We’ll review what may be the most compelling bear case I’ve seen in a long time, along with some other unpleasant data. Then we’ll look at some equally compelling reasons those views may be wrong.
Many analysts project China will soon be larger by GDP than the US—which shouldn’t be so hard with a population four times larger—but it’s not clear to me that China’s seemingly unlimited linear growth will continue three or four more decades. I can remember when the same was said about Japan.
Today I’ll continue the annual forecast I began last week. New COVID developments are unfolding rapidly. If we’re lucky, they may carve out a nice bookend for us. But my worry is that rather than bookends it could be economicus interruptus. 2019 was not portending the most robust of economies. What if, in Groundhog Day fashion, we end up back where we were?
Twenty-two years of tradition dictate I begin the new year by forecasting what lies ahead.
I’ll share a story from my good friend Vitaliy Katsenelson. He immigrated to the US with his family from Russia over 30 years ago. I’ve always been fascinated by this story when we get together. All he knew of America came from movies and propaganda, which wasn’t altogether flattering.
Last week’s What Really Caused Inflation letter generated an unusual number of questions and comments. That tells me I need to go a little deeper. We know inflation by the higher prices it generates, but exactly how it flows through the economy isn’t always obvious.
Today we’ll “war game” what the Fed is facing as it wrestles with inflation, growth, employment, and political considerations. We’ll try to entertain those thoughts as if we’re sitting in the conference room with Jerome Powell.
The employers who kept DB plans without adequately funding them and/or generating returns sufficient to pay the promised benefits. It is a systemic problem that affects others. Today we’ll discuss this problem and some of its macro-level consequences.
The charts and comments below are drawn from the “Clips That Matter” feature of our Over My Shoulder service. Because we know a picture is worth a thousand words, my co-editor Patrick Watson and I select a few important charts and graphics and send them to subscribers each week with some brief comments. Many say these clips are their favorite part of the service.
In some simplistic economic theories, shortages never happen. Supply and demand for any particular good are always perfectly balanced in a given time and place. If you can’t get what you demand at that moment, you pay a higher price or you demand something else.
I am writing in the middle of a whirlwind week in New York. We are going to discuss what I’m learning, some takeaways from the conversations I’ve had, changes in my personal portfolio, and thoughts around the topic of the day: inflation. As well as a few random things that I have read this week. All delivered to you within my 3,000-word limit. Let’s jump in…
We have plenty of other problems and don’t need more, especially rising energy prices as the economy slows. Nonetheless, that seems to be what we will get. Today I’ll dig into what’s happening and what I think would be better.
Today, I’ll describe what I think will happen over the next year or so. I rarely make short-term forecasts because I’m usually early. Reaching the major turning points takes longer than we think.
Today’s letter will be the first of at least two parts. Next week I’ll describe where I think this is heading, and how we still have a chance to save the recovery if certain people/institutions make the right choices. But first, I want to establish three important points. They are foundational to my outlook. Here they are, summarized in one sentence.
The ongoing, intensifying supply chain problems are raising costs in ways that add broad inflation pressure everyone will feel. And the zeitgeist in the workplace is literally changing before our eyes.
Historical comparisons are always risky. This is particularly so when comparing different eras in vastly different countries like the US and China. Similarities can actually obscure more important differences.
A few months ago in Xi’s Big Mistake, I said Beijing risked killing the entrepreneurial activity that had spurred the country’s rapid growth. As we learn more, this is looking less like a mistake and more like a mistakenly-conceived plan.
Today, I want to show you how richly valued the market is and then review some of the top risks that could force it downward. Like those sandpiles I talk about, we don’t know exactly what will trigger a collapse. We know something will do it. Sandpiles don’t grow to infinity.
Today we’ll take another walk through the inflation debate. Is it still transitory or should we expect a light-1970s inflation going forward? The answer is critically important.
Today I’m going to look at several possible futures. There are forces at work in both Congress and the Federal Reserve that could take us down radically different paths. There are also changes in the Zeitgeist, the way we act and think both in and as a society, that are going to have major impacts.
We are in an odd situation where it’s unclear if labor is scarce or abundant. Many employers can’t seem to find enough qualified workers, but the August jobs report said 8.4 million are unemployed and millions more underemployed.
Several potentially big storms are brewing. They could be minor annoyances or catastrophic disasters, or anywhere in between. I truly hope they all resolve with minimal fuss. But they may not. They could even combine into a perfect storm of even greater magnitude… so now is the time to prepare.
You’ve probably heard of Ron Baron, founder of Baron Funds which has grown to a stable of not just mutual funds but a variety of private investments and Ron’s own capital—something like $50 billion in total. We were thrilled to have him on the SIC virtual stage, where my good friend David Bahnsen ably interviewed him. I’ll give you some extensive quotes from that session’s transcript, interspersed with comments from me.
“How did you go bankrupt?” “Two ways. Gradually, then suddenly.”
If you look just at 2021, it seems the US economy is tearing higher.
I am worried the Fed will either let inflation become psychologically entrenched, or wait too long to stop it and spark crisis with a too-hasty response, but there are other possibilities. None are especially good.
Let me be very clear. I believe the Federal Reserve has already made a significant policy error that can lead directly to recession. An accompanying fiscal policy error by the US Congress could compound the Fed’s error, although that remains to be seen, as it is not clear what will pass Congress.
Xi has been trying to balance economic freedom and authoritarian control and it’s not working like it used to. Today we’ll review some recent events that illustrate where Xi went wrong.
TINA has been applied to investing. You must buy stocks because TINA. You can’t make money any other way. Just close your eyes, buy and hold forever. Or at least through a full market cycle. Frankly, I think that’s stupid.
Rather than my usual economic/investment letter, this week I want to take a more philosophical tack, looking at some of the challenges we face as a country and culture, beginning with the freedom of the press but then turning to technology and even wealth disparity. We will have to consider what freedom of speech meant in the 1800s, what it meant at the turn of this last century, and what it means today in a world of social media.
This year’s SIC closing day was a blockbuster. In this letter, I’ll wrap up my conference reviews by wrapping that day for you.
If it seems I have been talking about the Strategic Investment Conference for weeks… well, you’re right. It really was that much to unpack, and I’ve still only scratched the surface.
The interplay between governments and businesses impacts your investments. So does the interplay of governments with other governments. Thus the drive to create an international corporate tax. So you can’t escape politics… but you can try to analyze it calmly, without partisan histrionics.
This week we’ll review some of the SIC technology sessions and think about where the latest innovations will take us. It wasn’t just pie in the sky, either. We talked about real investment opportunities available right now.
If you could ask the world’s top central bankers what really terrifies them, I think the honest answer would usually be “deflation.” It is their greatest nightmare. They think a little inflation is good (thus the 2%+ target), and they’re confident they can subdue it if necessary. Deflation is a bigger problem.
Today we’ll consider the arguments for higher inflation in the near future. As you will see, they are serious and convincing. But there are equally serious and convincing points on the deflationary side as well. We’ll get to those next week.
Last week I teased you about the China panel, so that seems like a good place to start. We’ll review that conversation and then bring in some China comments from later sessions.
I've developed this kind of duality. It's hard to think of the next 20 years or indeed the last 20 years without being very optimistic about the future of humanity.
David Bahnsen does a podcast for National Review called Capital Record. We did a two-part series. The following is an edited partial transcript of the first part.
I think we will probably have a few months of significantly higher inflation. It will fade but meanwhile hurt certain people and industries. It will be like one of those extremes causing bruised knees and volatile markets.
Right now, the stock market is in the land-where-there-should-be-sea phase. What we don’t know is when the wave is coming. Maybe there’s time to venture out and see what treasure was hidden beneath the waves... or maybe not. Prudence would suggest that we go searching for treasure on higher ground.
Yes, the housing market is a bit overheated, but for reasons that make far more sense than the rationalizations of stock market bulls. Some buyers are certainly overpaying and may regret it. Nonetheless, I don’t foresee another 2008-style housing crash in the near future, nor anything like the subprime crisis. There are altogether different fundamentals working here.
The last year brought exponential growth in, among other things, use of the word “exponential.” It is now the go-to term when you want to say something is “growing super-fast.”
Big economic storms are rare and usually end quickly, but they tend to have long-lasting effects. Today I want to talk about a storm 50 years ago that still affects us now. Important things happened in the 1970s.
We are going to look at broken debt and broken measurements, and then look at how Fed leaders painted themselves into a corner by shifting to a reactive stance this week.
I believe we have passed the point of no return. Changing policy now would create a recession as big as Paul Volcker’s in the early ‘80s. There is simply no appetite for that. Further, the national debt and continued yearly deficits force monetary policy to stay accommodative.
I don’t think that data means what you think it means. Indeed, much of the data in the way we use it is simply broken.
What normalcy will it be? I don’t expect to simply go back to the way things were. The economy as it was structured in December 2019 is gone forever. The world is different now. The economy will be different, too.
Rather than going deep into one theme, this week we will do a “Random Thoughts” from the Frontline. Today we will cover several topics in shorter form: valuations, infrastructure, the debacle in Texas, and a lot more.
If, however, the pandemic continues into summer, it will mean the Gripping Hand is still squeezing us. Employment won’t recover and more small businesses will fail. This relief package, as large as it is, may prove necessary and maybe even too small.