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Inflation

Oct 07 2021

Are Price Hikes The “New” Rate Hikes?

  • Oct 7, 2021

Notwithstanding the hit to consumers’ pocketbooks, it’s been amusing to follow the Fed’s recent evolution with its mindset regarding inflation. A year ago, the hope was for “symmetry”—Fed-speak for allowing inflation to run above its long-time 2% target, since it had previously undercut that level for awhile. Then, early in 2021, the word “transitory” entered the lexicon; yet months of debate and tens of thousands of utterances on financial television have clarified nothing about the Fed’s characterization of that term.

Sep 08 2021

What’s Your “Number?”

  • Sep 8, 2021

Those in their peak earning years (40s and 50s) who’ve also enjoyed the stock market’s windfall gains are very likely to have seen their annual expenses climb much higher than the Consumer Price Index over the last several years.

Sep 08 2021

Let Us Add To The Bullish Cacophony

  • Sep 8, 2021

It’s been a heck of a stock market year, and there are still four months left. What else could go right? Monetary conditions, for one thing—at least as proxied by our Dow Bond Oscillator (DBO).

Aug 06 2021

The “Rule Of Twenty” Revisited

  • Aug 6, 2021

Pundits could reasonably argue the market has never been more expensive in light of the prevailing rate of inflation. That’s the conclusion of the “Rule of Twenty,” which proposes that the stock market’s P/E ratio and the trailing 12-month Consumer Price Inflation rate should sum up to 20.

Aug 06 2021

Not All Inflationary Periods Are Equal

  • Aug 6, 2021

What matters is whether an inflationary period is driven more by “demand pull” or “cost push.” Demand pull inflationary periods seem far more favorable than cost push periods, which, more often than not, occur in a “stagflation” macro context.

Jul 16 2021

A Closer Look At The “Rule Of Twenty”

  • Jul 16, 2021

Inflation and its potential impact on the stock market is the topic du jour, resurrecting ideas that were in vogue 30- to 40-years ago.

Steve Leuthold’s 1980 book, The Myths of Inflation and Investing, provided an exhaustive review of the evidence. But for lighter reading, more appropriate for a summer Friday, we revisit the “Rule of Twenty” developed by strategist Jim Moltz in the early 1980s.

Jul 08 2021

Why The Fed Is Hog-Tied

  • Jul 8, 2021

We’ve long considered ourselves lucky to have escaped from our graduate-economics program after only a year. Among the few nuggets we managed to retain was the startling conclusion to a paper written by a famed department professor asking, “Do Large Deficits Produce High Interest Rates?”

Jul 08 2021

Are High Prices A Form Of “Tightening?”

  • Jul 8, 2021

It’s certain that today’s cyclical bout of inflation will prove “transitory,” if only because the word itself is practically meaningless. Our time on earth will also prove transitory, and so too will the current stock market mania—to the shock of most of the nearly 20 million “investors” on the Robinhood platform.

Jul 08 2021

The Inflation Surge In Context

  • Jul 8, 2021

Inflation is already “too high” for the current cyclical setting, and the level of inflation that equity investors are willing to tolerate will drop further as the economy recovers.

Jul 08 2021

Music For The “Mania”

  • Jul 8, 2021

At some point during the June/July streak of seven-consecutive S&P 500 daily-closing highs, an album from 1980 popped into our heads: Nothin’ Matters And What If It Did—released when John Mellencamp was still known as John Cougar. It brought to mind some “nothin’s” that seem not to matter.

Jun 05 2021

Inflation: Nothing To Fear But The “Lack Of Fear”

  • Jun 5, 2021

The refusal of the bond market to acknowledge the worsening inflation readings seems to have strengthened the consensus view that any inflation trouble will be “transitory.” Do bonds still know best when there’s a systematic, price-insensitive buyer hoovering up $120 billion of them per month? 

May 07 2021

The “Tape” Doesn’t Always “Tell All”

  • May 7, 2021

Technicians are collectively bullish because of the absence of any serious internal divergences. But, severe corrections can erupt with little, or no advance warning from a deterioration in breadth and leadership. In fact, the first few years of the last bull market  provided two such examples (mid-2010 and mid-2011). 

May 07 2021

Inflation Watch

  • May 7, 2021

April ISM readings, both for Manufacturing and Services, were hot across the board. That’s good news for a still-recovering Main Street, but it manifested in ways that have frequently caused problems for a famous Street located in Lower Manhattan.

May 07 2021

Stock Market Observations

  • May 7, 2021

The speculative peak for this market rally may have occurred in either January (when GameStop and other “left for dead” short candidates soared), or February (when indexes tracking the “newborns”—IPOs and SPACs—both peaked). But even if we knew that for certain, a major peak in stock prices could still be months away.

Apr 16 2021

How Much Inflation Is Too Much? It’s A Moving Target

  • Apr 16, 2021

In the latest Green Book, we noted that Producer Price Inflation does not usually become a challenge for the stock market until its annual rate breaks above 4.0%. The day that comment was published, the year-over-year gain in the March PPI for Finished Goods spiked to 6.0%, thanks mostly to the well-celebrated COVID-19 anniversary-effect. 

Apr 08 2021

Still Heating Up…

  • Apr 8, 2021

The Fed’s reflationary efforts are showing up everywhere except in the measure that’s engineered specifically to minimize them—the Consumer Price Index. It’s a virtuous circle, until it is not

Mar 05 2021

Higher Prices Shouldn’t “Surprise” Us

  • Mar 5, 2021

The Fed has communicated it’s inflation target in uncharacteristically-plain English. Maybe they need to dumb it down more, because it’s the investors in English-speaking countries who have been the most surprised by the recent pickup in the inflation numbers!

Jan 08 2021

Heating Up Quickly

  • Jan 8, 2021

Inflation surprises have run hotter in the U.S. than in the rest of the world, no doubt reflecting the strength of major currencies versus the U.S. dollar. 

Dec 05 2020

A 40-Year Inflationary Echo

  • Dec 5, 2020

When measured by the gains in stocks, gold, and house prices, there has been just one other occasion in which asset inflation was as “broad” as today—late 1980. But the differences in underlying fundamentals between then and now couldn’t be more stark. 

Dec 05 2020

Just A “Small” Beginning...

  • Dec 5, 2020

Knee-jerk contrarians are already claiming the stampede in Small Cap stocks is “too consensus” to continue in the near term. We couldn’t disagree more. In fact, we are very confident that a new multi-year Small Cap leadership cycle has kicked off.

Dec 05 2020

A “Fed” Conundrum

  • Dec 5, 2020

“Don’t fight the Fed” has been great advice for stock market investors over the last nine months. For 2021, that won’t cut it. It should be: “Don’t believe the Fed.”

Nov 06 2020

Miscellaneous Musings On Inflation

  • Nov 6, 2020

We’re still coming to grips with Modern Monetary Theory and the stark realization that “the delusional is no longer marginal.”

Oct 09 2020

Small Cap Catch-Up?

  • Oct 9, 2020

The big jump in Small Caps over the last two weeks has entirely reversed the segment’s summer underperformance and has technicians feverish about another “breath thrust.” Technically, it’s impressive, but we are more intrigued by the fundamental potential for continued Small Cap (and Mid Cap) outperformance.

 

Oct 07 2020

Inflation In The Wrong Places?

  • Oct 7, 2020

Long before policymakers’ extreme response to the COVID collapse, we feared that the Fed’s interventions were suppressing important signals from the stock and bond markets. But we now suspect that hyper-expansionary policies are suppressing price signals from the “real” economy as well.

Sep 18 2020

Inflation: Looking Beyond The CPI

  • Sep 18, 2020

The Fed is hell-bent on generating inflation of 2% or higher in an over-supplied world that we think should probably be experiencing mild deflation. Their success or failure at this mission will be critical for asset allocators. For equity managers who must remain fully invested, however, the more important question might be not whether the Fed can generate higher inflation, but where.

 

Feb 14 2020

Inflation In-Line & Scorecard Neutral

  • Feb 14, 2020

Where inflation goes next will be primarily determined by the probability of a recession.

Jan 08 2020

Inflation: Not “If,” But “Where”

  • Jan 8, 2020

In the aftermath of the Great Financial Crisis, we reminded investors that it would be historically unusual for the thematic leaders of a bull market to repeat as the winners of the subsequent bull.

Jan 07 2020

The Decade Of U.S. Exceptionalism & The Year Ahead

  • Jan 7, 2020

Two words sum up the past decade pretty nicely: U.S. Exceptionalism. The superiority of U.S. assets really comes down to the unique combination of growth (U.S. stocks), yield (U.S. bonds), and relative safety (both U.S. stocks and bonds).

Nov 07 2019

Playing With Fire & Ice—An Inflation Scorecard

  • Nov 7, 2019

We put together an Inflation Scorecard that monitors two critical sets of inflation drivers: demand pull and cost push. The qualitatively-adjusted score is much closer to a neutral reading than the mechanical composite (which suggested quite a bit more disinflationary headwind).

Feb 07 2019

Did The Doves Swoop In And Save The Day?

  • Feb 7, 2019

Just a few months ago, Fed Chairman Jerome Powell boasted a reputation as a straight-talking, sound-money banker.

Jan 08 2019

The Fed Was Not The Only One To Tighten Last Month

  • Jan 8, 2019

Wage inflation should accelerate in the months ahead, oil could bounce from its oversold low, and college textbooks might double in price before the fall semester. No problem…

Oct 12 2018

Inflation—Another Small Miss

  • Oct 12, 2018

The latest CPI numbers missed market expectations. The problem is not with the actual CPI numbers, but merely the fact that market expectations are still a tad too high. More disconcerting is the cool trend in housing inflation.

 

Jul 12 2018

Inflation—Largely In Line

  • Jul 12, 2018

The year-over-year headline number was in line with market expectations but the month-over-month increase missed market consensus (0.1% vs. 0.2% expected). All else being equal, there is a good chance CPI might have peaked for 2018. A stronger dollar is disinflationary while the short term impact of tariffs is higher import prices.

 

Jul 07 2018

Inflation Warning Flags?

  • Jul 7, 2018

After yet another benign figure on wages for June, the idea that inflationary pressures might be a problem for the stock market seems far-fetched.

Jun 12 2018

Inflation—No Surprises Here

  • Jun 12, 2018

Headline and Core CPI figures hit estimates right on the nose in May, continuing the trend of modest but not outrageous price increases. Energy prices have boosted headline CPI while core CPI continues to be driven by services. With both of the Fed’s mandates pretty much accomplished, appreciate this rare window of time.

 

May 05 2018

Staples Still Stomped Upon

  • May 5, 2018

Consumer Staples has historically been the sector most resistant to intermediate stock market corrections, exhibiting an average “downside capture” of less than 40% during all such declines dating back to 1989.

May 05 2018

A New Hurdle For An Old Bull?

  • May 5, 2018

The first quarter S&P 500 earnings “beat” rate stands to be the highest in history, as any CEO with a pulse has learned to lower the hurdle.

Mar 07 2018

What’s Ailing Consumer Staples?

  • Mar 7, 2018

For the first time in this bull market, defensive stocks failed to provide any semblance of defense during a market correction.

Mar 02 2018

What’s Ailing The Staples?

  • Mar 2, 2018

The setback that began in late January qualifies as the sixth intermediate correction of the current bull market, where “intermediate” is defined as an S&P 500 loss ranging between 7%-12%...

Feb 14 2018

Inflation—Suddenly Relevant

  • Feb 14, 2018

The headline and Core CPI numbers for January both came in hotter than expected. Despite the resurrected interest and concerns about inflation we still haven’t caught inflation fever. Because of the narrative (correct or not) look for increased volatility surrounding inflation announcements.