I sure hope that Janet Yellen is correct, and inflation is transitory and not out of control (see here and here). I hope everyone enjoyed Halloween, a day filled with silliness and fun. To that point, I treated myself this past week to a package of 16 choice Halloween beers and discovered that my taste buds for such beer had better be transitory! What can I say – my treat had better be worth that price of $74.72, or almost 3 cases of Budweiser. My takeaway from all this is that, while people feel more confident in their financial circumstances, they will also take more investment risks - and yes, treat themselves to more treats. In 2021 and in early 2022, I suspect this will continue to be the case. However, where will such confidence falter? Will it be as a result of stagflation, where companies feel the pinch and where costs exceed the offsetting price increases? I worry that wage inefficiencies that have bolstered consumer confidence will be reversed by a rationalization of responsible spending. I mean, wouldn’t most people prefer to drink half as many Budweiser beers and still have some money left over? Okay, by the way, I admit that this silly example represents the Halloween exception, and not necessarily the rule. Nevertheless, with gas prices now in the range of $4 to $5, there can be no question that inflation is real and global. To this point, note that Goldman Sachs economist Jan Hatzius said the Fed will raise its benchmark from a range of 0 to 0.25% soon, after it stops tapering its massive asset-purchase program, and then raise rates “two times a year, after that in 2022.” True or not? What’s a fixed income holder supposed to do?
Betting Odds that Fed Chairman Powell’s Reign will be Transitory
We live in a “new world,” where trust of centralized figure heads is not embraced easily, so forgive me for not just accepting the word of our Treasury Secretary. As they say, “hope is not a strategy.” To that point, according to Predictit, we recently noted that Jerome Powell’s probability of getting re-elected as the head of the Federal Reserve declined from 76% to 71%, as of October 22, 2021. Needless to say, having a new Federal Reserve Chairman in the midst of policy questions would not be a great confidence builder. We think this is a real risk for markets, and something that way too many investors take for granted in the midst of tremendous fiscal and monetary policy questions.
Again, people so often focus on the risk in the equity markets and other traditionally high beta investments. However, these days we would be focused more on the volatility in the bond market, the utility sector and commodities. The trick to good investment returns in 2022 may come from balancing the greed factor, and not seeking too many treats
This week, we welcome Chris Sullivan, President of MacMillan Communication, to our Thursday Happy Hour. We admit that we are big proponents of self-promotion, and we have worked with Chris. We believe that our Happy Hours are meant to be fun, interactive and constructive with challenging discussions. In this week’s event, we will highlight a couple of thoughts. (1) Let’s face it: getting recognized as a source of information by the media can be helpful for business, but your preparedness to answer questions is also important. (2) How does strong social media presence help engagement with the press? (3) The importance of media training and practice. (4) A discussion around the necessity of integrity from authors and editors, by leading with catchy titles that are actually aligned with the story. A better headline for this article, to catch more readers, could have been “Fed Chairman Jerome Powell is Drunk on Inflation.”
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