2nd Quarter Update Summary – Inflation, Fiscal Stimulus, Covid

The economy continues to grow and expand in recovery from the economic covid shocks inflicted on employment and production last year. Following a flat first quarter, the market has resumed an upward but volatile trend. Some recent inflation is sending warning signals across the economy, however, this inflation does not necessarily derive not from excess cash in the economy, but significantly from insufficiently restored production and supply chains, and from other distribution bottlenecks. The Federal Reserve is convinced the inflation is transitory and insists its expansionary policies will not change until at least 2023 or until the economy reaches full employment together with signs of overheating. This means, importantly, that going forward Fed policy in response to inflation will be more reactive vs predictive.

The housing boom, mostly caused by historically low mortgage rates, appears to have stabilized (interest rates truly cannot go much lower). Lumber prices, widely publicized to have tripled since the pandemic began, have now fallen precipitously since May to pre-pandemic levels. Other commodity prices are normalizing as production continues to ramp up. The traditional broad based inflation indicators remain persistently stable showing expected low inflation similar to that of pre-pandemic levels.

The Biden Administration is making some progress on two fiscal fronts in an effort to ensure ongoing fiscal stimulus for at least a few years. The first is a vital and necessary infrastructure funding measure that both parties agree is necessary but disagree on size and scope. The second is the federal budget that includes substantial increased and new spending in most areas of the Administration’s agenda. If the infrastructure package grinds to a halt, the budget will certainly incorporate many of the important elements of infrastructure. This twin pronged fiscal approach together with expansionary Federal Reserve monetary policy is aimed achieving the twin economic goals of full employment together with stronger wage growth in coming years.

Covid remains a concern. The unusual and unexpected politicization and dissemination of vaccine misinformation is preventing us collectively from reaching our vaccination goals, thereby resulting in covid case surges in areas where vaccination levels have been weak. The unnecessary politics of the issue together with new highly transmissible and dangerous covid variants are making any prognostication of the ultimate resolution of the epidemic very difficult. The markets are watching and reacting accordingly. This is contributing to the previously mentioned market volatility. We are not out of the woods.

As always, we remain cautious and vigilant. Please remember that because these quarterly thumbnail sketches are very brief, do not hesitate to call me if you wish to discuss your account or our outlook in greater detail.

Very Best Regards,

1st Quarter Update Summary – Deficits and Infrastructure

The economy at present is finally emerging from our pandemic constraints. During March, employment was remarkably strong as unemployment continued to fall. The lowest interest rates in a century together with massive pent-up demand backed up by stimulus liquidity is creating a perfect storm for rapid short-term recovery and growth. There is little uncertainty that the pandemic will retreat. Our scientific knowledge base of mRNA techniques will grow and our producers will quickly refine and distribute vaccines for emerging covid variants as necessary. We may be looking at upcoming annual booster vaccine shots for these variants along with the seasonal flu.

Many people have expressed concern that the huge deficits will cause inflation and a subsequent collapse of the dollar. However, these massive deficit spending policies have successfully been deployed in our past but under very different circumstances, so let’s briefly review them.

Massive deficits (or money printing) were of necessity liberally deployed in the service of Continue reading 1st Quarter Update Summary – Deficits and Infrastructure

Year-end Summary 2020

The economy at present is performing as well as could be expected under the circumstances. Housing is booming given the lowest mortgage interest rates in a century. The main factor holding back the economy is not a lack of disposable income; indeed areas where people are free to spend are also doing quite well. Rather, the curtailed growth is heavily concentrated in services where social distancing is a problem. The Fed continues to be as accommodative as possible and recognizing its own constraints to stimulate growth, is literally begging Congress for more fiscal stimulus and is encouraging even more than that which Congress is presently considering. The Fed, after trying and failing for a decade to get inflation to rise enough to meet a meager target of 2%, and now in the midst of a pandemic, has virtually abandoned any inflation concerns it may have had.

Congress at present is trying to agree on

Continue reading Year-end Summary 2020

2nd Quarter Update Summary

The economy at present is finally emerging from our pandemic constraints. During March, employment was remarkably strong as unemployment continued to fall. The lowest interest rates in a century together with massive pent-up demand backed up by stimulus liquidity is creating a perfect storm for rapid short-term recovery and growth. There is little uncertainty that the pandemic will retreat. Our scientific knowledge base of mRNA techniques will grow and our producers will quickly refine and distribute vaccines for emerging covid variants as necessary. We may be looking at upcoming annual booster vaccine shots for these variants along with the seasonal flu.

Many people have expressed concern that the huge deficits will cause inflation and a subsequent collapse of the dollar. However, these massive deficit spending policies have successfully been deployed in our past but under very different circumstances, so let’s briefly review them.

Massive deficits (or money printing) in the past were of necessity liberally deployed in the service Continue reading 2nd Quarter Update Summary