What To Think About Inflation?

 The Turkey Conundrum

 

A few days ago, many of us either had the pleasure of hosting or the gift of attending a Thanksgiving get together. We caught up with friends and family, laughed, maybe watched a little football, and probably had a front-row ticket to a heated debate. At some point though we all gathered around a table and tried to figure out how we could find an angle to get the drumstick, and until science figures out how to make a turkey with more than two drumsticks, there will always be a large demand chasing a limited supply.

 

This scenario is one of the main reasons that we see quick increases in inflation numbers. There is a large amount of dollars chasing after a limited supply of goods and services. Inflation numbers are most often quoted as a year-over-year number comparing the cost of a basket of goods last year to the cost of the same basket of goods this year, and as we know from the discussion around the Thanksgiving table, last year was anything but normal.

 

In fact, the most apt parallel that can be drawn to inflation today in our opinion is what the U.S. experienced after World War II.  We had soldiers returning home, industries retooling back to providing goods for the consumer instead of the war effort, a housing boom, and a high demand for consumer goods and services. After two to three years the supply and demand sides of the inflation equation normalized and even flirted with deflation as supply overshot demand.

 So, What’s Transitory and What’s Not?

 We believe that most of the inflation we are seeing now will be transitory. There are some areas that might be a little “stickier” like finished products and services. Raw (think oil) and semi-finished goods (think lumber) will tend to be more transitory than inflation we see in finished products and services (houses, vehicles, airfares, consumer goods).

 Oil, for example, traded negative on the exchanges early on during the pandemic as there was an oversupply from producers and no one to take physical delivery of the crude oil.  Oil producers scaled back production, laid-off workers, and idled rigs as production became unprofitable. As the world got closer to normalcy and demand picked up, there was a lagging supply of oil and prices increased. Eventually, production will surpass demand as producers overproduce and we will see prices decrease and reach an equilibrium again.

 These stories will play out in countless industries as disruptions get corrected and bottlenecks cleared. It’s important to remember that after these severe disruptions that global supply chains handle like a Freightliner and not a Formula 1 car. They can neither stop or start on a dime, but given enough road and time, they are efficient. We believe that with time and a prudent hand at the wheel (Federal Reserve policy) that inflation will normalize in the future.

 

Beware of The Biden Economy

 

What would be the cost of Joe Biden’s economic agenda? The answer is in: Fewer jobs, lower incomes, a weaker economy, and a dimmer future for millions of American families. Those are the findings of a new study from the well-respected Hoover Institution. A team of economic experts looked at Biden’s plans on taxes, regulation, energy, and health care. As they show, Biden’s plan would give more power to the federal government in every area, leaving less opportunity for the American people. Check it out: - Jobs. Biden’s plan would eliminate about five million jobs over the next decade. Simple logic explains why: By raising taxes and regulatory burdens on job creators, companies of all sizes will find it harder to expand or stay in business.  - Wages. Biden’s tax-and-spend plan would take $6,500 off the median household income within the next 10 years. Once again, the cause is clear: When the government takes more of people’s money, families have less to spend and save.  - Growth. Biden would repeat the mistakes of the Obama years, leading to a painfully slow economic recovery. By 2030, the economy would be nearly 10% smaller than expected. That’s $2.6 trillion in lost innovation and lost progress for everyone. - Family Budgets. Biden’s regulation-heavy approach would push Americans to buy far more expensive products, from pricey health insurance to electric cars. The result would be more money for liberal special interests and less money for families. - Corporate Welfare. Biden’s plan for energy and health care would require massive government subsidies for politically favored companies. The government would double down on picking winners and losers, which would make the economy less fair and free. The list goes on. Other new studies have found that Biden’s tax plans would lead to a combined state and federal tax rate of 60% or higher in New York, California, and New Jersey. In other states, taxes would skyrocket as the government took a bigger chunk of people’s paychecks. Biden’s economic plan is a bad idea in normal times. It’s especially dangerous as America tries to reverse the damage done by the coronavirus. At a time when millions are struggling, why on earth would we make it harder for the American people to thrive again?