Growth, Inflation & Value

Macro Perspectives: Mon 3 May 2021

As we head into a new week and month, let's gain some perspective on the growth and inflation picture.

The U.S. President says they desperately need growth, and that justifies transforming the economy through top-down central planning, and spending trillions of dollars they don't have to do it.  Despite this explicit intent to inflate the size of the economy, the Fed says it sees no inflation - and no inflation risks.

What does the data say?

The first reading on Q1 GDP Thursday last week was 6.4% growth - about three times the pre-pandemic pace, and double the long-term U.S. average economic growth rate. Add to that, the Atlanta Fed model is now projecting 10.4% growth for Q2.

Growth is already inflated.

What about prices? The government tells us that inflation is running 2.6%, under the longer-term inflation rate of 3%.

Yet, housing prices are soaring - Redfin says the median house price in the U.S. rose 20.5% from pre-pandemic levels.

Car prices are soaring - the Manheim Used Car Value index is up 33.5% from pre-pandemic levels.

Food prices are soaring - the FAO food index is up 24% from pre-pandemic levels.

The national average gas price is up 16% from pre-pandemic levels.

Add to all of this, in the March survey of manufacturing companies, when the participants were asked which commodities (inputs in their manufacturing) were up in price and which were down. The answer: Up = all of them. Down = none.

So, inflation is here. It's just not in the government numbers, yet. Let's hope the official government data eventually reflects the reality.

Remember, as we discussed last month, you offset this by being long inflation assets: commodities, real estate, Treasury Inflation Protected securities, EAFA (developed market international stocks), US Banks, Value stocks...