Not that 70's show

May 17, 2021 | Mark Ryan


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Good afternoon,

 

Good-ish news on the Coronavirus front: This past week we made good progress in Canada, with our 7-day average rate of new daily infections ticking down to 6700 versus the 7800 a week before. There were encouraging and relatively strong declines across a number of provinces, led by British Columbia, Quebec, Ontario, and Alberta. Overall, this seems to suggest that the third wave may now be slowing meaningfully.

 

This induces my involuntary Pavlovian salivation response on contemplation of roasted meat products. (I see back yard hot dog roasts on my horizon).

 

Will inflation… “The market-quicker-picker-upper” last longer? This past week, the U.S. consumer price index (CPI), rose 4.2% versus the year before, the highest increase since 2008. We are still lapping the year ago period where economies were nearly shut and inflation was thuddingly weak, and this so-called year-later “base effect” will continue to distort comparisons for a little while longer.

 

Can’t get our stuff to the place: Supply chain issues present another dynamic exacerbating price pressures. This is particularly true with semiconductors, used in everything from microwaves, to computers, mobile phones, cars, and remote-control cats. The chip industry has been struggling to meet high demand from this brave new world where your vacuum cleaner is listening to you complain about the government. And unsurprisingly, the chip’s input commodities have also gotten expensive. But all is not lost. In fluid markets, the best cure for expensive stuff is expensive stuff. Profits spur supply. Supply eases price.

 

On the employment front a different sort of demand curve is couch-potatoing results. The disappointing jobs data is probably distorted by government aid, which too has a shelf life. The employment picture does not yet appear to be a meaningful long-term driver of pricing pressures.

 

Overall, we expect the next few months’ price-wise to be noisy, but the bigger test will come later in 2021 when the year-over-year comparisons will be less distorted and supply issues less pronounced. Our economists are not convinced that longer-term inflation is upon us.

 

Quote of the Week:

“A good summary of investing history is that stocks pay a fortune in the long run but seek punitive damages when you try to get paid earlier. Virtually all investing mistakes are rooted in people looking at long term returns and saying: ‘That’s nice but can I have it all faster?’” Morgan Housel

 

Our usual full analysis is here: Global Insight Weekly

 

Enjoy your weekend!

 

 

Mark