Hi All,

It’s been a little while since I’ve written.

Yeah, what gives?

Even though I’ve spoken to many of you, someone once told me that I should only write when I have something to say. Well, now is definitely a time to start writing again.

I’ve reached out to some over the past few weeks to review your financial plans and to make sure you are on track with your objectives.

OK, but now the market is in turmoil again. What’s going on?

FEAR is what’s going on. That, and uncertainty.

As I’ve mentioned in conversations, this market is going to be moving up and down because of the never-ending story of covid-19 (and its vaccine rollout) and the struggle over reopening, which inevitably leads to a conversation about inflation…

I’ve seen the market get taken out behind the woodshed these past two weeks and everything I hear on TV is about inflation.

Yes, inflation is a BIG topic right now, but it feels like there is a disconnection between what central bankers and certain economists say, and what those talking heads on the infotainment shows and the rest of the media say.

Only time will tell who is right, because no one really knows anything.

I think we can all agree that there are inflationary pressures, and they all currently point upwards, so that could, in turn, make interest rates rise. The fear mongers are thinking the sky is falling because interest rates are going to move from about 0.25% to 4% overnight (they’re not).

Yet, the people in control of rates (the central bankers) are clearly signaling that they will remain accommodative and that inflation will be “transitory.” Most Federal Reserve governors have said a rate rise would be premature right now. I feel we should listen to those making the decisions on this.

Weaker-than-expected job numbers, secular forces such as technology keeping unemployment higher than expected, trade issues with China, and the prevalence of gig workers have kept inflation in check for the time being.

I hear you saying this, but things have really gotten expensive.

Sure – you can’t deny that grocery bills are higher than before (but before, you weren’t eating every single meal at home).

“Experts” think this time may be different, because the pandemic is keeping potential employees at home as businesses try to reopen with the help of government subsidies. Potential workers will expect a higher income when they do go back to work.

Corn, lumber, copper, steel – commodity prices are on a tear. This will inevitably hit the consumer as corporations try to pass on these costs to us. These price increases are due primarily to supply chain disruptions and pent-up demand and they can’t be sustained for long.

Of course, once prices are up corporations will be loath to lower them even once commodity prices come back down.

Commodity prices have moved significantly higher, leading many CFOs to link this to consumer price inflation. But producer price inflation across the stages of the economy’s value chain shows that such pressures are gradually absorbed in the margins or offset by higher productivity growth. Typically, only a small part of producer price inflation reaches price tags on supermarket shelves.

OK, so why is the market acting the way it is?

The best term I’ve heard to describe this is “inflation angst.” A real tug-of-war exists between high-growth stocks (technology, disrupters, etc.) and cyclicals (materials, mining, and energy) – between high-tech and low-tech.

Because no one really knows where the markets are going, it’s difficult to figure out how the recovery will shape up. Are corporations over-buying a limited supply of goods in anticipation of a massive and swift recovery – hence the commodity surge? Or will the recovery take longer to evolve, with higher unemployment for longer?

In the end no one knows. What I do know, however, is that if you are worried about anything in your portfolio, you should call me. If your circumstances have changed and you’d like to discuss, please call. The best way to get through this is together and with great communication.

Overall, you own best-in-class names that will weather the markets of today and tomorrow. It is not a straight-line trajectory; you will have ups and downs. We can’t have banner years like last year every year. The best thing is always to review what you have, your time horizon, and your circumstances – and you shouldn’t compare your portfolio to others, because yours is built for your needs and objectives.

In other words, call you?

Yes. And any friends or family that you think may benefit from working with me should call me too.

 

Thank you

Christian Steinbock