Please be aware that the Consumer Price Index, CPI, which we use as the measure of inflation in our valuation calculations came in at -0.10 percent per year for January. This is the first time this has ever happened since we have been in business. We do not use negative numbers in our valuation calculations, but use zeros instead. If for any reason a stock valuation turns out to be less than book value, we use book value or a fraction thereof.
Getting back to negative year-over-year CPI inflation, we should recognize the folly of believing that Quantitative Easing will stimulate the economy and therefore stimulate inflation. It hasn’t happened in Japan, it hasn’t happened here and it won’t happen in Europe.
The reason is that the central banks lend the money to other banks who don’t lend the money to entrepreneurs or small business owners who create jobs. They lend it to larger businesses that don’t create that many jobs, and they lend it to entities that don’t need the money and don’t create jobs either. These larger businesses and entities increase the supply of goods and services with the money they borrow and therefore increase the imbalance between supply and demand, causing prices to go down, not up.
This is what has happened to the oil industry in this country. Supply has far outstripped demand. It’s Quantitative Easing’s Dirty Little Secret.