Notes on the Week Ahead
The Investment Implications of a Falling Budget Deficit

The Investment Implications of a Falling Budget Deficit

May 16, 2022

Last Wednesday, the Treasury Department announced a record monthly budget surplus for April of $308.2 billion.  The report elicited no noticeable market reaction, as investors continued to fret about high inflation today and slowing growth in the months ahead.  However, a Federal Reserve recognition of the economic implications of a fast-falling budget deficit could hold the key to a recovery in recently battered stock and bond markets.  

Slowing Growth and the Potential for an Extended Soft Landing

Slowing Growth and the Potential for an Extended Soft Landing

May 10, 2022

In the movies, in order to convey the passage of time, a director will sometimes film a scene as the seasons quickly pass before your eyes.  With wistful music playing in the background, the snow melts from trees, buds blossom, leaves rustle in the summer sun and then turn yellow and red as fall arrives.  It all, of course, seems a bit quick, but no doubt the movie has places to go and hopefully things will settle down for a while and allow the plot to evolve.

For additional insights from Dr. David Kelly, listen to the Insights Now podcast.

The Dollar in a World of Worries

The Dollar in a World of Worries

May 2, 2022

In any given year, four big exogenous forces tend to have the most impact on portfolio returns, namely, earnings, interest rates, taxes and the dollar.  While the tax environment appears to be stable, in all other respects, 2022 is shaping up to be a difficult year with slowing earnings growth and fast-rising interest rates.  In addition, the dollar has risen significantly so far this year, as it did in 2021 and this is having negative impacts on both portfolio returns and economic growth. 

For additional insights from Dr. David Kelly, listen to the Insights Now podcast.

Killing it Softly: How the Fed should Fight Inflation

Killing it Softly: How the Fed should Fight Inflation

April 25, 2022

Economic data in the week ahead should highlight a stumble in economic growth and a surge in inflation in the first quarter. While second quarter numbers will likely partly offset both of these trends, they will remind investors of the challenges faced by the Federal Reserve in trying to return the economy to a path of steady growth and moderate inflation. While some Fed officials have advocated very aggressive tightening, both the likelihood of near-term moderation in growth and inflation and longer-run disinflationary forces suggest it would be wiser for the Fed to take a slow and steady approach in battling inflation.

For additional insights from Dr. David Kelly, listen to the Insights Now podcast.

The Economy and Markets after a First-Quarter Roller Coaster

The Economy and Markets after a First-Quarter Roller Coaster

April 12, 2022

A number of years ago, as part of a team-building exercise at an overseas conference, I got bullied into taking a ride on a particularly fearsome roller coaster. For someone who suffers from vertigo and is an admitted control freak, the next 90 seconds were not pleasant. Once the ride stopped, I stumbled out of the contraption. However, I could not proceed with our merry band of team-builders until I had done a serious inventory of the state of the world, starting with some rather fundamental questions.

For additional insights from Dr. David Kelly, listen to the Insights Now podcast.

Where have all the workers gone?

Where have all the workers gone?

April 5, 2022

Last Thursday, as I headed home from a conference, the car I’d booked to take me to the airport didn’t show up. Luckily there was a taxi nearby so I hopped in and discovered that, in addition to a comfortable ride to my destination, the fare entitled me to a free lecture on the state of the labor market. “The reason your car didn’t show up”, opined the retired police sergeant at the wheel, “is you can’t find drivers anymore. It’s the millennials - they just don’t want to work”.

For additional insights from Dr. David Kelly, listen to the Insights Now podcast

Small Paddle, Big Rapids: What the Economy Could Do to the Fed

Small Paddle, Big Rapids: What the Economy Could Do to the Fed

March 22, 2022

Despite their best intentions, the Federal Reserve sometimes appears to be trying to steer a big boat, through violent rapids, armed only with a small paddle. The reality is that forces well beyond their control will mostly determine the fate of the economy. However, the energy with which they paddle could have a major impact on investments.

For additional insights from Dr. David Kelly, listen to the Insights Now podcast.

Getting Going on Monetary Tightening

Getting Going on Monetary Tightening

March 14, 2022

At 5:30AM on Saturday morning, Coach Jack posted on the team Facebook page – the training run was a go.  Just as well.

The Boston Marathon is now five weeks away and as a proud member of the gasping geezers division of the Dana-Farber Marathon Challenge team, I knew we needed to get in a long run.  Between Covid and the weather, training has not exactly been easy.  On Saturday, the forecast was for rain with the possibility of torrential downpours.  But getting wet on Saturday was a better choice than waiting any longer for ideal training conditions.  Sometimes, despite adverse conditions and uncertainty, you just have to get going.

For additional insights from Dr. David Kelly, listen to the Insights Now podcast

Ukraine and the U.S. Economy

Ukraine and the U.S. Economy

March 7, 2022

In the week ahead, the world’s attention will continue to be focused on the horrific human consequences of the Russian invasion of Ukraine.  However, American investors will also be considering what it means for financial assets.  While the most severe economic consequences will likely be felt in Europe, the most important effects on U.S. portfolios depend on the implications of Ukraine for the U.S. economy.

The Financial Backdrop as Ukraine Waits and Worries

The Financial Backdrop as Ukraine Waits and Worries

February 22, 2022

Every winter, here in eastern Massachusetts, we are visited by Nor’easters. Each storm is plotted on weather maps days in advance. A low pressure area swoops down from the Rockies, gathers moisture in the Gulf of Mexico, rides up the east coast over the warm waters of the Gulf Stream and then stalls in the Gulf of Maine, churning itself into its full intensity. Every storm has the potential to turn into a blizzard. But whether it does or not depends on two things: First, what is the exact track of the center of the storm and second, how much cold air is in place before the storm arrives?

For additional insights from Dr. David Kelly, listen to the Insights Now podcast.