From budding trends to mature industries, Novem Group works hard to stay abreast of developing news.

Here’s what caught our eyes this week:

Inflation and Investing: False Alarm or Fair Warning?

  • The Dean of Valuation walks through inflation and looks back at how different asset classes held up.
    His findings:
    • Real estate held up better against expected inflation
    • Gold held up against unexpected inflation
    • Treasuries and corporate bonds are the worst
    • Stocks aren’t correlated to expected inflation but are negatively impacted by unexpected inflation.
    • Statistically, energy was the only sector that has a positive relationship with inflation.

Pendulum swinging back as moderate Republicans begin to emerge? Was removing Liz Cheney the last push by the Trump-wing of the Republican party?

  • Lays it on pretty thick for Reagan but I guess when you’re at a guy’s library speaking to an exclusively Republican audience you kind of have to right?
  • After the Trump tax cuts, Paul Ryan stepping down was basically the adult leaving the room. It was also a savvy political move. Now he can reemerge with his hands clean and help play the role of savior.
  • Ryan is also leading fundraisers for Adam Kinzinger (R-IL). Could removing Liz Cheney be one of the Trump-R’s last moves?
  • John Boehner’s recent book is also highly critical of the extremist wing of the Republican party.
  • Is this a new cohort in the Republican party or will they continue to be shouted-down by the MAGA Capitol stormers?

Story of Arthur Burns- former Fed Chairman who let inflation get out of hand.

  • A common theme today is that inflation is transitory. This is only here for a short-time due to the economy reopening, storms, Colonial Pipeline hacking, semi-conductor shortage, housing boom, labor shortage due to temporary unemployment benefits, etc, etc.
    • “like business cycles, he believed price trends were heavily influenced by idiosyncratic, or exogenous, factors- “noise” that had nothing to do with monetary policy.”
    • “When US oil prices quadrupled following the OPEC oil embargo in the aftermath of the 1973 Yom Kippur War, Burns argued that, since this had nothing to do with monetary policy, the Fed should exclude oil and energy-related products (such as home heating oil and electricity) from the consumer price index.”
    • It appears Chairman Burns was somewhat of a Federal Reserve hipster, ignoring inflation way before it was cool.

Guggenheim is not concerned with inflation. Their thesis hinges on a few things.

  • Small, transitory factors are driving inflation. Other categories (like rent) are pretty muted right now.
    • I would argue that rent costs follow housing prices. Therefore rent is a lagging indicator. Even though rent prices haven’t increased much, it seems logical that they will.
  • These prices are temporary and not sustainable. Once the economy is fully open these categories will recover back to their pre-COVID trends.
    • I think this ignores the sheer quantity of the stimulus programs. These stimulus programs more than offset the lost consumption of the pandemic shut downs. To say that we simply revert to pre-COVID consumption ignores the fact that lots of people have much more income than they did pre-COVID!
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