Thankful, but Watchful...So for now, be thankful. We remain bullish on equities and the economy. A bear market or recession in 2022 is very unlikely. But don't be complacent. Be watchful and be ready to shift, as always, if circumstances change.
Inflation Returns. The M2 measure of the money supply is up almost 40% from where it was in February 2020, substantially faster than the pre-COVID trend. Ultimately, this is the root cause of the inflation we’re seeing.
Tuesday Results and the 2022 Economic Outlook. From a forecasting point of view, 2021 was simple. Solid economic growth, higher inflation, and a bull market in stocks have been our mantra all year along. As we focus on 2022, the Fed is still pumping money, interest rates remain low, and the economy continues to add back the jobs it lost during lockdowns. At the same time, election results show a backlash against bigger government. For 2022, we watch with cautious optimism.
Eyes on the Federal Reserve Investors will be focused on the Federal Reserve this week and our expectation is that it will finally announce an overdue tapering of quantitative easing.
Slower Economic Growth in Q3. Consumption, Government, Trade...Add it all up, and we get 2.0% annualized real GDP growth for the third quarter, nowhere close to the “sugar high” 6.5% annual rate of growth in the first half of the year.
Respect Millennials. The bottom line is that, at the same point in their lives, the average Gen Xer is better off than the average Boomer and the average Millennial is beating the average Gen Xer.
Focus on the Data, Not the Political Spin. The bottom line is that the employment report really wasn't that bad. Yes, some disappointing numbers, but the economy has not ground to a halt.
The Cost of Lockdowns. It is now clear that the cost of the lockdowns is immense. Locking down the economy threw complicated supply chains into chaos, and restarting them is not as easy as many seem to think.
Less Government, More Employment. The US economy is far from fully healed from the COVID19 disaster. But now that the government has stepped back from extra large payments to the unemployed, we think the labor market is on the verge of a big step forward.
Resist Inflation Complacency. Some analysts and investors breathed a big sigh of relief on inflation when it was reported last week that the Consumer Price Index rose 0.3% in August versus a consensus expected 0.4%. But we think any sense of relief is premature.