Remember the 1970s? It was known as the “Me Decade” and for bad music (disco). Among the other, more significant developments was “stagflation”: a period of stagnant economic growth, soaring inflation and, as a consequence, high unemployment.
Stagflation has edged back into the conversation about the economy and markets this month. First, the World Bank lowered its projected global growth rate for 2014 to 2.8 percent from its previous 3.2 percent. Then the International Monetary Fund lowered its forecast for U.S. growth from 2.8 percent to 2 percent.
This week, the final revision for the U.S. economy’s performance in the first quarter of 2014 came in at a dismal -2.9 percent, even worse than the pessimistic consensus.
Based on the general tenor of economic reports over the last three months, growth likely rebounded to an annual rate approaching 3 percent in the current quarter and could do so again in the July-September period.
After that, it’s anybody’s guess, particularly with the Federal Reserve gradually tapering its monthly purchases of Treasury and mortgage securities. We have yet to see 3 percent annual growth in the current economic recovery, which is now entering its sixth year.
In addition, job growth remains sluggish, with the decline in the official unemployment rate to 6.3 percent attributable in large part to the many people who have left the work force.
Meanwhile, prices of most commodities are up sharply in 2014. Energy, agriculture and precious metals led the way, with only industrial metals faltering. Prices for food, health care, heating/AC and more have climbed meaningfully. No doubt, many of you have noticed shrinking portions of various supermarket products, just like in the inflationary ’70s.
Last week, we heard that the consumer price index (CPI) is now up 2.1 percent over the last 12 months through Ma! y, and 2 percent excluding food and energy.
This week brought the latest numbers for the Federal Reserve’s favorite inflation gauge, the core personal consumption expenditure (PCE). Core PCE gives more weight to health care and less to housing. Over the past 12 months, the PCE has climbed 1.8 percent, and the core PCE, again excluding food and energy, is up 1.5 percent.
Either way, it’s widely acknowledged that the official government numbers understate inflation, partly because of changes made in the calculation methods over the years.
In other words, inflation indeed is dormant if you don’t eat, don’t drive, don’t send kids to college, don’t need healthcare and don’t breathe.
What Lies Ahead?
Over the past 20 years, the CPI has averaged 2.4 percent, far from the double-digit levels of the late 1970s. So the current level of inflation is near the long-term trend.
Better economic growth seems likely in the near term, in the U.S. if not elsewhere. Our job market, as defined by qualified workers, may be tightening. The movement to raise the minimum wage is gathering momentum.
By historically normal measures, economic growth of 2.5 percent a year (we hope); 2 percent inflation, which is the Fed’s target rate; and a 6.3 percent unemployment rate would call for a more normal monetary policy.
In theory, that should lead the Fed to start raising its benchmark short-term interest rate as soon as the first quarter of 2015, earlier than most people currently expect. That rate has remained in the zero-0.25 percent range since December 2008.
We see three counter arguments. First, the Fed likely has to risk acting too late before hiking its short-term rate. Reason: If economic growth falters, the need for easier money could increase again, leading the Fed to reverse course.
Second, inflation is considered primarily a monetary phenomenon by many. In other words, it comes from “too much” mo! ney chasi! ng goods and services. Currently, all too much money is doing nothing: Money velocity is low despite the Fed’s aggressively easy policies.
Third, aging societies tend to grow more slowly than when their populations were younger. To a lesser extent, the US is now experiencing what has been happening in Europe and Japan for some time.
Bond investors, arguably the most inflation-sensitive, aren’t worried yet. Fixed-income yields are depressed in much of the world, including the 10-year U.S. Treasury issue down nearly 2.5 percent.
Spencer Platt/Getty Images It seems as if tech darlings don't want to scare off potential investors with sticker shock. Last Wednesday Apple (AAPL) became the latest company with a hefty share price to declare a stock split, agreeing to exchange every single share for seven shares trading at a much lower price. Stock splits are zero sum games. If an investor has 100 shares of Apple with the stock at $560 at the time of the 7-for-1 split, that investor would own 700 shares with a stock price of $80. But no matter how you slice it, the math still results in a $56,000 stake in the consumer tech giant. However, many think that there's a psychological benefit to having a stock appear to have a lower price. Apple isn't alone. Google (GOOG) also recently completed what was in effect a 2-for-1 stock split by giving investors a new share of non-voting stock for every share that they owned at the time. With Apple and Google validating the practice, don't be surprised if more stocks with large share prices go this route. A Split by Any Other Name Apple executed 2-for-1 stock splits in 1987, 2000 and 2005. It was quick on the trigger whenever its stock approached high double digits or poked its head into triple digits. However, the stock splits went away after that. Apple's stock continue to shoot higher as the iPod grew in popularity, followed by the introduction of the iPhone in 2007 and the iPad a few years later. Why did the company alter its behavior? The best bet is that Google changed the game when it went public around the time of Apple's final stock split. Google wanted to go public at a price that was as high as $135 during the summer of 2004. It had to settle for $85, but the message was clear: Google wasn't going to try to cater to conventional whims where companies would perform pre-IPO splits in order to hit the market at more accessible prices between $10 and 30. Google's reluctance to declare stock splits through nearly 10 years of trading let everyone know that it was in a race to hit the highest share price possible. It finally gave up the game a few weeks ago when it broke through the $1,000 ceiling, announcing a spinoff that was essentially a 2-for-1 stock split. Google's move now leaves just four stocks trading for more than $1,000 a share. The Rise and Fall and Rise of Stock Splits Stock splits were fashionable in the late 20th century. Retail investors were buying stocks in round lots of 100 shares at a time, and a company didn't want to limit its appeal. Individual investors who had just $20,000 to invest in a new stock would gravitate to 100 shares of a stock at $20 than to buy 20 shares of a stock at $100. Even today, some investors argue that a stock price can be too high. Market cap is the product of a stock's price and the number of shares outstanding. The stock price on its own is immaterial. A stock can be expensive if it's overvalued relative to its fundamentals, but there's really no such thing as a share price that is too high on its own. It's true that the greatest investor of our time is not a fan of stock splits. Warren Buffett has refused to declare a stock split on Berkshire Hathaway (BRK-A), though he reluctantly went on to offer a new class of shares (BRK-B) at a lower price several years ago. However, with the exception of a handful of successful companies, most companies don't like to see their prices get too high.
Stephen Colbert: The Man vs. The Character NEW YORK (CNNMoney) The Colbert Nation tuned in big time to say goodbye to "The Colbert Report." 
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Older pre-retirees are furthest from being retirement-ready, according to a recent analysis by BlackRock and the Employee Benefit Research Institute.