inflation in the us paul meeks blog
Paul Meeks

Paul Meeks

Meeks’s Musings: I Am A Bit Relieved – Inflation in the U.S.

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I have been worrying about inflation, particularly wage inflation, as our economy reopens. Inflation can crush the valuations of growth stocks and other “long duration” assets. However, the spreading of COVID’s delta variant and recent indications of a quicker economic slowdown — albeit from a blistering, unsustainable pace — than I had expected have made me more sanguine about the market although this may sound counterintuitive. I bet that our central bank, the Federal Reserve Board (Fed), which holds all the cards that really drive the market, will maintain its accommodative monetary policies longer than most investors, including me, had expected a few months ago.

At the beginning of 2021, the consensus was that our recovering economy and inflationary pressures would drive America’s “risk-free” interest rate, or the yield on the 10-year Treasury note, from 0.92% to at least 2.00% by year end. Those forecasters were right…for a while. The yield peaked at 1.77% on March 30, but since then it has plunged to today’s (August 20) 1.26%. Investors that trade Treasury bonds are telling us that the inflation pressure is off, or we have at least seen the worst of it. If the Fed “tapers” its monthly purchases of Treasury and mortgage-backed bonds, which it buys to lower long-term rates to resuscitate our economy, we could have a “taper tantrum” correction in stocks, but I think that it will be short-lived and not too deep. I likely would see it as a buying opportunity. It sure was when this term was coined and after the market was rocked after Fed Chairman Ben Bernanke threatened to raise rates in 2013.

I am not saying that our departure from Afghanistan is not a critical geopolitical issue — it clearly is — but it does not worry this investor. The key things to watch are the spread of the delta variant to see if it will meaningfully slow our economy again, and the Fed’s next move. Of course, these hot buttons are related. I give “honorable” mention to two other worries, which are the world’s scarcity of semiconductors — I suggest that you read Al Root’s “The Chip Shortage Looks Like the Oil Shortage of the 1970s” in this weekend’s (August 23) Barron’s — and the struggle that analysts face in determining for businesses that have benefited from COVID how much of their demand remains if and when we beat the pandemic.

Check out Paul’s recent commentary, Two Doesn’t Usually Make A Trend But What If It Does This Time? for more information.

Investment Advisory Services offered through Independent Solutions Wealth Management, LLC, an SEC Registered Investment Adviser.
All opinions expressed by Paul Meeks are solely Meeks’ opinions and do not reflect the opinions of Independent Solutions Wealth Management, LLC (“ISWM”). You should not treat any opinion expressed by Meeks as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his opinion for educational purposes only and does not constitute investment, legal or tax advice, an offer to buy or sell any security or insurance product; or an endorsement of any third party or such third party’s views. Meeks opinions are based upon information he considers reliable, but neither ISWM nor its affiliates and/or subsidiaries warrant its completeness or accuracy, and it should not be relied upon as such. Meeks, ISWM, its affiliates and/or subsidiaries are not under any obligation to update or correct any information provided on this website. Meeks statements and opinions are subject to change without notice. No part of Meeks compensation from ISWM is related to the specific opinions he expresses. Past performance is not indicative of future results. Neither Meeks nor ISWM guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment discussed. Strategies or investments discussed may fluctuate in price or value. Investors may get back less than invested. Investments or strategies mentioned may not be suitable for you. This material does not take into account your particular investment objectives, financial situation or needs and is not intended as recommendations appropriate for you. Before acting on information, you should consider whether it is suitable for your particular circumstances and strongly consider seeking advice from an investment adviser.

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