It’s on. Let the ’24 stag party rage all year. Or (preferably) not.
This past week brought macro tidings which had all the earmarks of stagflation. The two most widely monitored inflation metrics took everyone by surprise by coming in hot. Meantime, measures of economic activity such as Retail Sales and Housing Starts blew unpleasingly frigid.
Slowing economic growth (stag) and rising prices (flation) are thus ascendant. I am always leery of reading too much into one month’s data, particularly in the current era — replete as it has been with counterintuitive, cross-winded content, but if one were to extrapolate, the clinical term for this construct is stagflation.
I’m not in the prediction business, so I will reserve judgment. But the investors have weighed in with their short-term verdict – by throwing a party.
A stag party.
Risk assets, undeterred by mellow-harshing data releases, have continued their upward ascent. Corks is a’poppin’ on Wall Street. Glasses are being raised, with an accompanying variation on the phrase first attributed to Roman Emperor Claudius:
“For those about to buy, we salute you”.
The soiree’ has even designated the logical master of the spin machine in one DJ D Sol, who, in a nod to numerologists everywhere, managed to cop himself a 24% raise in a year where the firm he leads – Goldman Sachs – experienced a 24% drop in profits.
And this in the early days of ’24.
Again, it is premature to hang the stagflation handle on the economy, but I think we can confidently state that a cooldown from ’23, if it comes to pass, would be in some sense understandable. Last year, GDP growth exceeded 3%. Inflation tumbled. There was other good news, perhaps best summarized by the charts in the accompanying link, issued by the White House itself, and which (it must be admitted) reads like a Biden campaign flier.
https://www.whitehouse.gov/cea/written-materials/2023/12/19/ten-charts-that-explain-the-u-s- economy-in-2023/
There’s little doubt that ’23 was a helluva year for the U.S. economy. But it certainly raises the bar for the current solar cycle, now, improbably, 15% in the books.
One might thus be forgiven for fearing that economic conditions can only deteriorate from here.
All the way to stagflation? Who knows? But the markets don’t seem to be terribly concerned. They paid obeisance to the to the nasty CPI/Retail Sales figures, rudely selling off all day Tuesday. By Thursday, we were back at new highs. Friday’s PPI and Housing Starts data put some renewed pressure on stocks. But it says here that the partiers will gather themselves over the next couple of sessions and belly up, yet again, to the buying bar.
And, while there, the imbibers may wish to hoist a Saki to the Nikkei 225 – now a skinny 1% from all- time highs last breached a generation and a half ago. Back in ’89. When I was still young. And cool:
Meantime, on this side of the Pacific, the Inflation numbers were so jarring that it caused no less than Larry Summers – a recognized oracle on these matters – to admonish the spellbound multitudes that the next move by the Fed may be to raise, rather than lower rates. If so, it would be quite a turnaround from the vibes they was layin’ down as recently as December, when the main speculation was whether the Central Bank would issue a baker’s dozen cuts, or the full smash of 967 of them.
Putting this all together, we may be compelled to consider a scenario where the economy weakens, Inflation re-emerges, and the Fed does nothing to ease, may in fact, abet, our ponderous burdens.
Of course, though, investors have an Ace up their sleeve, poised for deployment at the casino adjacent to the DJ D Sol Stagflation dance floor:
NVDA – a three-bagger over the last rolling year and trading at an impressive 20x its 2019 valuation, reports on Wednesday. Here’s hoping they can meet or beat already ludicrously lofty expectations.
If so, we will ask DJ D Sol to kindly kick up the volume and pump up the jams.
If not, well…
In result, I am of mixed sentiment respecting market conditions. Somewhat ominously, corporate chieftains are trippin’ all over theyselves to dampen expectations. And the must know something, right?
So, yes, I’d be surprised if underlying capital economy circumstances are able to sustain/build upon last year’s Goldilocks construct. Beyond the possibility that the CEO earnings partiers may finally fall under the table, a whole lotta stuff could go wrong. We might even stagger into stagflation. And this is to say nothing of the kettle-boiling situation in the Middle East, the looming election battle between two punch drunk, scumbag has-beens, the Damocles Sword of Commercial Real Estate credit…
…and so on and so on and shoobie doobie do.
Conversely, and for the bajillionth time, there remains too much cash chasing too few investible assets for investors, absent a true catastrophe, to turn tail and head for the hills.
This week, after we honor the POTUSes, and setting aside the life-and-death matter of NVDA earnings, there’s little on the docket of import. Moreover, data flows diminish after that, as they always do in the back half of a quarter.
There are, of course, the hazards associated with unscheduled data flows, which are seldom of a nature to gladden our senses. But this is ever the case, and, if we can’t move forward with associated serenity, we perhaps have chosen the wrong existence. Or, at minimum, the wrong profession.
So, while we may look back at this fast-disappearing winter as the beginning of an unpleasant interval of stagflation, I prefer to take a more constructive view.
Let’s just enjoy the stag party. And call upon DJ D Sol to do what he alone knows how best to do.
TIMSHEL