By Morgan Christen
CFA, CFP, CDFA, CEO and CIO
Those of us born between May 21st and June 20th, fall into the astrological sign Gemini. Twins; two sides, like Jekyll and Hyde.
However, if you know a Gemini, you realize we are more Dr. Jekyll than the evil Mr. Hyde.
Inflation has been filling our screens and news feeds lately. Some say it will come roaring back while others, include our Fed Chair, believe it is just transitory.
Inflation is showing its two sides and the market would prefer the Dr. Jekyll side. Some investors are taking the bet that the evil twin emerges as money flows into TIPS (inflation adjusted bonds) have been large and consistent.
Covid created a large external shock to our economy. Roughly a quarter of our economy was shut down, bringing us quickly into a “technical” recession.
Unlike prior recessions, there was no bubble burst to blame, so it was not a surprise the recovery was so quick and V-shaped.
The slowdown in the earlier parts of the pandemic created demand as well as supply issues.
Look at lumber, up almost 300%. The Federal Government was quick to respond as you will see in the chart below. Income rose as the government injected massive amounts of stimulus.
Another example to the Gemini twins is shopping at Costco. Buy gas and the prices you pay certainly seem inflationary as prices continue to rise (I am not buying the Summer blend argument).
But then you are accosted by all the beautiful TVs as you enter and you leave with a 75″ Vizio for $750; that is deflationary. Inflation and deflation all in one shopping spree.
The stimulus will stop at some point (hopefully) and the recovery surge will dissipate. When that will be we are not sure, but 2022 could be a much different year. Once the fog of Covid lifts and animal spirits slow we can fully digest the Covid collapse and surge.
We are not making dramatic moves in either the inflation-rise or status-quo camp. However, we are on the side that earnings matter. Good companies will do well in most environments and we intend to own them.
Disclosure
The information contained herein is based on internal research derived from various sources and does not purport to be statements of all material facts relating to the securities mentioned. The information contained herein, while not guaranteed as to the accuracy or completeness, has been obtained from sources we believe to be reliable. Opinions expressed herein are subject to change without notice.
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