Inflation Issues? Drink to This…

inflation thanksgiving drinks

Tonight is the busiest night of the year for bars. With COVID-19 restrictions lifting, people will likely imbibe quite a bit after missing out on last year’s historic evening. I recall bartending those nights at the family bar a long time ago. I can’t say I miss all the chaos and noise. But it will be a quiet night this evening out on the farm.

That leaves a lot of time for reflection on the state of this market. As I’ve noted, market momentum is very negative, and we continue to see pressure. Right now, 52.4% of stocks are trading under their 52-day moving average.

And small-cap stocks are experiencing a dramatic push off a proverbial cliff. On Wednesday, 368 stocks hit yearly lows compared to the 120 that hit new highs. As far as momentum goes, that spread is an ominous sign. From a macroeconomic perspective, I’m a bit torn on this situation. 

New data this morning showed that the number of Americans seeking jobless benefits fell to the lowest level since the month after the Miracle Mets beat the Baltimore Orioles in 1969. Of course, anytime you start comparing your economy to events from November 1969, you’re in rare territory. 

But at the same time, inflation numbers continue to prove exceptionally concerning. The Fed’s most important consumption number hit multi-decade highs. And Treasury Secretary Janet Yellen said that we’d see monthly inflation numbers return to normal next year.

What? Last month, month-over-month inflation increased by 0.9%. That means you lost purchasing power of 90 cents for every 100 in cash that you have. Was she suggesting that we see a few more of these monthly jumps that erode purchasing power? 

Finally, there’s the realization that our economy is not doing well. GDP for the third quarter came in at just 2.1% after an upward revision. If you recall, we were told of GDP jumps in the 7% to 10% for the third quarter. That’s just not close. 

If the Fed wants to raise interest rates – as it should – that would raise borrowing costs. But here’s the problem. People aren’t borrowing. Small-business lending is anemic, and people aren’t out there taking risks. To make matters worse, Americans’ savings levels are at pre-pandemic lows. 

So, what’s the result here? If they raise interest rates, a recession is likely. And that’s at a time that technology continues to make rapid gains in the labor market. 

I do not think there has ever been a combination of high inflation, low growth, and deflationary technology accelerations like this in economic history. So, what exactly is a safe investment moving forward? I’m advocating that you use December to turn your attention away from wealth accumulation toward wealth preservation. 

We can discuss the so-called safe-haven investments tomorrow and cycle through the top sector for all three of these factors.

Garrett Baldwin
Garrett Baldwin
Garrett Baldwin joined Godesburg Financial Publishing as Chief U.S. Markets Analyst in early 2021. A Johns Hopkins-trained Economist, he’s worked with hedge funds, venture capital firms, angel investors, and economic advisors to the U.S. government. Baldwin specializes in market anomalies and alternative investments. He’s written extensively on momentum, value, insider buying, and other unique strategies that provide investors that elusive edge.
Garrett Baldwin
Garrett Baldwin
Garrett Baldwin joined Godesburg Financial Publishing as Chief U.S. Markets Analyst in early 2021. A Johns Hopkins-trained Economist, he’s worked with hedge funds, venture capital firms, angel investors, and economic advisors to the U.S. government. Baldwin specializes in market anomalies and alternative investments. He’s written extensively on momentum, value, insider buying, and other unique strategies that provide investors that elusive edge.

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