November 17, 2021

Something Else

The narrative that are swirling around the media regarding the timeline of inflation seems to be at odds. As someone who doesn’t remember the inflation of the seventies, I do remember the outcome of Fed activity to fight it the day I started my career as a bond trader. It was April Fool’s Day 1982, the Fed Funds Rate (the rate banks lend to each other) was 14.92%, and the 10yr Treasury Rate was 14.1%. Get where I’m going here? It’s hard to imagine the lack of true comparisons that the media seems bent on regurgitating that are nearly nonexistent, such as Oil, which was a primary contributor to inflation in the heat of the industrial age, but today is a dying art. Or the little attention paid to gold, which was removed early in the decade as the standard for the value of the dollar leaving gold prices to rise and leaving the dollar lower (weak dollar is inflationary, strong is disinflationary) throughout the seventies. Add to that certain consumer product price fixes initiated by the Nixon administration to  meet  the challenges of trade disparities, and the ingredients for inflation were complete, with or without the consumer who’s contribution as a percentage of GDP has stayed steady even through the decades of historically low inflation. I guess the point I’m making is that in today’s world of choosing the data we want over the data there is has left many issues unresolved, foremost, that many of us who remember those days of excruciating high inflation are overshadowed by those, younger, who often only rely on what they’ve lived through to decide the same. 

So, where does this lead to something else? Most people who know me know that I’ve not been fan of Janet Yellen for numerous decades but especially since she, in my opinion, recklessly increased interest rates starting in the fourth quarter of 2015, leading to a decline in the S&P 500 and the NASDAQ Composite of nearly 11.9% and 18.9% respectively, through the first quarter of 2016. This is worth noting because in the next few days the President is going to name a either a new Fed Chairperson, or reappoint the existing Chairperson, Jerome Powell, who in my opinion, has done a good job. The probability to that choice favors someone new, and Janet Yellen has been vocal of her disagreement with Mr. Powell reticence to act more aggressively to current inflationary conditions.

The capital markets have had an interesting ride during this quarter’s earnings results that has shown further evidence that the American consumer is working hard to return to normal. The interesting part is many of the reopening stocks contained within the Consumer Discretion and Technical sectors are also technically overbought. My expectation is the continuation of the current favorable price action to last through the end of the year. As we near that I intend to rebalance and tactically allocate cash into the new year, if necessary.


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