The emergence of the world economy from the shackles of the Covid-19 Pandemic is creating some concerns among the pundits about interest rates and the prospect of “hyperinflation”. The concerns are due primarily to the massive stimulus efforts employed by the Government in an effort to help consumers and small business endure what seemed like an endless lockdown of our economy last year.
The concerns that have been sparked by those who might profit from short-term volatility in the stock market are being fanned by the financial media and stock market websites in their endless search for “clicks” and ratings. In the immortal words of Green Bay Packers legend Aaron Rogers, “…five letters here, for everybody out there in packer-land…R-E-L-A-X…we’re gonna be OK”
Over the last 22 years or so since the birth of Trident Advisors, I have relied on a “view from 30,000 feet” to address the market gyrations that have most often been created by the sensationalism of short-term economic or political events. Sensationalism breeds volatility, and those who profit from short-term market turmoil have a vested interest in creating that sensationalism. The big picture is often quite different than the dire forecasts of the short-term players in the markets.
For those of us who focus on the long-term rewards of equity investing, let’s have a look at the current fundamentals. The most basic and fundamental forces in a Capitalist economy will always be supply and demand. Those two basic forces outlast just about all of the noise created by politics, public opinion and hidden agendas. So let’s have a look at what is really happening out there.
After 15 months of an almost total lockdown of the world economy, we are finally starting to emerge from our slumber. While working from home in fuzzy bunny slippers was nice for a little while, the American consumer has become stir crazy and hungry. All of the stimulus money that came in the mail, and the savings we all realized by staying locked in our homes for fifteen months are now being unleashed on an economy that is constrained by a severe shortage of supply in just about every area. Lumber prices have exploded because none was being produced, fuel prices are rising because of a combination of pipeline shutdowns, computer hacks and a lack or refining activity. Home prices are rising rapidly due to a lack of inventory and muted building activity, and wages are rising due to huge shortages in labor. الكزينو There are plenty of reasons for all of this, and I’m sure your political wheels are working overtime, but regardless of the reasons, “it is what it is.”
To those whose focus is confined to the next few weeks, all of the issues above might seem at best unsettling, and at worst catastrophic. We are hearing comparisons to the “stagflation” of the Carter years and the certainty of double-digit inflation and interest rates by those who profit from emotional market reactions. The reality though is that the Pandemic has created a temporary imbalance between the forces of supply and demand, resulting in “too many dollars chasing too few goods”, and the resulting rise in prices. The beauty of a Capitalist economy is that rising prices create opportunity for producers to realize greater profits by expanding their businesses and producing more goods. The ultimate result ends up being that the system reaches equilibrium as it has done for the last 240 years or so!
Obviously, my oversimplification gives rise to countless “what-ifs”, most of which are short-term issues that eventually solve themselves. The biggest variable in the mix is how Chairman Powell and the economists at the Federal Reserve handle the unwinding of the huge stimulus that was used to help us through the Pandemic and avoid another financial crisis. افضل موقع مراهنات عربي The instruction manual for the successful handling of the American balance sheet has already been written after the financial crisis of 2008, and I believe that Powell and Company will follow a similar blueprint to combat the inflationary pressure created by printing money.
I expect the Fed to “bump” short-term interest rates once or twice between now and the end of the third quarter to cool things off, but I do not expect a sustained move higher. العاب القمار اون لاين The current imbalance is temporary, and as the forces of supply and demand begin to equalize, we should see significantly higher Corporate earnings and higher stock prices through at least year end.
As always, stay the course!
Joseph C. Paul
Chief Investment Officer