[00:00:00] Stig Brodersen: In today’s episode, I’m joined by Cullen Roche. As I’m sure avid listeners would know by now, Cullen is one of the most insightful thinkers on macro and building the right portfolio. In today’s episode, we talk about whether central bankers should be elected, how to optimize for independence, and sleeping well at night, and everything else in between.

[00:00:18] Stig Brodersen: Cullen is such a wealth of knowledge, and you just know that you’ll be in good company and get a more nuanced view of financial markets whenever you’re around him. So without further ado, here is our conversation.

[00:00:33] Intro: You are listening to The Investor’s Podcast, where we study the financial markets and read the books that influence self-made billionaires the most. We keep you informed and prepared for the unexpected.

[00:00:54] Stig Brodersen: Welcome to The Investor’s Podcast. I’m your host, Stig Brodersen and I’m here with Cullen Roche. Cullen, how are you?

[00:01:01] Cullen Roche: I’m doing great, Stig it’s always great to be back.

[00:01:05] Stig Brodersen: So Cullen, let’s just jump right into it. One of our favorite topics, and I’m sure the listeners would know this. Given that you’ve been a guest here so many times, one of the favorite topics that we almost always talk about is inflation and this episode will be no different for the first part of the interview.

[00:01:22] Stig Brodersen: So I was going for a walk with my wife the other day, and my wife told me about this rapper, famous rapper called Cardi B. This is my way of easing into a question I clearly know nothing about. But anyways, Cardi B is a rapper and she’s rapping about lettuce costing up to $7 which just, you know, it just sounds crazy.

[00:01:42] Stig Brodersen: And that led my wife and I to talk about the Personal Consumption Expenditure price index, also called PCE. Now my wife’s an economist by trade, so that transition probably isn’t as odd as it might sound to you out there. But anyways, CPI on the other hand, is often referred to as headline inflation.

[00:02:02] Stig Brodersen: That’s what you read about in the newspapers, that is reweighted every two years. Whereas PCE is reweighted to reflect changing custom consumption patterns. And you can argue that CPI is a more accurate snapshot on how people spend their money. And really to expand on Cardi B’s point here, you would say that CPI is, that assumes that people continues to buy $7 lettuce, whereas PCE would then allow for people to substitute that with more reasonable priced veggies.

[00:02:33] Stig Brodersen: Now, with all of that said, Cullen, could you talk to us about PCE that we don’t hear as much about and what that tells us about the current purchasing power of the American consumer?