What is the real rate of growth? GDP growth rebounded in the 4th quarter of 2021. After slowing to 2.3 percent in the third quarter, the initial reading for 4th quarter is 6.9 percent. Does that mean we are back to the solid growth of earlier this year? It doesn’t feel that way.

While 6.9 percent seems like healthy growth, we must factor in that inflation is 7 percent. Also, when you average the 2.3 percent and 6.9 percent, the second half grew at 4.6 percent versus over 6 for the first half. Is it any wonder that people do not feel as if the economy is doing well?

Factor into that 6.9 percent growth the fact that more than 4 percent of that was inventory-building, and the picture becomes a little bleaker. Most of the activity last quarter was simply companies getting their supply chains sorted.

This puts the market in a quandary. Earnings will be strong, at least in nominal terms, while real growth continues to slow. In the long term company earnings should win out, but in the short haul, markets are likely to be choppy.

To read the full report, please download the PDF.

~Fourth Quarter 2021

All I want for Christmas is for my presents to actually arrive! 

Supply chain issues weigh on the global economy. It has been reported that 90 ships are in queue outside of Los Angeles, and more than 20 ships are backed up outside of Savannah, GA. Orders online that we are accustomed to receiving the next day, they now say will ship in three weeks.

The combination of Covid shutdowns, stimulus payments, and a lack of workers returning to the workforce have created a nightmare of supply chain logistics.

In the meantime, we have the combination of high inflation and dramatically slowing economic growth. The US economy has gone from growing at a rate of 6.5 percent all the way down to 2 percent in a matter of months.

This is a strange economic soup, but the greatest concern is likely inflation. This means that stocks should be the best place to be as they are the best hedge against inflation. We could see an environment where the economy limps along, but the stock market does well.

Inflation hurts consumers and destroys savers but can actually helpinvestors. Even though we are investors, this is not a good situation for the long haul.

To read the full report, please download the PDF.

~Third Quarter 2021

That is a full two-point deduction, which is a little more than simply not sticking the landing. This is a huge disappointment.

The first reading of second quarter GDP came in at 6.5 percent. That would be fantastic under normal circumstances, but there is nothing normal going on right now. Expectations were for 8.5 percent and that had already been lowered from 9 percent.

I have said it a thousand times if I have said it once, but the real indicator of how the market feels is not the headline index return, but what is happening under the surface. While the broad indices have held up, underneath the surface we have had a rotation. Smaller company stocks, as measured by the Russell 2000, have underperformed, as have value stocks. Large-growth stocks have come back.

Investors now go towards these large technology firms when they believe there is no growth to be had anywhere else. These high-fliers have somewhat ironically become today’s defensive stocks. The market has gone from telling us that we are going to grow exponentially to saying we are headed for a recession. The market exaggerates.

What was overly optimistic just a few months ago, has become overly pessimistic.

To read the full report, please download the PDF.

~Second Quarter 2021

Great expectations often lead to disappointment. No, I’m not talking about the Dickens novel – Pip would never disappoint. I’m talking about real life.

We are in the midst of an economic recovery from the reaction to Covid-19, and expectations are getting great. The Fed has said it foresees 6 percent economic growth. When most people hear that they probably celebrate, but when I hear that I immediately think:  We could grow at 5.5 percent and Wall Street will be disappointed.

The Fed has kept the gas pedal to the floor and says they no longer care about short-term inflation but will keep the money loose until people get back to work. At the same time, the administration and Congress are passing relief packages seemingly designed to stop people from going back to work. These policies have the potential to lead to permanent higher unemployment and easy money, which could lead to inflation. The Producer Price Index, which tracks wholesale prices, is up more than 4 percent over the last year, and the recent reading for the Consumer Price Index was 2.6 percent – more than half a percent higher than the Fed’s long-term target.

Is inflation solely a monetary policy issue, or is it the combination of loose monetary policy with big government spending? I don’t know the answer, but this is a question that must be asked.

To read the full report, please download the PDF.

~First Quarter 2021

~Fourth Quarter 2020