Notes on the Week Ahead

Pumping the Brakes on the U.S. Economy

Growing up in Dublin, my parents were of the firm belief that the streets of the city were safer without David behind the wheel of a car.  Consequently, I first learnt to drive in my early 20s on the backroads and highways of Michigan, with my future wife, Sari, as my instructor.  There were a number of perils associated with this including my tendency to ignore all traffic signs when focused on the task of steering the car or my habit of stalling out due a chronic inability to synchronize the application of the clutch and the accelerator.  It didn’t help that Sari would burst into a fit of giggles at the moments when I put us in the greatest and most imminent danger and was in particular need of quick and level-headed advice.

The Fed turns more hawkish…for now

When our children were very young and they committed some transgression, we had a rule in our house. It wasn’t enough to say sorry. You had to say what you were sorry for. That way, we had some hope that they wouldn’t make the same mistake again.

The Great Worker Shortage

Despite a disappointing gain in non-farm payrolls in November, numerous recent data points show an extraordinary excess demand for workers.  This excess demand won’t persist forever.  However, it’s important to understand its causes as this can provide some guidance on two crucial questions, namely, how long might it last and how will it be resolved.  The answers to these questions can also help in assessing which asset classes could outperform in 2022 and beyond.

The Investment Implications of Omicron

Financial markets tumbled last week as reports spread of a new, highly-mutated variant of Covid-19 which could be more contagious than the Delta variant and which could evade some of the immunity built up around the globe over the past year through vaccinations and infections.

More Clarity and Less Stimulus from Washington

The week ahead will, of course, be dominated by Thanksgiving, leading, appropriately, to less focus on financial markets. That being said, this should also be a week of greater clarity on fiscal and monetary policy. This clarity should reinforce the view that Washington aid will become considerably less generous in the year ahead, reducing inflation fears but posing some threat to recently very strong profit growth.

Why Inflation still looks mostly Transitory

Financial market commentary in the week ahead will likely center around the question of inflation.  The headlines speak for themselves.  CPI inflation jumped to 6.2% year-over-year in October, its highest reading in 31 years. 

Getting Back on the Recovery Track

My first summer job as a teenager was in the mailroom of a Dublin law-firm. 

The more intellectual duties of this position involved substantial paper-folding, envelope-licking and a daily fight with the franking machine. However, the important part of the job was buzzing around Dublin on my 10-speed bike (with the dropdown handlebars), delivering the mail directly to various law offices and clients and thus eliminating the inevitable delays of the Dublin postal service.

The Pandemic and Financial Waves

It feels like so long ago, but back in 2019, the economic and financial environment was remarkably placid. Real GDP growth was plodding along at 2.3% pace, unemployment drifted down to end the year at 3.6% and corporate profits were growing slowly from very high levels. Consumption deflator inflation was still running below the Fed’s 2% target and, in recognition of this fact, as well as market volatility at the end of 2018 and a sluggish global economy, the Fed cut the federal funds rate three times to end the year in a range of 1.50%-1.75%. While the political weather in America was stormy, the investment environment was remarkably calm.

The Stagflation Scare

Every summer since 1960, the World Lumberjack Championships have been held in Hayward, Wisconsin, a small community in the north west of the state.  Among the featured events in this and similar gatherings is logrolling, where two competitors scamper furiously on top of a very wet and smooth log, floating on a shallow, muddy lake.

Facing Reality on Growth and Inflation

On Monday, I have the privilege of running the Boston Marathon for a third time on behalf of the Dana Farber Cancer Institute.  I love being part of the team – despite many difficult personal stories, the volunteers, organizers and runners are a very warm and positive bunch to train with.  Moreover, the research conducted by Dana Farber is critical to winning more of the millions of individual battles which constitute the war on cancer.