Notes on the Week Ahead

Why the Fed should worry less about sticky inflation (but probably won’t)

When future historians reflect upon the current age, they might call it “the worry years”.

As America emerges from the pandemic, there are still serious health concerns, a yawning political divide, rising autocracy around the world, a brutal war in Europe and the highest inflation in 40 years. Moreover, anxiety triggered by these genuine problems is being amplified by cable channels and social media which ever more efficiently gather their audience by appealing to fear and outrage.

 

Job Openings, Recession Risks and Prospects for a Fed Reversal

On Saturday, Sari and I made our annual pilgrimage to Kimballs for lobster roll.  Kimball Farm, which started as an ice-cream stand in Westford, Massachusetts, has ballooned into a huge enterprise over the years and there was a big crowd lined up in front of us when we arrived.  Undaunted, we traced our way to the back of the line and hoped it would move fast.  It did not.

The Investment Implications of Jackson Hole

Whatever else anyone may say about Jay Powell’s much-awaited speech in Jackson Hole, it had two distinct virtues. It was clear and it was brief, running to just 1,300 well-chosen words.

In the same spirit, and despite a sharp 1,008 point slide in the Dow Jones Industrial Average on Friday, it is important to be succinct in discussing both where the economy is and potential Fed policy going forward.

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

A Line in the Sand on Inflation

The phrase “drawing a line in the sand” has an unhappy history.  In the U.S., it is said to have originated with Colonel William B. Travis, who drew a line in the sand at the Alamo declaring his willingness to fight and die rather than surrender.  In 2008, following the takeover of Bear Stearns earlier that year, federal authorities drew a line in the sand and let Lehman Brothers go bankrupt.  And in recent weeks, Fed officials have seemed to draw a line in the sand on inflation.

For the podbeam description, can we add the following line towards the end: “For additional insights from Dr. David Kelly, listen to the Insights Now podcast.”

The Global Inflation War

Normally, the great challenge in talking about the global economy is finding a theme.  The economic fortunes of nations are usually driven by such a disparate array of political, financial, demographic and environmental cross-currents that it is impossible to establish a framework for analysis.  Twice however, in this still young century, events have unfolded to provide just such a theme as the world battled the global financial crisis in 2008 and the global pandemic in 2020.

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

The Inflation Cold Front

After weeks of steamy hot temperatures, a cold front is set to move through the Boston suburbs on Tuesday. While the relief will be nice, in truth, the temperature will only edge down from the low 90s to the low 80s. However, it is the start of something and, as we are well aware in this part of the country, longer-term forces will bring us much colder weather before too long.

Twists and Turns on the Road to a Better Investment Environment

The long history of financial markets, like most classic novels, is full of misunderstandings, miscalculations and mistakes. Despite all of this, the story normally twists and turns its way to a happy ending. This may yet be the case for investors in the very unusual economy that has unfolded following the pandemic recession and recovery.

From Allegro to Adagio: Growth, Inflation and the Fed

When engaged in the more mundane tasks of my job, I often have classical music playing in the background. A piano concerto, in the hands of a great orchestra and soloist, is a delight to the ears as the rush and energy of the first movement gives way to the softer pace of the second. And when the conductor downshifts the tempo, the musicians follow with effortless precision.

The Lag in the Drag

Last Friday’s strong jobs numbers came as a relief to many who feared that the U.S. economy was quickly sliding into recession. On its face, the June employment report seems to support further aggressive Federal Reserve tightening, leading to higher U.S. interest rates and a further appreciation of the dollar, and offsetting forces impacting U.S. equities.

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

The Quiet Machinery of Repair

One minor side effect of this terrible pandemic is that we have all become more educated on our own immune system.  Looked at objectively, it is a masterpiece of evolutionary excellence. 

The outward signs of infection are normally easy to see – coughing, sneezing and obvious fever warn other humans to keep away, while our own exhaustion makes us less mobile and thus less likely to infect.  The extraordinary havoc wrought by Covid-19 is primarily due to the virus’s ability to make someone contagious even before these symptoms appear.

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