Blueberries, Blowups And Babies

No, we did not run out of titles. With a complex set of issues overhanging the markets, we felt a somewhat puzzling title was fitting. Market participants appear confused, with polarized views as to whether the investment outlook is promising or ominous.

The wicked combination of surging demand and supply constraints has created imbalances causing unwanted inflation. Though a minor and anecdotal example, blueberries have risen in price and, worse, been absent altogether on several occasions from our local grocery store shelves.

Despite the dramatic rise in the inflation rate, the stock market has blown up, in a good way, rising to new all-time highs—in bubble-like fashion in certain sectors, reminiscent of the dot-com period—the lift in the markets since the pandemic lows driven by economic expansion and the strong earnings recovery. More recently, fearing excessive prolonged inflation, central banks around the world have begun to tighten monetary policies. In reaction, mostly to rising interest rates, many stocks have blown up, not in a good way—some declining materially from recent highs after reporting results that were poor or that simply didn’t meet overly optimistic expectations.

During the last economic cycle, from the Great Recession of '08/09 to 2020, developed countries around the world grew at a below-average pace. Poor demographics are partly to blame, inhibiting population growth. Too few babies have been born in the last number of years. Last year, the U.S. suffered the lowest population growth rate since 1776 (meaning ever). This does not bode well for the overall growth outlook.

Good, Bad, or Otherwise

A bit of inflation is good. Deflation is certainly less desirable. So monetary authorities, in response to the pandemic, pushed all their available levers to spur growth and reignite inflation. But now we’re left with a bit too much of a good thing.

Our pocketbooks will be impacted by higher prices for goods and services. Consumers may have to cut back on their blueberries, despite the fact that they’re extremely good for you. Though, just like broccoli and brussels sprouts, some people don’t care about what’s good for you. Perhaps they’re the same ones who’ve ignored the risks associated with overvalued or speculative (meme) stocks.