Timely update... The weakening of *nominal* retail sales, released today, suggests your "current recession" comment is fully warranted. I hope, at some point, that fundamentals matter again, but we might have to wait for labor market weakness to stem the flow of price-insensitive flows into equity markets.
A test to 1600 would be "catastrophic" indeed but very cleansing, correct? Kayfabe, would a market decline that great necessarily put an end to inflation, or in this post-pandemic world is 2% inflation a pipe dream. In that scenario, do you think QE would begin again or would fear of re-inflation cause the FED to think twice? [Political pressure at that moment would be tremendous given that unemployment would necessarily have to be terrible. Not to mention the bankruptcies...] Thank you for this weeks piece. Always valuable. Appreciate you.
Hello Mark - you raise good questions and I have no particular info advantage on the answers. I think the major macro backdrop (I call it the Lacy Hunt paradigm) remains structurally the same - i.e. low trend growth, deleterious amount of debt, low monetary velocity, and bad demographics. They are all disinflationary. I wrote Regime Change about a year ago considering these questions, as I worry that the response to the pandemic may have opened Pandora's Box to direct-to-consumer fiscal stimmies as a part of the inevitable fiscal response. That could be far more inflationary - especially with things like on-shoring, supply contraints in commodities, etc.
Things are further complicated on the potential timeline for a fiscal-dominant response due to the upcoming US presidential election cycle, which is partly why I suspect the response will be slower but ultimately very large if/when it finally does arrive. Fully expect the Fed to go back to QE before any of that, though will be interesting to see if they resist going back to ZIRP.
I like your comment about prudent investors being a gying or extinct species. I think a few prudent investors remain though. It is definitely more popular to be bullish though and I have heard convincing arguments as to why people in the financial industry must be bullish. It's funny in your response above to Mark you say bad demographics is disinflationary but Jeremy Grantham in a recent interview said it is inflationary as it puges wages up. It makes me think of Peter Lynch and how he said that there were at the time he wrote his book one up on wall street 60,000 economist's in the US and none could reliably predict the future. Anyway times change and we must change with the times I guess or else we too risk becoming extinct species!
Thank you! I have learned so much from your Substack. I get sick too of the one-off charges and the financial engineering. I wish buybacks were illegal like they used to be. I wish Jim Chanos could be the head of the SEC!
I work for a Target warehouse and I am also an investor.
Target—the company I work for, did everything wrong. They hired too many people. They bought back shares at $220-240. Now, I think they are in the 160’s. They bought way too much inventory and they thought when they jumped from 80 billion in revenue to 100 billion that it was normal. Even though prior they were consistently growing by about 2 billion a year. They are suffering from a “Mack Attack!”
You are spot on! Thank you! After reading your articles I have learned to drown out the noise.
I just wanted to add one more comment. Something I have noticed after working 20+ years in warehousing.
Greenspan used to talk about worker insecurity. So, since they were worried about this workers would do $15 of work, but only get paid $10.
Now, people think jobs are plentiful. Kids live home till there 30’s. Quiet quiting is real. At work people go in the bathroom all the time at work at sit on the toilet to watch Tik Toks!
Timely update... The weakening of *nominal* retail sales, released today, suggests your "current recession" comment is fully warranted. I hope, at some point, that fundamentals matter again, but we might have to wait for labor market weakness to stem the flow of price-insensitive flows into equity markets.
A test to 1600 would be "catastrophic" indeed but very cleansing, correct? Kayfabe, would a market decline that great necessarily put an end to inflation, or in this post-pandemic world is 2% inflation a pipe dream. In that scenario, do you think QE would begin again or would fear of re-inflation cause the FED to think twice? [Political pressure at that moment would be tremendous given that unemployment would necessarily have to be terrible. Not to mention the bankruptcies...] Thank you for this weeks piece. Always valuable. Appreciate you.
Hello Mark - you raise good questions and I have no particular info advantage on the answers. I think the major macro backdrop (I call it the Lacy Hunt paradigm) remains structurally the same - i.e. low trend growth, deleterious amount of debt, low monetary velocity, and bad demographics. They are all disinflationary. I wrote Regime Change about a year ago considering these questions, as I worry that the response to the pandemic may have opened Pandora's Box to direct-to-consumer fiscal stimmies as a part of the inevitable fiscal response. That could be far more inflationary - especially with things like on-shoring, supply contraints in commodities, etc.
Things are further complicated on the potential timeline for a fiscal-dominant response due to the upcoming US presidential election cycle, which is partly why I suspect the response will be slower but ultimately very large if/when it finally does arrive. Fully expect the Fed to go back to QE before any of that, though will be interesting to see if they resist going back to ZIRP.
I like your comment about prudent investors being a gying or extinct species. I think a few prudent investors remain though. It is definitely more popular to be bullish though and I have heard convincing arguments as to why people in the financial industry must be bullish. It's funny in your response above to Mark you say bad demographics is disinflationary but Jeremy Grantham in a recent interview said it is inflationary as it puges wages up. It makes me think of Peter Lynch and how he said that there were at the time he wrote his book one up on wall street 60,000 economist's in the US and none could reliably predict the future. Anyway times change and we must change with the times I guess or else we too risk becoming extinct species!
Thank you! I have learned so much from your Substack. I get sick too of the one-off charges and the financial engineering. I wish buybacks were illegal like they used to be. I wish Jim Chanos could be the head of the SEC!
I work for a Target warehouse and I am also an investor.
Target—the company I work for, did everything wrong. They hired too many people. They bought back shares at $220-240. Now, I think they are in the 160’s. They bought way too much inventory and they thought when they jumped from 80 billion in revenue to 100 billion that it was normal. Even though prior they were consistently growing by about 2 billion a year. They are suffering from a “Mack Attack!”
You are spot on! Thank you! After reading your articles I have learned to drown out the noise.
I just wanted to add one more comment. Something I have noticed after working 20+ years in warehousing.
Greenspan used to talk about worker insecurity. So, since they were worried about this workers would do $15 of work, but only get paid $10.
Now, people think jobs are plentiful. Kids live home till there 30’s. Quiet quiting is real. At work people go in the bathroom all the time at work at sit on the toilet to watch Tik Toks!