Will Inflation Wreck this Economic Recovery?
January 10, 2022
Will Inflation Wreck this Economic Recovery? By Mitchell Anthony January 7, 2022 2021 was a great year of economic recovery from one of the worst events that ever took hold of the global economy. The pandemic! Unfortunately there was some collateral damage and an inflationary cycle began that is difficult to understand. More importantly expectations for inflation have risen dramatically. Inflationary expectations have been anchored for over a decade at very low levels of 2-3%. However the CPI is currently measuring 6% inflation and the PCE (personal consumption expenditure index) is at 4.7%. These high levels of inflation have not been seen in decades and many believe they will not be sustainable because they have been achieved through strong demand that followed a long period of deprivation. These high levels of inflation has caused corporate leaders, business owners, and consumers to fear and worry that there is nothing ahead but significantly higher prices for the next few years. As a result business leaders are acting in a defensive manner to prepare for this inflation by putting plans in place to raise prices for their products. Likewise workers are demanding more wages to offset the inflation they believe lies on the horizon. This sort of thinking has caused inflationary expectations to become unanchored. As this occurs it becomes challenging to re-anchor expectations for inflation back at low levels that are consistent with healthy economic growth without a recession and/or a sharp correction in asset prices. Read moreIrrational Exuberance in Our Markets
November 24, 2021
Irrational Exuberance in Our Markets By Mitchell Anthony November 23, 2021 Alan Greenspan’s infamous speech in 1996 hit the nail on the head when he warned the world about the irrational exuberance that existed in both the US economy and US financial markets. For the most part corporate leaders and investors failed to take heed of the notice until it was too late. The exuberance centered heavily on greedy blind ambition as well as ignorance that drove capital into Internet and tech oriented businesses that had far too optimistic visions for their products and product cycles. Some had no products or services at all that were rational. The exuberance caused these businesses to invest heavily in human capital that they had to divest quickly thereof when the bottom fell out at the end of that dot-com cycle in 2000. The fallout from the tech sector dominoed into other sectors and caused a classic economic bust that led to one of the worst equity market declines on record. Similarly the economic strength from 2002-2007 that preceded the great recession of 2009, saw greedy blind ambition drive over-consumption in the housing market into a state of irrational exuberance that resulted in a massive economic bust that took a decade to put behind us. Equity Markets and Real Estate Assets have surged dramatically over the past two years, with everything from cryptocurrency to meme stocks exploding in value, causing investors to wonder about the existence of rot in our economy? Could we be on the verge of another bust for the economy and the markets?Read moreLingering Headwinds from Covid
November 3, 2021
Lingering Headwinds from Covid By Mitchell Anthony November 3, 2021 Covid 19 has affected the lives of almost everyone on the globe for the last few years. Thousands of lives have been lost and the personal agendas of everyone on the planet have been altered. Global economies have been wrecked as businesses have had to stop and start because of the pandemic. Most mature businesses and industries survived and some have been big winners while others have been losers. As we start to see the light at the end of the tunnel we seek to understand what the lingering economic effects from Covid 19 will be for years to come. How will consumption be altered and how will production of goods and services be changed. What industries and businesses have found tailwinds from this pandemic that will linger and enhance their outlook for years to come. Conversely what businesses and industries have headwinds that are lingering and dampening their growth prospects.Read moreMarkets Fret Over Fear of Change in Monetary Policy.
October 5, 2021
Markets Fret Over Fear of Change in Monetary Policy. October 5, 2021 by Mitchell Anthony The relatively steady rise in equity prices that we experienced the last 1 ½ years has shown some signs of stalling over the last month. The S&P 500’s recent peak was on or about August 31. It declined about 4% in the first week of September and then quickly recovered back to its August 31 high by September 22. However, commentary from the feds meeting the third week of September caused fear and investors pushed the market down again to where the S&P 500 is now about 6% below the August 31 high. We saw a similar correction like this in March of this year as well as November of last year. When investors fear the economic cycle is ending they sell stocks and they tend to sell growth stocks first because of their high valuations. As a result technology has underperformed over the last month and value areas like energy, materials, and financials have done better but still have declined over 2%. Steady economic data combined with accommodative monetary policy got the markets right back on course during these previous corrections. Will this correction have the same outcome? We believe so, however we are carefully watching the inflationary environment as well as the dynamics going on in housing for confirmation of our thesis that this market is being driven by Fed liquidity and expectations for modest earnings growth. We believe the Fed’s liquidity pump will remain on for several more years, combined with a strong consumption theme of housing and business and consumer services. We believe the US economy will ebb and flow with modest to moderate growth. Asset valuations will remain very high as rates stay near Zero.Read moreMACM Portfolios and Equity Indices descend a bit further on China Uncertainty and Tame Economic Data
September 21, 2021
MACM Portfolios and Equity Indices descend a bit further on China Uncertainty and Tame Economic Data By Mitchell Anthony September 20th, 2021 The equity market’s results last week were mixed as soft but tame economic data combined with further regulatory talk by Chinese officials brought concern to the US markets. Investors seem to forget occasionally that soft economic data is much better than strong economic data. The equity markets in America are highly valued and some say ripe for a correction given the right economic event. Thus far the economic environment has been benign with very accommodative central bank policy and an outlook for modest to moderate economic growth. The inflation numbers were a bit hot but now are calming just as the Fed had predicted. This is nirvana for equity markets. As a result we have highly valued markets that are likely to stay highly valued and tilt higher until the economy stumbles badly.Read more