Hagans to demystify inflation, deflation and disinflation.
Watch On YouTube
- The true definition of inflation (and why it’s more complex than many investors think).
- The difference between deflation and disinflation (and how many investors misinterpret the Federal Reserve regarding disinflation).
- Why the Fed is in danger of making a mistake in Q4 2022.
- A deep dive on the secular trends that drove deflationary pressure in the past few decades.
- Cullen’s prediction on where inflation goes in 2023-2024.
Featured On This Episode
- Pragmatic Capitalism (Blog)
- Pragmatic Capitalism: What Every Investor Needs To Know About Money And Finance (Amazon)
- Three Minute Money (YouTube)
Today’s Guest: Cullen Roche, Discipline Funds
- Discipline Funds – Official Website
- Disciple Funds ETF Site
- Pragmatic Capitalism – Official Website
- Cullen Roche on LinkedIn
About The Alternative Investment Podcast
The Alternative Investment Podcast is a leading voice in the alternatives industry, covering private equity, venture capital, and real estate. Host Andy Hagans interviews asset managers, family offices, and industry thought leaders, as they discuss the most effective strategies to grow generational wealth.
Andy: Welcome to the “Alternative Investment Podcast.” I’m your host, Andy Hagans, and we have a great show today. We’re talking about inflation versus deflation versus disinflation, what’s going on right now? What should we expect in the next 12 months? And, what are the implications for the real estate market?
And joining me, I think I have the very best guest in the world to address this topic. Joining me, I have Cullen Roche, who is the Founder and CIO of Discipline Funds, as well as the author of the “Pragmatic Capitalism” book and blog. Cullen, welcome to the show.
Cullen: Hey, Andy. Awesome to be here. I don’t know how many people find inflation to be the most exciting thing in the world, but certainly, this audience does.
Andy: You know, it’s like a Venn diagram of someone who invests in real estate, maybe has read like Ron Paul’s books, and reads “Pragmatic Capitalists.” The Venn diagram of that person is extremely interested in that subject.
Cullen: Yeah. Well, you know, and it’s funny, too, I mean, especially the last 10, 15, you could argue even 20 years is like rates of inflation have fallen. I mean, people kind of stopped caring about it for a long time and became, I think, you know, somewhat, especially on the policy side, became somewhat oblivious to the risks of it. I think that’s what’s kind of interesting now is that, you know, even with an economy that, by many metrics, is still doing relatively well, you know, you look at things like the unemployment rate, I mean, you know, record lows and things like that, there’s a lot of metrics by which you could argue the economy is doing really well.
But the inflation story is so powerful I think people are now remembering that, “Hey, inflation is a big, big deal.” And you can have all these, you know, metrics by which, supposedly, the economy is doing well. But if inflation is high, people don’t feel it. And that’s a big part of why, you know, like, consumer sentiment is so bad, and people feel like, you know, there’s this big debate about whether we’re in a recession or not.
And, to me, when you’ve got inflation that’s as high as it is, the technical definition of a recession is almost meaningless because people feel like they’re in a recession because, in large part, their disposable incomes just don’t tend to keep up with what’s going on with current inflation trends. And so it feels like a bad environment, even though, by many metrics, it might not actually be, you know, reflected in the data.
Andy: Right. So then that’s a self-fulfilling prophecy in a way. If consumers think we’re in a recession, then we’re in a recession. Is that right? Probably the textbook term would be animal spirits or something.
Cullen: Yeah. Well, back in the ’70s and ’80s, like, a lot of people used to track something like the misery index, which is basically just the unemployment rate plus the rate of inflation. And that gives you a pretty general idea of the balance of the two. And in the last 10, 15 years when you had low rates of unemployment and low rates of inflation, an index like that reflects a generally, you know, high consumer sentiment.
Things feel good in general. And now, you know, when you look at something like the misery index, the balance of those is consistent with eras like the 1970s, where people, they don’t feel that great mainly because, I mean, in this environment, it’s all inflation.
But, you know, that is a good reflection of kind of the historical trend if you go back and look at something like the misery index.
Andy: Right. And obviously, things are very different now than in the 1970s. And really the topic I wanted to dive into in this episode, inflation versus deflation and then also disinflation. Because I think, you know, I talk with a lot of RIAs, and wealth managers, and asset managers, and even among that, you know, top tier professional group, I think there’s still some misunderstanding about, you know, how inflation really works, some of the complexities of it.
And even, for example, like when the Fed talks about inflation being transitory, excuse me, you know, they’re really referring to disinflation. They’re not necessarily referring to like a reversal like deflation. So if we could, I’d like to start and ask you, what is inflation? You know, we all have a textbook that we’ve read that says what inflation is, but I think your answer is a lot more interesting.
Cullen: Well, the sort of textbook or the Fed’s definition of inflation, the Bureau of Labor Statistics’ definition is basically, they’re using the change in prices of a basket of goods. And so what they’ve done is BLS has constructed a basket that they try to reflect what consumers actually buy in any given year.
And, you know, part of the reason that predicting inflation and understanding inflation is so difficult is because the data that we use and the inputs that go into this are inherently very imprecise. And so, I mean, think about how hard it is to collect actual, actual, you know, data from households that actually reflects what prices are.
I mean, we’re talking about a huge economy, incredibly complex dynamics here that the whole process of just building an index like that is incredibly difficult to do in real-time. And so, the BLS catches a lot of flack in part because they have a somewhat impossible job. But in general, what they’re doing is they’re building a basket of goods that tries to reflect consumer prices, and then they’re calculating the rate of change of that over various time periods.
And so not only is the basket relatively, you know, hard to compile, but the data is inherently rearview mirror looking. And so this is the thing that makes the Fed’s job really, really difficult is that they’re data dependent and they’re looking at rearview mirror looking data, which…
You know, and they’re not really in the business of trying to make very long-term forecasts about this stuff because I think they’ve learned over time how difficult that is, and so they go off of the data. And, you know, they’re then trying to project that out, to some degree, in a manner where they’re trying to balance really their mandates of maintaining low employment and price stability.
But, you know, I think the tricky thing with a lot of this is that you’ve got a lot of different measures of inflation. So you have like the consumer price index, and then you have the Fed’s preferred measure of the personal consumption expenditures metric, and, you know, they dice these things up in a lot of different ways.
They use core and headline, and core is basically stripping out food and energy. And they’re trying, to some degree, to smooth this data. So the reason they prefer the PCE core is because it’s a broader index. It’s collecting not only consumer data but also business data. And they’re stripping out food and energy because they’re typically more volatile parts of the indices. So, you know, like, anyone who follows the commodity markets, for instance, knows how volatile oil prices can be.
I mean, you get readings from the oil markets that on a month-over-month basis could make inflation look a lot more volatile. So they’re trying to smooth this data out, you know, which causes a whole different set of issues because oil is actually a huge input that feeds through into lots of other inputs in the economy. And so, you know, the whole process of defining inflation is difficult.
The whole process of building a basket that reflects it is difficult. And then, obviously, predicting it out into the future is, I would argue, one of the most difficult things to try to do in macro econ. So this is all a very imprecise process from the beginning, which is…
Andy: And Cullen, you didn’t even mention money supply or monetary policy in any of that. Because I think that’s so interesting because, you know, a lot of times people say, “Oh, inflation, it’s an increase in the money supply.” You didn’t even mention that. So is that a misunderstanding?
Cullen: Well, in a general sense, I think that here’s where this gets really messy is that when you define an inflation increase as an increase in the money supply, well, then you get into really a debate about what is money. And that is a very… Money is a really messy kind of dirty word in finance, I think, and in economics, in general, because money doesn’t have a really specific definition.
I mean, even the Fed uses, you know, M1, M2, M3, MZ, you know. There’s all sorts of different, you know, varying measures of money. In general, here’s the thing that I find problematic about defining inflation as an increase in the money supply is that money in the modern monetary system, for all practical purposes, is created by banks for the most part.
And that involves the process of loans, creating deposits. And so deposits, in an economics textbook, are…they’re just credit. They’re not the real thing in an economics textbook, which I find to be, frankly, pretty phony. Because, you know, if you walk into Walmart and you pay for something with a bank deposit, Walmart, by any measure, considers that money.
Walmart isn’t saying, “Oh, like, you need to give us real dollars. You need to give us physical dollars versus deposits.” And here’s the thing is that in a credit-based monetary system, the supply of deposits is pretty much always expanding in the long run. Like, go back through history, and you look at the charts of the amount of money deposits in the financial system, you’ll find that the deposits are pretty much always expanding because the amount of loans is always expanding in the economy.
So you get into these very sort of mundane debates about, well, when the government expands their balance sheet, you know, through something like fiscal policy, and it creates more bonds, well, what are they creating? They’re creating what is essentially a money-like instrument. I would actually say that fiscal policy deficit spending is more akin to money printing than something like monetary policy and quantitative easing.
In fact, I’ve argued for 15 years now that quantitative easing can’t really technically even be called money printing because it’s basically the process of swapping treasury bonds for deposits. You’re changing the composition of outstanding privately held assets, but you’re not actually changing the quantity of them. Whereas fiscal policy changes the quantity, so does deposit creation.
So loans create deposits, and they expand the actual supply of assets and liabilities in the economy, which is a…that’s a big, big deal because you’re changing purchasing power of somebody when you give them more credit. So I don’t want to say that money supply increases are not… Certainly, they can create inflation, and I’ve argued in the last 12 to 24 months that the huge fiscal policies, you know, of the last couple of years would certainly create inflation.
But you can get into these very textbooky, wonky, I think, imprecise discussions where, like, you know, for instance, a lot of people thought that QE coming out of 2008 was going to cause hyperinflation. Because technically, from a textbook perspective, you created more reserves, you created more deposits, and that technically created a big increase in the money supply in a textbook manner.
But if you look at it from a more, I think, sort of practical perspective through I think the lens that I operate through, for instance, you were really just swapping treasury bonds for deposits, and you were changing the composition of privately held assets. But you weren’t necessarily increasing that composition, which is, I think, a big…
It’s a big, big lesson coming out of the financial crisis versus COVID, is that when you look at what was done in both periods, the Fed actually responded in very, very similar ways in both crises. They expanded their balance sheet enormously. They cut interest rates to zero.
One had a big, big increase in inflation, whereas the other one didn’t. And I think that when you look at the difference, well, the big difference was that fiscal policy was very, very different coming out of COVID. And there was a huge, you know, $6, $7 trillion increase in deficit spending coming out of COVID. Whereas coming out of the GFC, the great financial crisis, yeah, deficit spending was big by historical measures then, but really, you know, the rescue package was like $800 billion, which, you know, looks like a drop in the bucket compared to what’s been done lately.
So, that’s a big, big, powerful lesson in my mind is that fiscal policy, it can cause big inflation.
Andy: What about policy beyond fiscal, though? Because, for instance, I’m thinking of the labor market and supply shortages, and a lot of it is policy, right? Not policy from the Federal Reserve, but, you know, political-level policy, whether state-level federal policy, you know, whether we’re talking about disincentivizing labor, disincentivizing work, or literally, you know, just shutting down entire industries for several months and really constraining that.
So it’s like, on the one hand, you have all this government money, so there’s more money, more demand entering the market with the fiscal policy, but you also have fewer goods and services, right?
Cullen: You had the perfect recipe for inflation with COVID because basically, you shut down the economy, you told people to stay home and basically not work to a large degree, and then you gave them money to, in a lot of cases, to do nothing, which is, you know, even from a basic textbook perspective, you know, you’ve got the same amount of supply, you’re going to have more demand, you’re going to get rising prices.
And so I was surprised by the extent to which the Fed seemed surprised about inflation rising. And, I think, they underestimated the degree to which this was all, you know, just supply driven. So a lot of this was inherently supply-driven in the sense that, you know, we shut down factories, and you had entire economies in places like Malaysia and China and Vietnam, which are big manufacturing hubs for the U.S. economy that basically became, you know, non-existent for a few years.
And so, I don’t know, it’s tricky. It’s really easy to look back at policy and say, you know, “Oh, they did this wrong, and they did that wrong.” You know, I try to be somewhat forgiving because I understand how difficult all of this is to predict. But in retrospect, even though the transitory narrative was very bad because I think it was a miscommunication of the way the Fed perceives inflation, which is basically, you know, they’re looking at rates of change.
They’re not looking at just the price index, which is I think, your average person, when they hear the word transitory, they say, “Well, my beer used to cost $5 before COVID, now it costs $10.” If it’s transitory, I would expect that to come back to $5 again, which is not really the way the Fed actually views things.
If your beer costs 5 bucks in year 1, 10 bucks in year 2, and then 10 bucks in year 3, well, the Fed actually says, “Well, the rate of change between years 2 and 3 was transitory. It slowed. It was 0% basically.” Whereas your average person just looks at your $10 beer and they say, you know, “Well, I’m twice as bad off as I was before because my beer now costs 100% more than it did in year one. I don’t care about, you know, the rate of change so much.”
So that was a big policy blunder in that a lot of the way the Fed works is through communicating effectively. And they rely on, you know, what’s called open-mouth policy and being able to communicate their policies to people in a way that establishes expectations. And I think they bungled that to a large degree coming out of COVID in 2020 and 2021, and I think they ended up having to backpedal out of that.
Andy: So when they say inflation is transitory, I mean, it’s like a meme now. That’s really referring to disinflation is I think what you’re suggesting. Whereas in the mind of the average consumer, but I would say, even in the mind of many investment professionals, they didn’t necessarily link that to disinflation. So it’s like, with inflation, if you have 8% inflation, the floor is raised 8%, right?
And so when they say transitory, they’re really meaning, well, the floor is not going to rise as fast as it has been. But that doesn’t mean that the prices are going to come back down. You’ve established that roof more.
Cullen: You could have more 7% inflation coming off of 8%, and the Fed would say, “Well, this is starting to look transitory.” You know, I’m on record as having said that I think inflation peaked basically earlier this year, which, you know, according to the data looks correct. But, you know, the problem, even for the Fed right now, is that, even though like core PCE inflation, it was like, I think the January or February reading was 5.3%, we’re currently at like 4.6%, the problem for the Fed is that, even though that’s technically transitory, so we’re getting disinflation, which is, you know, for anyone who doesn’t know, it’s lower rates of positive inflation basically, you know, 4.6%, relative to the Feds target of 2%, is still a really worrisome number for the Fed.
So even though we’re actually starting to get inflation that looks increasingly transitory, the Fed is still very, very concerned about a… They’re really worried about a repeat of like the 1970s, this 10-year period where inflation is, you know, like high single digits.
And so they’re operating from a perspective of, I think they want to just make sure that that doesn’t happen because 10 years of double-digit inflation, or even high single-digit inflation, it’s disastrous. So they want to make sure that that doesn’t happen. They’re really kind of screwed, though, because I think that what they’re doing now is they have to be…
You know, they’re looking at rearview-looking data basically, and they’re getting these readings that are coming in on a year-over-year, month-over-month basis, and operating off of that analysis where they’re now trying to avoid a 1970s-style environment. And where they’re at right now with policy means that they have to remain so restrictive that there’s this really fine line where it’s now increasingly starting to look like, are they slowing the economy so much, and have they made, you know, especially segments like free real estate so restrictive that you kind of can’t avoid a hard landing?
And so, you know, that’s the thing that I think like the stock market is grappling with now where the risk of a deflation or, you know, a really hard landing, it becomes higher and higher the longer and longer the Fed remains as restrictive as they are.
Andy: So inflation is going to cause deflation because it’s going to force the Fed to look like they are really taking strong action raising interest rates. And before we get to kind of that near term, I kind of wanted to go back to the 1970s and some of those, you know, secular long-term macro trends, though, that you mentioned.
And I think your writing on “Prag Cap” has really influenced me on this just the long-term deflationary pressures of the global economy, of our economy. So, I mean, to me, it was almost… I never really saw a circumstance where inflation could be 8% or 10% for like a decade.
It almost seemed like some people are politically rooting for that almost, but this has nothing to do with politics. I mean, maybe it does, but, you know, don’t invest based on what you think should happen or whatever, you know. Like, take take a reality check. In the 1970s, there was a huge demographic boom going on.
So that’s just like a constant pressure creating demand, whereas now, we’re totally in a totally different demographic, you know, place than we were then. And then you have, you know, technology, globalization, productivity, all of those gains, since, you know, the ’90s or really the ’70s, I guess, that are creating this deflationary pressure.
Do you think that the default kind of overall pressure is deflationary?
Cullen: Yeah, I would certainly argue that as a sort of baseline, there are these just huge secular trends that I think are… They’re not…I don’t want to say they’re necessarily deflationary, but they’re not consistent with very high and sustained 1970-style inflation.
So, you know, you mentioned you had… I mean, everything was inflationary in the ’70s. Not only you had the commodity boom, you know, the baby boom, so big demographic boom. You know, you didn’t have the same technology drivers, you had totally different, like, labor policies where unionization was really a big powerful mover back then.
And for the most part, all of these big trends, they’re mostly non-existent today. You know, I think that the one thing that could theoretically cause high sustained inflation, I think, was if you saw really high sustained fiscal policy. I think that’s the thing that could completely offset a lot of these big macro drivers and create a sort of sustained high inflation.
And so if you had, like, MMT advocates or even like a Bernie Sanders as controlling all the policy, I think you could end up in a scenario where you got a high, even middle single digit inflation on a sort of 10-year basis. It would feel somewhat similar to the 1970s.
But, you know, the one thing that a lot of people don’t talk about right now is that there’s a huge fiscal retrenchment going on right now. So, the Fed is very restrictive right now with policy. They’re bringing in the balance sheet, you know, they’re obviously raising interest rates a lot, but the thing that’s not getting a lot of airtime is that fiscal policy on a relative basis has been brought way in.
So, you know, we run surpluses in months on the Treasury spending side of things in the last year, which is virtually unheard of in…
Andy: So, Cullen, that sounds crazy to me that, you know, the surplus… So when you say fiscal retrenchment, I mean, is that in comparison to like 2020 or 2021? It’s like, well, of course, there’s going to be a snapback effect, but what could possibly be causing a fiscal surplus? Is it just capital gains receipts are so high or…?
Cullen: Huge. Huge, huge, huge surge in tax receipts because the economy has been fairly strong, and you had all the COVID stimulus basically peeled off, and, you know, the government has dialed it back. We’re still technically running deficits. But, you know, to put these things in perspective, through this point in the fiscal year last year, we were running something like a $2 trillion deficit.
Whereas, up to this point this year, it’s like $200 billion. So we’re still technically, you know, if you want to call that $200 billion, it’s technically new, I like to say, it’s new financial asset creation, to get away from the sloppiness of the term money printing. But, you know, on a relative basis, this is a huge, huge retrenchment in fiscal policy compared to what we were doing during the COVID year.
So, you know, these are big, big movers, though, that take… You know, the thing that kind of has me worried about the macroeconomy, I’ve noticed people on Twitter have jokingly been calling me Zero Chedge in reference to, like, “Zero Hedge” because I’ve been sounding somewhat bearish for like the last like, you know, nine months or so, which is unusual for me because I’m kind of a happy-go-lucky, just super…
I’m always super optimistic in the long run, but I haven’t felt this negative about the macroeconomy since, God, probably like, you know, the financial crisis period. And a big part of that is just that when you’ve got policy established the way that it is, it’s very hard to get growth because you rely on basically the private sector completely running with the baton.
And that’s the thing that you just don’t see right now. You don’t see the credit growth. You know, thinking of the economy as basically, like, you know, if you wanted to think of it as like one big balance sheet, well, you get credit growth, basically, or financial asset growth really from like three places. It’s the, you know, outside the United States, so, you know, as the rest of the world contributing in a way that positively contributes to the United States, the government balance sheet, and then the private sector balance sheet.
And when you look at the private sector balance sheet, well, it’s not doing enough right now to offset those other two sectors. And so that’s a big part of why growth is really stagnant right now. And, you know, through the scope of like the financial crisis, well…or, sorry, the COVID period, well, the household balance sheet was really weak, retrenched bigly, but then the government balance sheet blew up.
And so they spent so much money that it completely… It more than offset all of the income loss that was happening in the private sector, even though you had unemployment that surged to, you know, double digits. So, you know, looking at it through the scope, though, of like the three main drivers of the aggregate balance sheet right now, you’ve got a big retrenchment in the… You know, the housing market is a huge, huge driver of this because the housing market is essentially 70% of all household debt.
And when that balance sheet starts to slow, if you don’t have something to offset it, well, it’s really hard to get economic growth. And this is part of why, going back to that definition of money, it’s really crucial to consider credit as money because credit is the thing that essentially creates the money that then creates the demand that ultimately creates economic growth.
Andy: So then, in the next 12 months, you kind of referenced that you think that the Fed is almost stuck or trapped. Do you see them having to raise interest rates enough, you know, that we’ll have…? You know, and you also said that you think inflation has already peaked.
So depending on how you measure it, it doesn’t look like it’s peaked yet. But, you know, if you kind of dig into that data and fast forward six months from now, it’s probably going to be a lower rate. Is that what you see as disinflation?
Cullen: Yeah. Well, it’s interesting. You know, I’m not totally… I think the Fed has an impossible job. I mean, I think that what they’re doing is, they’re not able to do what I do, basically, which is I look at basically nothing but like forward-looking indicators of inflation all day because I’m trying to think out…
You know, I’m managing financial assets, so I have to think out, you know, 12, 24, 36 months, you know, in the case of the bond market. Like the bond market is a five-year instrument, basically. Like, you can’t just look at the next five months and worry about what bonds are doing if you’re trying to get a comprehensive aggregate view. But if you look at most of the leading indicators, like you look at supply chains, you know, the supply chain indexes come in in a huge way normalized.
Things like shipping rates out of China or, you know, through the Pacific, huge collapse in prices. You look at all of the price indices through the manufacturing surveys. Like we got, you know, the Empire State manufacturing index and the Philadelphia Fed today, you look at things like prices paid, prices received, huge collapse in those indices.
You know, the Fed can’t afford to just look at that stuff and say, “Okay, well, this gives us comfort to not have to be aggressive,” because they’re going off of these rearview-looking indicators, like things like the CPI and the PCE, which are just… You know, they’re not these forward-looking or coincident-type indicators. You’re looking at a year-over-year rate of change based on a year ago.
And so they’re under huge amounts of political pressure, really, to be certain that they don’t make a policy mistake that results in something like the 1970s. And so it’s a very…
Andy: Well, it’s interesting. It’s almost like they can make a mistake, they just can’t make the mistake that they just made, right? It’s like trying to avoid the mistake that they just made might…
Cullen: Well, you know, and to be fair, they can’t make a mistake that results in like a Zimbabwe. Because when you go Zimbabwe, you’d never come back, you know. I mean, if you get a hyperinflation, and this is the really screwy thing with inflation is that I’ve spent most of my adult life studying inflation. I still don’t know what causes inflation because it’s so particular to any sort of environment and any economy, frankly.
You know, the Zimbabwean economy is a totally different animal than something like the United States economy. So, you know, it’s very specific to each economy, but that’s the thing. If you go through something like a Zimbabwe, or a hyperinflation, or heck, even the 1970s, it is so scarring to so many people that people will forever look at that.
And, you know, it’s a big part of why the economics profession is the way it is, is because the 1970s scarred economists so badly in that era that they came out of it saying, “Never again. We are never going to let that happen again.”
And so you started to get this very, you know, focused, I think, policy view on maintaining a very low rate of inflation where policy was never causing, you know, too much of a gyration in the rate of inflation. And it took something like COVID to really, you know, knock us off that perspective.
But yeah, in general, you know, the current environment is one that when you look at, you know, the overall trends, I think, especially the forward-looking trends, it’s becoming increasingly difficult to create a narrative, I think, where you have a very high-sustained inflation.
And, you know, I think the more likely scenario here is that not that inflation is going to come down fast, but that you will see a more and more persistent rate of disinflation as we head into especially 2023.
Andy: Interesting. Yeah. And I mean, the interesting thing is that some of the structural issues are still not resolved, you know, for instance, the little tiny computer chip that all the cars need, or whatever. So even still, you know, two years later, we still have some of those issues dogging us.
So, you know, I could see there being disinflation, and maybe the rate lands at 5% or something. It’s a lot lower than it is now.
Cullen: Yeah. I mean, that’s part of it. A lot of the last couple of years has been screwy because I think that, I mean, frankly, COVID just lasted a lot longer than people expected. Like, you know, we’re still getting waves of it. I still know people who are getting sick, you know. It’s like, this thing has been around a lot longer than I think a lot of us had hoped for, and so that created a lot longer disruption in supply chains and the broader economy than people had hoped for.
But you also had things like, you know, like, who could have predicted, you know, that the Ukraine War would happen? I mean, one of the biggest commodity-producing countries in the world basically gets shut down and blown up. I mean, that caused a… I mean, that was the point where I kind of at, you know, the Q3, Q4 last year, I was like… I was starting to feel really good about the rate of inflation starting to really start to moderate.
And then, you know, the Ukraine War started happening, and I was like, “Oh, crap, all bets are off now because now all the data is going to get bumped a year out because you’re going to get, you know, core inflation readings feeding through from the commodity boom from the Ukraine War that push all of this out.” And so that’s the other thing that’s made a lot of this just so unusual, is that you’ve had these drivers that just, they lasted a lot longer than a lot of people were expecting.
And, you know, something like the Ukraine War, obviously is just like kind of an anomaly. The brightest geopolitical minds in the world as of like last September we’re saying, “Oh, this isn’t going to really happen,” and then Putin just rolled in. So, you know, talk about unpredictability of the global macroeconomy.
Andy: Absolutely. And, Cullen, I think I want to put a pin in it because I want to cover all of the effects, you know, interest rates and inflation on the housing market, on the real estate market. So, for our viewers and listeners, we’re going to cut this episode here. Tomorrow, we’re going to release Part 2 of my interview with Cullen Roche, where we’re going to cover the housing market and, you know, inflation’s effects on the real estate market.
So, stay tuned.