Jim Cramer: An economic wave is about to hit that will be fantastic for investors

Maybe we aren’t really that connected. Maybe we’re basing our financial decisions on economic data that is wrong. And just because we are all using the same wrong information doesn’t make it right. As someone who is trying to make sense of it all for Club members, I find myself befuddled — not because the possibilities are so hard to put together, but because the outcomes are all wrong. On CNBC last week, I knew I was headed down an arrogant rabbit hole when I said the consumer price index (CPI), released on Wednesday, radically overstated some of its inputs. (The CPI collects data from retailers and housing units to measure the change in the prices people pay for goods and services, including fuel, utilities and food.) My co-anchor David Faber was in disbelief and asked how did I know that. I told him it’s because I do better work than the U.S. Bureau of Labor Statistics, which calculates the index. “Yeah sure,” David said, laughing. But I meant it. I explained that I check in with more people at stores and ripped off the top ten outlets for apparel. I also amalgamate e-commerce prices and check regularly for sales, even down to the level of Ollie’s Bargain Outlet (OLLI), the budget retailer that I like so much, especially my store in Quakertown, Penn. David pressed, saying that it was inconceivable that I knew better. I came right back and muttered that one of the upsides of having no real life is that I get the edge on those who do have lives, including the researchers who compile the data. Of course, you can see these researchers do check in with a lot of areas. But the question is: Do they check in well? Do they read the research which shows that this year is shaping up to be a more promotional year than last year (meaning prices are going to be down, maybe way down)? Do they go to the stores, as I do, and write the prices down? Do they compare the prices at Costco (COST) to those at the mall? Of course not. What makes me so adamant about all of this? Because when I was a little boy, every Saturday my dad took me on his sales calls. Pop sold boxes and bags to retailers, along with gift wrap, scotch tape, and stretch bands. Every week, we travelled the Philadelphia area, South Jersey, Allentown, Bala Cynwyd, New Hope, you name it. Pop would pull into a mall and he’d have his satchel of samples in one hand and my hand in the other. I still remember how much I loved that. I miss that strong hand in my tiny paw. I didn’t really understand what my dad was doing, or why everyone seemed so mean to him when he was being so nice. But that’s the lot of a salesperson, then and now. We went everywhere: shirt shops, men’s apparel, jewelry stories, hobby stores. Pop was never really successful at selling, maybe because he liked Shakespeare, Renoir and the opera too much. He regarded the job as something he had to do to get by. Maybe he was trying to show me there was more to life than getting your head kicked in by every cashier, assistant store manager and stocker. As I got older he taught me more about what sells and why. He would take me to Kmart and Sears and Caldor and Bradlees and explain why each one would never make it. Then he took me to Walmart (WMT) and explained, one by one, why his clients wouldn’t make it. When he took me to Costco (COST), he said that Walmart had finally met its match, and deservedly so given how many customers Walmart had laid to waste. If I had to sum it all up, I learned two big things. One was that my dad really loved me, something that was in doubt when we clashed politically and after my mom died so early. And two, I learned how to spot a bargain. You see, my dad just didn’t take me to these places, he taught me about his first job when got back from the war. He sold slacks at Gimbels and got fired for not selling enough of them. He had made a study of everything pricing in that loser department store, too. Pop knew who had the lowest prices because we needed the lowest prices. Do the researchers know the lowest prices? Did they get taught by a man who spent his whole life studying prices and spent thousands of hours driving them into his son’s head with the precision of a Black & Decker drill? No. While I don’t know some of these inputs as well as others, I do know that they aren’t always right. They can be more wrong than right, even. I owned a restaurant for a dozen years and studied pricing endlessly, trying to nail exactly what would bring people in and what would turn them off. I know how to talk to folks at restaurant chains. Same thing with liquor stores. Ultimately, I have gotten to know my way around the CPI and it’s a sloppy way to figure out pricing. I am not saying it means the CPI has it all wrong. I am saying that those who pay attention to it would be better served by focusing on wages. They are at least tabulated better — not faster but better. Of course, wage data is also antediluvian. Think about it: The most important data on wages is collected once a month, and that’s good enough for the U.S. government. Advertisers and marketers are collecting data every second. Do we really have to wait once a month for data? We could do it once an hour if we had to, but the government has been doing it the same way for as long as I’ve been in the business. Just give the contract to Adobe (ADBE), Salesforce (CRM), Alphabet (GOOGL) or Microsoft (MSFT). We would be a better informed nation and wouldn’t have nearly the guesswork we do now. But let’s pull back to broader concerns. Not only do I not trust most of the government data, I don’t think it is applied well. We make so many decisions based on how the Federal Reserve will react to this data and somehow believe that’s good enough. Sure, that makes sense if you are trading the futures. But it makes no sense if you are trying to invest for the long term. And here I am not speaking about how Warren Buffett bought heavily after the flukish Battle of Midway. I am talking about how inflation might make or ruin your portfolio. For example, If you are looking at the price of apparel, or a rental, and then measuring it against intractable mortgage rates (although only rental homes and apartments are in the CPI, not houses), you not only can’t see the forest from the trees — you have the wrong trees. That’s because unlike the price changes the CPI relies on, the bigger picture comes from the innovation that the big companies have had to come up with to deal with the great retirement, the great immigration wall and yes, the great death of the pandemic that took perhaps as many as 4 to 5 million people out of the workforce. Yes, we still lack real figures on something that elemental. Two years couldn’t spur enough innovation to track it all — things like Chipotle inventing “Chippy,” a tortilla-making robot, or businesses figuring out how to do faster price checks and add more cashier-free machines. We couldn’t get it done fast enough because tech had a great mismatch that it’s still not owning up to — a love affair with enterprise software. We have had a generation of rich kids who became super rich adults and then billionaire inventors and hedge fund managers because of enterprise software. It just happened to be the field that smart people figured out the money was in. They weren’t there to make productivity gains anywhere outside of the office. Certainly not the factory floor. Too pedestrian. Not salable. Not disruptive enough. If they were going to deviate from enterprise software, it was going to be for fintech because mutual fund managers loved those stories. Automating human resources, digitizing selling, crafting “buy now pay later.” But nothing about how to make food cheaper or clothes less expensive. Nothing about how get imports in cheaper to keep prices down while at the same time not wiping out millions of higher-paying jobs that made it so people could go to those stores that wiped out my dad’s customers out and still have money to send kids to colleges that didn’t cost $90,000 a year. The mismatch of tech innovation and the well being of our people is one of the most outrageous, sad, pathetic, avaricious and disgusting trends of the past several years. That was until at last someone broke it all up and crushed the paradigm, our modern day Leonardo da Vinci Jensen Huang. This polymath and founder of Nvidia (NVDA) decided that if he broke the chains of Moore’s law — the observation that the number of transistors in an integrated circuit (IC) doubles about every two years — he could create something that eliminated waste, making the planet better, faster, cleaner and more productive so it didn’t cost so darned much for regular people like him. Seven year ago, Huang met a fella named Sam Altman and they fiddled together to come up with something called generative artificial intelligence. We, at last, arrived at something that could make things fair again, and much less inflationary. Of course, Jensen was a pretty lonely person telling people about all of this. Maybe because I am still the kid holding Pop’s hand as taught me, I got what Jensen was saying. Maybe because he is so patient with me, much more than Pop, I can hang on his every word. But here’s what I know now: not only do the numbers the Fed relies on smack more of fiction than fact, but we are at the cusp of the greatest wage deflationary spiral since the North American Free Trade Agreement (NATFA) and the open borders of China to the U.S. We can all sweat about a government shutdown and a covenant broken. We can worry about China and Taiwan and the presidential election. Me? I am just waiting for the real wave of deflation to hit us: wage deflation. And because of the ridiculous way we tabulate data, that wave won’t just hit us, it will roll over us, driving our faces into the sand. It’s happening. Just jump over the wave. There will be people who will worry that deflation is a prelude to recession and that’s why the yields on the 10-year and 20-year Treasuries are inverted. Don’t be frightened of the wave of deflation or misinterpret it as anything but fantastic for investors. You must buy stocks at the ugliest of moments. We will have the stocks and we will do it together. (See here for a full list of the stocks in Jim Cramer’s Charitable Trust.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

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