Last week, investors were lamenting the lack of inflation. This week, they’re fixated on its rise. On Thursday, data showed consumer prices climbed 0.4% in August from a month earlier and 1.9% from a year earlier, a sign that inflation is once again on the upswing after months of soft readings.
I’m writing to you from Chicago where I am attending the Morningstar ETF Conference. Vanguard’s global chief economist, Joe Davis, kicked off the event Wednesday evening advising investors to expect lower returns and rocky markets for the next two to three years.
The car is loaded with clean clothes and dog food. I’m heading out mid-morning to help load a support truck headed for Houston. Thankfully, my kid’s school has organized the donation drive. It has been heartwarming to watch the countless random acts of kindness in the wake of the current challenges. Much more will be needed in the days ahead.
This week the Federal Reserve Bank of Kansas City is hosting its annual Economic Policy Symposium in Jackson Hole, Wyoming and a number of Fed officials have commented on “inflation.” Why is targeting inflation so important? Because rising inflationary pressures will cause the Federal Reserve to raise interest rates and such periods tend to prove challenging for the stock and bond markets.
My thinking is impatient and mostly critical as I sift through research each week. I’m sure my “get to the point” personality frustrates my co-workers and I’m sure at times my beautiful wife. It’s a personality flaw, I know; but hey, I’m just not sure any amount of therapy can help.
Atop the “what matters most” list is debt. Specifically, global sovereign debt: U.S., Europe, Japan and China. We are at the end of a long-term debt cycle. Borrow, spend and grow is good for the economy. Credit is money. It is a multiplier that enables you to spend more than you have.
Howard Marks’ “Memos” are a must-read. Years ago, I was invested in Marks’ hedge fund. We exited our fund of funds business in 2007, though it would have served me well to have stayed in his fund. Like most great investment managers, he keeps risk front of mind.
Let’s take a closer look at these emerging market catalysts.
In 1965, Gordon Moore, co-founder of Intel, predicted that the number of transistors on integrated circuits would double every two years. This is the basis of “Moore’s law,” and it’s why we currently have pocket-sized devices that are more powerful than 1980s supercomputers that took up entire rooms.
At a conference in Chicago this week, following up on last week’s letter, Keep Dancing but with a Sharp Eye on the Tea Leaves, an advisor client asked me what my favorite “tea leaf” might be. When one of the greatest investors of our time, Ray Dalio, tells us to keep an eye on the exit door we should take note. But how? And when?