My two cents on economic trends is worth about that. When I started mentioning this about a year ago, inflation was going to be temporary and we were concerned because the ten-year treasury interest rate was approaching 2%. Today it is over 3% and still rising. And inflation doesn’t appear to be going down anytime soon. The initial cause of the inflation was clear–too much money put into circulation in a very short period of time. The government was literally just handing fistfuls of money out. More money means more demand for goods and services, and that rapid jump in demand cannot be easily met. Lower supply than demand means higher prices. This was exacerbated by epidemic-related restrictions. Now we have other factors affecting supply, including disruptions from the Ukraine war.
One clear example of the current incompetent administration’s self-inflicted inflation wound is energy. These morons are doing everything in their power to limit the availability of fossil fuel energy, which is still the primary source of energy for the world. The US has the capability to produce plenty of oil and gas for ourselves and Europe, but the Presidementia is cancelling leases and making it impossible to expand supply. And federal regulations make it impossible to add refinery capacity. So we are headed to $5 gas everywhere. This is beyond stupid, since higher gas prices affect almost everything–trucks run on gas or diesel last time I checked. But God forbid we should tell the environmental whackos to take a back seat and shut up.
Now one thing that might relieve some inflation pressure is that demand is beginning to collapse, as large retailers like Target and Walmart have noted. People are running up credit card debt and using savings to just keep up with the basics. Economic growth is beginning to slow. Soon we will be in the stagflation sweet spot–inflation still running over 5% annually and no economic growth. How long we stay there will depend on how long we keep up the same dumb policies and how deep the recession is. We need a major reset. The Federal Reserve needs to stop screwing with interest rates and let the market set them, which would force more government fiscal discipline. The administration needs to adopt energy policies that expand supply. I don’t expect anything rational to happen, however, so I think we are in for a prolonged period of misery which will eventually include rising unemployment.
The stock market had a slight correction, and I say slight in comparision to the run since the depths of the epidemic low. Stock prices are high by any valuation measure, and it will be hard for earnings to catch up with valuations. As interest rates keep moving up, other investments become an attractive alternative. So I expect we will see a more significant correction by mid to late summer. More pain when people look at their 401(k) statements. It isn’t pretty and both political parties deserve blame for getting us here, but the one currently in charge should and will get its butt kicked right out of office in November. We will see if that actually results in more sensible policies that restore long-term growth potential.