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.
Stocks vs. the Economy. The bottom line is that we are bullish for now, but fully recognize that we have been in a pristine environment for stocks...The market is not overvalued, but it is not as undervalued as it once was.
Can the U.S. Economy “Fully Recover”? In the end, a "full recovery" of the economy is possible, but damage from past or future shutdowns – and a large partisan bill that once again, like New Deal or Great Society legislation, significantly increases the influence of the government over the economy – threaten its pace.
Bullish on a Target of 5,000 for the S&P by Year's End. There are obviously risks to this forecast. 1) The US could "lockdown" the economy again over the Delta variant of Covid. 2) The Fed could raise rates more quickly. 3) President Biden, and the Democrats, could push through major tax hikes.
Fed Being Tempted Into SIN. We think consistently higher inflation is a bad idea. Printing more money is not a path to sustainable prosperity. Higher inflation would make business planning more difficult and reduce the "real" (inflation-adjusted) wages of workers, particularly those with the least bargaining power, including lower-income workers.
Capitalism vs. Socialism. The history of the world has been a battle between two competing ideologies of how resources should be distributed: Capitalism and Socialism.
Projecting Government. Three major issues related to government policy are now looming large among investors’ concerns.
The Seeds of Stagflation. With the money supply having risen so rapidly, and the ability of the economy to keep up with that growth diminished by a more burdensome government, stagflationary pressures (slower growth, higher prices) have been building.
Inflation, Shutdowns, Spending...The economy is healing rapidly, the bull market remains intact and technology is raising potential future growth. But, government actions could undermine these positive trends. For now, we remain bullish.