Financial markets tumbled last week as reports spread of a new, highly-mutated variant of Covid-19 which could be more contagious than the Delta variant and which could evade some of the immunity built up around the globe over the past year through vaccinations and infections.
The week ahead will, of course, be dominated by Thanksgiving, leading, appropriately, to less focus on financial markets. That being said, this should also be a week of greater clarity on fiscal and monetary policy. This clarity should reinforce the view that Washington aid will become considerably less generous in the year ahead, reducing inflation fears but posing some threat to recently very strong profit growth.
Financial market commentary in the week ahead will likely center around the question of inflation. The headlines speak for themselves. CPI inflation jumped to 6.2% year-over-year in October, its highest reading in 31 years.
My first summer job as a teenager was in the mailroom of a Dublin law-firm. The more intellectual duties of this position involved substantial paper-folding, envelope-licking and a daily fight with the franking machine. However, the important part of the job was buzzing around Dublin on my 10-speed bike (with the dropdown handlebars), delivering the mail directly to various law offices and clients and thus eliminating the inevitable delays of the Dublin postal service.
It feels like so long ago, but back in 2019, the economic and financial environment was remarkably placid. Real GDP growth was plodding along at 2.3% pace, unemployment drifted down to end the year at 3.6% and corporate profits were growing slowly from very high levels. Consumption deflator inflation was still running below the Fed’s 2% target and, in recognition of this fact, as well as market volatility at the end of 2018 and a sluggish global economy, the Fed cut the federal funds rate three ...
Every summer since 1960, the World Lumberjack Championships have been held in Hayward, Wisconsin, a small community in the north west of the state. Among the featured events in this and similar gatherings is logrolling, where two competitors scamper furiously on top of a very wet and smooth log, floating on a shallow, muddy lake.
On Monday, I have the privilege of running the Boston Marathon for a third time on behalf of the Dana Farber Cancer Institute. I love being part of the team – despite many difficult personal stories, the volunteers, organizers and runners are a very warm and positive bunch to train with. Moreover, the research conducted by Dana Farber is critical to winning more of the millions of individual battles which constitute the war on cancer.
I remember the day when I first appreciated the importance of the American consumer. It was the winter of 1982 and I was huddled around a table with some fellow econ students in the cavernous restaurant of University College Dublin, gulping down the sinister brew which the authorities labeled as “tea”. As undergraduate students, we were fed a narrow diet of theory and math. But the Irish economy was once again floundering helplessly in the heavy wake of an overseas recession and the only relevan...
Like most people, I suppose, I get my hair cut every four weeks. If, either by consulting the calendar or the mirror, I am “due” for a haircut, I head off and get one. The passage of time or the growth of my hair since my last visit, is a very reliable predictor of the timing of my next one.
There is an old house with a box of dynamite in the attic. Every few years, for as long as anyone can really remember, the children of the house have brought the box downstairs and played games with its contents. The owners have never seemed very concerned – after all, so far, it has never exploded. But each generation of kids seems just a little more reckless and irresponsible than the last and it takes just one mistake……
The parking lot of our local high school is fortified by great ranges of speedbumps. These ancient mounds of asphalt were erected in the distant past by school authorities, presumably in tribute to the precision and focus demonstrated by our town’s youngest drivers.
Investors, in the week ahead, will have little time for financial analysis. The headlines will be dominated by the U.S. withdrawal from Afghanistan and the terrible impact of Hurricane Ida in Louisiana. Meanwhile families will be trying to stretch out summer days, while making all the adjustments necessary for a return to work and school in a still-untamed pandemic.
On March 23rd of last year, at the start of the coronavirus pandemic, the S&P500 briefly traded below 2,200. Since then it has more than doubled, surfing on a wave of corporate profits, in a sea of central bank liquidity. However, investors should recognize that this wave will face challenges going forward while the tide of monetary easing should turn. As this happens, a focus on valuations should be more rewarding than has been the case in recent years.
Much has been written about the mutating virus and how its more contagious Delta variant has spurred a surge in cases, hospitalizations and fatalities. However, the economy is also mutating and adapting. These adaptations are reducing the ability of pandemic waves to slow the economy. They are also boosting productivity and profits. However, a failure to recognize this resilience is promoting inappropriately easy monetary and fiscal policy, potentially setting the stage for higher inflation and ...
Every few years our talented colleagues in marketing tell us we need a new palette for the Guide the Markets . They’re right of course – staring at the same colors, year after year, gets boring. But a new palette requires us to change almost every color on every page which is fairly labor intensive work. Moreover, if we do it right, the new chart will just convey the same message as the old one.
The week ahead will be a quiet one for economic data and a busy one for corporate earnings. It could also be a pivotal one in Washington as the Biden Administration tries to advance its agenda in Congress.
My wife, Sari, was born with a lead foot. By all rights, she should have accumulated a bountiful harvest of speeding tickets over the course of her career. But she understands how the system works. If she is, for example, buzzing along at 75 in 55 mile-an-hour zone and sees the state police ahead, she dons a sunny smile and gently taps on the brakes. This action, of course, still leaves her well above the limit. However, for some reason, the police seem to appreciate the gesture as a respectful ...
When my wife, Sari, was 9 years old, a tornado touched down in Grand Rapids, Michigan and destroyed most of her home. Luckily she and her family were at her grandparents that evening and so weren’t there when the storm hit. But the next day, when they all drove back to the neighborhood, it was barely recognizable with many houses destroyed or badly damaged. Her great concern, at the time, were the family pets who thankfully managed to ride out the storm unscathed. But her parents must have been ...
After a long period of absence, I’ve visited New York multiple times in the last month. Each time, the city has seemed more bustling than the week before, with fewer masks, more crowded restaurants and more New Yorkers expressing their emotions by their habitual cheery and liberal use of their car horns. As cases of Covid continue to fall, it is as if springtime has arrived in the city and in the nation.
Some months ago, as the snow melted off the lawn, a rabbit appeared at the end of our back yard. Our twin shih tzus, Buddy and Bruiser, spotted the intruder and, barking furiously, headed off in pursuit. The bunny, having given our fearless duo a head start, then bounced off into the undergrowth, cotton-tail waving in the air, leaving them barking at each other as if to say “Where’d he go? Where’d he go?”
Next week, the Federal Reserve holds its fourth FOMC meeting of the year. After the meeting, they will release a statement, very likely communicating no change in policy. Fed Chair, Jerome Powell will likely emphasize the same message in his post-meeting press conference. However, for investors, the most important information will be delivered in numbers rather than words, as the Fed discloses the median forecasts of FOMC members in their June Summary of Economic Projections.
I recently read a book, entitled The Code Breaker by Walter Isaacson, about a revolution in gene editing prompted by the discovery of something named CRISPR in bacterial DNA. I won’t delve into the details except to say that the book is a great read and made me appreciate, once again, the relative simplicity of the economic systems I spend most of my life pondering compared to the extraordinary structure and machinery within a single human cell.
In 1895, at the age of 60 and in some financial difficulties, Mark Twain embarked on a speaking tour of the British Empire to pay the bills. He later published an account of his travels in a book entitled: Following the Equator .
The all-boys Catholic school where I spent my formative years was a traditional establishment. The air was thick with chalk dust and a steady tension between a rebellious student body and an establishment which resorted to corporal punishment to maintain discipline. However, a second line of defense for the authorities was the issuance of report cards every six weeks. Twice a quarter, the Headmaster would stride into the class room brandishing a batch of colored cards to be signed by parents and...
Last Friday’s April Jobs report was clearly much weaker than expected. On average, analysts expected a payroll job gain of 1,000,000, with the unemployment rate falling from 6.0% to 5.8%. In the event, non-farm payrolls rose by just 266,000 and the unemployment rate rose to 6.1%.
On May 22nd, my wife and I plan to eat dinner at a restaurant. In normal times, such a news item would not exactly make the family headlines. But since the pandemic struck, we have taken a cautious approach and eaten at restaurants only once or twice and then only if outside dining was available. For the last six months, a New England winter has deprived us of even that option. However, on Wednesday, Sari got her second shot and I get mine on May 8th. And so, two weeks later, I can already see m...
Memories of the great inflation of the 1970s have faded in the public’s consciousness. Half of today’s population wasn’t even born when inflation stalked the land and, in the decades since, the failure of inflation to reappear has naturally eroded interest in the subject.
On Friday, I had the privilege of speaking at the annual strategic investment symposium run by the College of Charleston in South Carolina. Sadly, like everything else over the past year, the conference was virtual and so I couldn’t revisit Charleston itself. Just to rub it in, the host let me know that it was sunny day in Charleston, with a high expected in the mid-to-upper 70s.
The economy is experiencing the first effects of a powerful double-dose vaccine of broad inoculation and fiscal stimulus. The reality is that forecasts remain very uncertain. The pandemic recession had no modern precedent and so we have no good road map on the speed at which the economy might naturally recover. In addition to this, we have no example of the impact of fiscal stimulus of this scale, aimed primarily at low and middle-income consumers. What we can say is that early signs show the re...
It has been, by any reasonable measure, an eventful first quarter. At the start of the year, the pandemic was raging and vaccines had barely begun to roll out. Today, despite a recent tick up in cases, the light at the end of the tunnel is looking brighter and closer. At the start of the year, a very contentious election seemed destined to be followed by political gridlock.
