Lost in all the doom and gloom about the recent spurt in inflation is an emphasis on the most impactful cause:

The economy gained 6.5 million jobs in 2021 - by far the most on record. The unemployment rate plummeted, much faster than had been anticipated. And so yes, the economy recovered faster than was anticipated and some shortages developed. Including most importantly, of labor.

And yet despite the elevated inflation readings, interest rates have remained stunningly low, supporting the financial markets as we see every day.

Gradually, the economic gurus are coming to admit that calling inflation "transitory" was mistaken/misleading. The OECD is now predicting inflation of over 4% in the US - in 2022!!. No policymaker could credibly still categorize a 2 year spurt in inflation transitory.

The fact that predictions and forecasts made now are pre-omicron does not change the overall trajectory and the sense of alarm investors should be feeling now.

Despite the incessant and excessive hype concerning supply chains, the simple fact is that the manufacturing sector of the economy is booming. Perhaps it has called a bit over the past year, but still....these are good times and the pundits will have to search harder for reasons for despair.

Recent economic data are moderately encouraging from the stock/bond perspective. Consumer spending is still fairly strong, although moderating....and ditto for inflation.

It still is possible that when/if? the virus recedes in the coming weeks, consumer spending will surge as it did earlier this year. However, to me, this seems unlikely.

The impetus from the federal government will lessen significantly. It also seems reasonable to me that many, after seeing the over-promising of "life-to-normal" as a result of vaccines, will adopt more of a wait-and-see approach this time around.

Fueled by low interest rates and scant supply, the price of homes continues to surge. The rise of 14.6% over the year ended April marks the highest price rise since the S&P Case-Shiller index began 34 years ago.

Year in Review – Twelve Months ended March 31^st, 2021

The pandemic had momentous impacts on every aspect of our lives. In addition to the tragic human toll taken by the virus, the economic and financial effects were felt throughout the year, and will be for many years to come.

The virus and the lockdowns produced a stunning economic collapse in spring 2020. The nosedive led to numerous governmental responses. The Federal Reserve cut interest rates and flooded the economy with liquidity. Additionally, the fiscal response was breathtaking in its magnitude and scope. Although most of the measures were ostensibly taken to support the economy, in the end the greater effect was on the financial markets. Government support and Fed policy probably had more influence on asset prices than factors such as economic health, corporate developments, or the elections.

With longer term interest rates continuing their surge (the ten year Treasury now over 1.7%) market participants are clearly saying they don't believe the central bankers. Is there anything the Fed and others can do to restrain the rise in rates?

My suggestion: Take the risk of inflation seriously!!

For those of you that were unable to join us last night,  please click the Play button below to listen to our investment conference call where we outline four potential economic scenarios that could emerge as the impact of COVID 19 begins to fade. 

A startling impact of the coronavirus on the world has been a dramatic drop of population growth and fertility. Japan had the fewest number of babies in its recorded history, and in Taiwan an already low fertility rate has fallen below 1 (!).

Today's job report (~450K new jobs) shows that when/as the economy reopens the employment situation will recover relatively quickly. That also demonstrates quite clearly that the government's laser-focus on taming the virus is the correct approach, even if one can quibble about the details.