Getting ketchup from its bottle is often messy. It never wants to flow easily. The container must be shaken vigorously, or squeezed a lot to find that it still does not come out. Eventually after enough frustration and squeezing, ketchup will flow – often after it explodes with too much red sauce going everywhere. This month, title alternatives were “Ate Way Too Much” (at Thanksgiving), or “Monster Snow Storm” is brewing. Both of these ideas relate to news/media sensationalizing new worries which then affect the financial markets. Following 20 months of market advance with only minor pullbacks, most any new “worry” can cause the market to feel “bloated”.
Category Archives: Monthly Commentary
Peak “Stagflation” – November Commentary
What is Stagflation? Is the US economic environment traveling toward Stagflation? The percentage of news articles mentioning “stagflation” is nearly double (37%) the previous high readings which occurred in the midst of two prior recessions of 2008 and 2001 (both at 21% – see chart at bottom of article). The term stagflation combines two concepts – stagnation and inflation. This condition takes place when economic growth stalls (or stagnates) at the same time inflation is elevated (or rising). Accompanying stagflation is unhealthy levels of unemployment. It occurs when some force or condition increases the cost of production, such as an increase in oil prices (1970s) or a supply-chain disruption (2021) giving rise to the prospects of slowing or stalling economic growth and rising inflation (higher prices). A “supply-side shock” creates shortages of product (could be many products or materials), wherein the price of products rise quickly due to scarcity. Similar to the 1970s, unemployment and availability of workers (today) add to the challenge of slowing economic growth accompanied with rising prices (inflation). If this condition exists too long, it becomes “sticky”, and fighting or managing it becomes challenging.
“All of the Above” Multiple Choice Questions & Pivot Points – Nvest Nsights Q3 Newsletter
With the 3Q now complete but the stock market seemingly more choppy since September, investors wonder if the final 3 months of the year and 2022 might offer a resumption of upward trend. For most, it’s a difficult consideration amid the confluence of BIG Government-related issues ranging from significant spending and tax proposals (infrastructure and social programs), a potential government shutdown (debt ceiling), whether Fed Chair Powell will be reappointed, and more.
In this quarter’s update, “All of the Above” we review the reasons we see for the stock market losing momentum in recent months, September in particular. We also believe that the Great Lockdown response to COVID will be viewed as a “Pivot Point” in a variety of ways, but including how investors think about inflation, interest rates, and asset allocation. Related, September 30 marked the 40th anniversary of a secular bull market for bonds. What might the next 40 look like?
The personal finance discussion this quarter provides a quick summary of what we see are the most likely tax changes coming as a result of current proposals. As you might imagine, this is a topic arising in most every client conversation this year and we hope you find the quick bullet format helpful.
A printer-friendly version of the full quarterly newsletter, including benchmarking and fund performance data, can be obtained here: Q3 Nvest Nsights
Price Changes Everything – September Market Commentary
Why does price change everything? When product and service prices are rising, there is a point when buyers diminish. Economic value ceases to exist. That is, unless the item is very critical to meeting important needs, then higher prices know no upper bound. Take oil prices – rising too quickly curbs driving habits; some businesses tack on fuel surcharges. If the price rises too much, then alternative product or service choices may be pursued (again with oil prices – one seeks alternative transportation options – bus, fuel efficient car, or electric vehicle); or other competition enters the picture wherein more supply promotes prices to slide. Shortages can cause prices to rise, often in huge ways. Currently, shortages of computer chips exist because of supply chain and transportation challenges.
Check Engine Light is On – August Commentary
When your “check engine” light is displayed it usually means the car’s emissions control system is faulty and the vehicle is polluting the air beyond allowable federal standards. A vehicle with this condition would likely fail an emissions inspection. Common causes include a gasoline cap that is loose, oxygen or mass airflow sensor is bad, spark plugs may be caking with too much carbon buildup, spark plug wires are bad, or the catalytic converter is faulty (rare). You should not confuse the “check engine” light with the maintenance or service light; those signal a more immediate condition and should be promptly diagnosed.
“Ruff & Reddy” and “Hotel California” – Nvest Nsights Q2 Newsletter
On June 30, the S&P500 enjoyed its 34th new closing high of the year, and is now up roughly 95% from its March 2020 low. Remarkable! Our first article, “Ruff & Reddy” reviews the catalysts behind this powerful advance, but also that under the surface there is rotation underway and broader market momentum is softening. This is normal in the second year of a new bull market and is often accompanied by more volatility. Government remains a key factor for the prospect of volatility as well. In that regard, the lyrics of the 1976 Eagles song “Hotel California” may be a good summary of the challenge government may face when they at some point attempt to walk-back from deficit spending or target inflation. In a different way, the song’s lyrics may be spun toward appropriate guidance for individual investors too.
The personal finance article this quarter, “Is Your Beachbody Ready for Summer?“, shares a client’s motivation to participate in a recent stock IPO. We are often asked by clients about various investment ideas – ranging from ‘meme-stocks’, bitcoin, or real estate; this client’s thoughtful approach to an investment receiving lots of buzz provided a refreshing and textbook example of how to avoid potentially unhealthy financial behavior.
A printer-friendly version of our quarterly newsletter can be obtained here: Q2 Nvest Nsights
Huff & Puff – June Commentary
Do you ever “huff and puff’? Is this question relating to breathing heavily with exhaustion, or is it expressing annoyance in an obvious or threatening way? In life, we huff and puff when winded or short of breath, from wheezing or feeling done-in; even spent or exhausted. Often, despite much huffing and puffing about the “bus” service, traffic, or government policy, nothing happens. Recall the wolf in “The Three Little Pigs”? The mother pig sent her three little ones out into the world to make their own way. Each built their own shelter. The wolf traveled the lane where each lived, and smelling the little pig inside, pounded on the door, “Let me in! Let me in!” Each pig yelled, “Not by the hair of my chinny chin chin!” The wolf was annoyed, declaring “Then I’ll huff and I’ll puff and I’ll blow your house in!” He blew in the straw house, the wood house, but not the brick house (where all 3 were finding refuge). The wolf lost his frustrating endeavor after bounding up the roof and climbing down the chimney, where he fell into a huge pot of boiling water in the fireplace. Whether weary from exhaustion or expressing annoyance, we never know when fear is going to come knocking, or pounding, on our door.
Is This as Good as it Gets? – May Commentary
The first quarter offered lots of “candy” (government spending) and no “spinach” (tax increases). But that idea started changing in April with government policy shifts: the unveiling of big infrastructure spending (spread over 8 to 10 years), plus new large-dollar child spending programs; both to be funded with higher taxes – corporate and individual. Taxes are oriented as an aggressive path to pay for massive spending. At present, the combination of extraordinary fiscal spending and monetary stimulus is pulling forward demand, output, revenue, profitability and investment (perhaps stealing it from 2022 and maybe beyond; called a growth hole). After such a strong start to the year, and remarkable 12 month recovery, the biggest hurdle the market faces is high expectations and crowded positioning. At present, there appears to be a peak in positive data and eager market participation (number of stocks rising at the same time), usually found in the first third of a new bull market run. With so much good news already priced into stocks, any bad news or “miss” could spark near-term volatility. So let’s ask… Is this as good as it gets?
Caffeine Frenzy – February Commentary
Too much of anything can be bad. Sometimes, it only takes a spoonful, or even less. In July 2014, the Food & Drug Administration warned about powdered pure caffeine. Usually added to drinks before workouts for an energy boost or to aid weight loss, or as a dietary supplement. It was also used as a study aid among college students. In May of 2014, a high school senior in LaGrange, Ohio died, days before graduation, after consuming one teaspoon of powdered caffeine – the equivalent of drinking 25 cups of coffee or 70 cans of Red Bull. His autopsy found more than 70 micrograms of caffeine per milliliter of blood in his system, more than 20 times that of an average coffee drinker. The difference between a safe and lethal amount of caffeine is very small.Continue reading
Energizer Bunny Breaks Loose – December Commentary
The Energizer Bunny is the marketing icon and mascot of Energizer brand batteries in North America. It is a pink mechanical toy rabbit wearing sunglasses and blue and black striped flip-flops that beats a bass drum bearing the Energizer logo. The Energizer Bunny advertising tagline is brilliant, “Keeps going and going…” When used as a synonym to describe a person or other object, it means a person who seems to have limitless energy and endurance. Is it appropriate to characterize the stock market rally since March 23 as being like the Energizer Bunny? It appears everything is breaking out. Market strategists indicate this is the broadest rally, both domestic and geographically, since 2013. 93% of the stocks making up the S&P500 are above their 200-day moving average (trend line of the last 200 days). That’s a top decile reading historically. The high reading suggests the market is overbought (high enthusiasm; more on this below), but in fact bodes well for 12-month forward returns being positive. The current market rally “keeps going and going…”