This week in markets it’s all about the rising spectre of inflation in the US, and how it informs and shapes the markets, especially in the context of jobless claims and GDP data due out later today.
This podcast first appeared and originally published at https://www.bfm.my/podcast/morning-run/market-watch/investors-pause-to-ponder-as-markets-near-records-and-prices-rise on May 27, 2021.
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KHC: So to discuss markets, we’ve got on the line with us Tony Nash, the chief executive of Complete Intelligence. And Tony, let’s start with the recent stimulus measures and, of course, the rising specter of inflation. In your opinion, what is your sense of whether the inflationary numbers are transitory or rather more permanent in nature?
TN: I think it really depends on the products you’re looking at. So if we look at products like lumber or corn or some of the eggs, the non protein, meaning hogs and cattle, if you look at the plant type of eggs, that inflation seems to be coming off. It seems to be at least off of the peaks for now if we’re looking at the protein stocks. So pork and chicken and beef, the storage of protein products is pretty low.
In some cases, it’s 20 some percent below the product that we had a year ago. So I would expect an ongoing rising prices for things like meat over the next three to six months. But oil, I think we’re range trading in oil. I don’t necessarily see a spiking up in oil. We haven’t seen inflation in oil like we’ve seen in other commodities.
PS: Still in U.S. With respect to the stimulus, I think that’s resulted with individuals having a much higher level of personal savings. How do you think that is going to be utilized in the coming months?
TN: Sure, yeah. The personal savings in Q1 of this year was around 21% of Americans income. So there’s almost a lot of fiscal stimulus in the US. Normally, if we look 20 years ago in 2001 and the same quarter, the savings rate was 5%. So it’s more than four times normal. So how do we think it’s going to be spent? Probably on services, probably on things that people haven’t been able to do while they’ve been locked down for things like travel, restaurants.
I would expect to see a lot more spending at restaurants later in Q2, Q3 and Q4 of this year travel. Well, we definitely expect that to come back. But the hotel spending we think may be more regional rather than national or international.
WSN: So, Tony, does this mean that we should start looking at these kind of stocks? And so you’re talking about hospitality, aviation, even restaurants. Should we be buying these companies?
TN: No, I think it depends on the stock. It really is the type of market where you have to look at the individual stocks because valuations and really almost any other gauge for measuring the value of a company is pretty stretched right now. So you’d really have to identify the type of investing on it to make and really look at where you think that’s going over time. So will these valuations hold? Will the different metrics that people are looking at going to hold? A lot of these things are already baked into to the price of equities. So I’m not sure how much more we can juice out of these equities right now.
WSN: And this is not just the the sectors that we talked about. You’re talking about generally the broader market overall be over everything. So then how should we determine our asset allocation? I mean, should we move back into cash or should we look at other markets, for example, not just US?
TN: Well, yes, I think you really have to look at it on an opportunity by opportunity basis. I think we’re at that point in the market, in the cycle where you really have to evaluate every single opportunity individually. I think a lot rests on the upcoming Fed meeting on June 15. So we’ll know on June 15th as the Fed signaling that they’re going to tighten a little bit is going to be a little bit of taper. Are they going to continue running down the street with their hair on fire, just throwing cash out to everybody? If it’s the latter, then sure, we have some ability to stretch these values even more. If not, I think there’s going to be a lot of care taken and we’ll see a little bit of rotation into some things like gold and other things.
KHC: So more immediately, Tony, this week we’ve got jobless claims data and of course, GDP. How, if at all, with those data points, shape your investing decisions going into the weekend.
TN: Well, I think unemployment is a big one because last month’s number was so terrible, so if we have another terrible unemployment rate, it’s easy. If last month was terrible and it was a one off, then fine. But if it’s another terrible number, then I think that’s a really bad sign. But the Fed and the Treasury are wrestling with the fact that there’s really too much stimulus out there. So people are paid an extra twelve hundred US dollars a month to stay at home instead of go out and get a job.
So a lot of small business owners, restaurants and shops and these types of hourly workers, those employers can’t afford to hire people or the people making who would normally take those jobs are literally choosing to stay home and collect unemployment instead of get a job, because, again, they’re making more than a thousand dollars a month, literally by refusing to take a job. So that’s a disincentive for people to join the workforce, but to stay actively unemployed.
Supposedly, they’re looking for a job, but to not really take a job because they can make so much more money. Now, you have something like twenty seven states in the US that have now said they no longer want the federal unemployment kind of accelerator, which is that three hundred dollars a week extra on top of the normal unemployment people would get because the states are seeing that their companies are having a really hard time finding work.
And so if they no longer take federal money, then those small companies and those change will have an easier time finding workers.
PS: And Tony, can we give you a perspective on the current crypto volatility in your view, whether it will cause the contagion effect on price levels of traditional assets like equities or bonds?
TN: That’s a good question, you know, crypto came off big time, right, last week and over the last couple of weeks, and then it is interesting that there really hasn’t been a contagion to speak of. And a couple of notable things. When we’ve seen equities fall that much or commodities or something, there’s always a contagion. Right. And what always happens is central banks come in to intervene and help the markets. And what I’m wondering is that expectation that central banks are going to intervene, does that accelerate the contagion effect so the central banks would bear save the market, the potentially contagious markets with those markets because of falling and it hasn’t gone over to other markets?
Nobody expected central banks to intervene in crypto. So it’s a really interesting study on how markets function and also what people’s allocations were. I mean, a lot of people have money in crypto. They may not have a lot of money in crypto, but it’s a widely distributed asset that people have. It’s also seen as kind of a lottery ticket and gamble.
WSN: So Tony, do you have money in crypto?
TN: I don’t know if you guys follow me on Twitter, but I talk about my 19, 20 year old daughter who put, fifty dollars in crypto, and I think she was up six times at one point. I think now she’s up. Well, she’s probably still up six times. She was up, I think 15 times at one point.
PS: But she stood up.
WSN: So, yeah, you’re still the richest in the house.
TN: You know, your student, right. I got in with a little bit just after her, so. But it’s not a big bet. I’m just really curious to see how this asset performs. One of the learning she’s had is take out your principal as soon as you can, and she’s done that. So everything she’s playing with is profit. And I think that’s the guy that a lot of crypto investors are using is, hey, take out your principal when you can. Everything else is profit. And let’s just see where it goes.
KHC: Well, thanks, Tony. She has a good teacher. That was Tony. That is the chief executive of Complete Intelligence. Just on the back of what he was talking about with the stimulus checks. I mean, I’m rereading one of Jim Rodgers’s book, which got it to that last night. And when he was traveling through China, he noticed that in China, 30 percent of income is typically going to a savings rate in America. That number in the 90s when he wrote this book was around about two percent.
So Americans don’t have a culture of saving. They have a culture of spending. And because they get the stimulus checks, I think there’s a longer term discussion about what this is going to do on the job market because the Americans getting more money than they used to get in their previous jobs by sitting on their backsides in the couch. Right.
WSN: But it’s just not correct. They are going through and. Correct.
KHC: Yes, but they don’t behave this way. Right. They don’t save it for the long of the. And rub it Robinhood or they couldn’t buy an iPhone. Right.
WSN: I think this is the Robin Hood in the iPhone. You know, I want to put this into context. Yes. I’m sure some spend their money that way. But there were also some people who really need it, of course, check. So like in any economy in the recovery, you’ve got this case shape. So, you know, but I think what does this mean for the U.S. economy in terms of inflation? Pressure is the job market as well?
PS: Yeah, I think the question was whether they should have been more targeted, the stimulus, because he was quite overreaching and basically touched, I think, about 80 percent of people. That’s the challenge in question here.