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I do believe it will take a Recession to kill the malaise. Yes, labor market is tight. But for many years, gov't stats. have meant less and less to me, because they are played with, manipulated, re-defined, twisted, mutilated and jerked around. There's not much that's reliable about gov't statistics today. Stagflation? The economy's going to have to be fed through a meat grinder before we get rid of it. In the current world-picture, I wish I had a ton of spare cash to go buying companies that make rockets, anti-tank weapons and logistical stuff which is sure to be sent to the Ukraine military. (Where are the JETS, uncle Joe?????) Maybe it's a matter of time before some marketinggenius establishes a mutual fund concentrated in military hardware and weapons.....
A quick look shows ITA overweight in Raytheon and LM ( 39%) with BA 5%
PPA is based on "SPADE defense index" which looks like the only one limited to defense firms, an does not include aerospace. Latter I would think will be economically sensitive While it says it is cap weighted, M* says no position greater than 7%
Stagflation describes a highly unusual economic state of affairs when the economy is weak or stagnating — with high or rising unemployment — yet inflation is also elevated.
If you lived through it you know what it is. This is not it. The term was coined at the time to describe a uniquely troubled economic landscape.
Not to beg the question @Sven asks, which is a good one. For what I suspect lies ahead …..
Good companies reasonably priced is one thing I would want to own. I’d want some exposure to foreign currencies either through my fixed income or equity holdings in case the dollar turns south. I’d want a bit in precious metals (5-7%) as a hedge against the unexpected - but I wouldn’t overdo it because they’re very volatile. And of course, I’d want a cash cushion suitable to my risk appetite (or the equivalent in short to intermediate term high quality bonds).
The above make sense to me in just about any period, but especially as we come off the huge bubble in many assets that has developed and perhaps enter into the end of years of easy money and stimulative monetary policy.
Stagflation is an unusual event and doesn't occur often. Current economic conditions appear to be ok except for high inflation. FWIW, I just don't see stagflation on the horizon. We'll eventually get a recession but that is a normal part of the economic cycle.
Here is one way to decide if stagflation has arrived:
Mark Zandi, chief economist at Moody’s Analytics, has his own rough guide: Stagflation arrives in the United States, he says, when the unemployment rate reaches at least 5% and consumer prices have surged 5% or more from a year earlier.
It doesn't seem far-fetched to think those two conditions could exist together within the next year or so.
I am not sure given the large number of people unemployed now but not looking for work today ( Long Coviders?, living on the increased dole, early retirees??) the unemployment rate would need to rise significantly with stagflation. It was 5% last August
I understood "stagflation" to mean persistent inflation with a declining GDP if not mild recession. As prices usually drop during a recession, stagflation would seem to require on outside "shock" that does not depend on economic activity to keep prices high. ie oil embargo, deglobilzation, supply chain disruptions, war in areas that produce large % of the world's food etc.
Many long haulers from COVID cannot return to work even if they want too. Often they start collecting disability. The work force is returning but not at the pre-pandemic level as manufacturing and construction are still have a way to reach full capacities due to supply chain and labor shortage issues. Will deglobalization feasible at this point since there many many parts that are linked altogether?
I seem to recall the term “ misery index” from the bad old days. The formula was (high)inflation rate plus (high)unemployment rate = misery. I was deeply impacted back then when I was the manager of a VW dealership. The interest on the inventory was overwhelming. The interest on auto loans as well. People weren’t buying and I was in misery. For you youngsters you might consider this: we bought a brand new townhouse because the builder was offering an 11% mortgage and that was way below market. But life went on. Money markets paid in double figures ….. we lived on our boat in Mexico off the high interest we were getting and life was pretty, pretty good.
Comments
https://etfdb.com/etfs/industry/aerospace--defense/
PPA is based on "SPADE defense index" which looks like the only one limited to defense firms, an does not include aerospace. Latter I would think will be economically sensitive
While it says it is cap weighted, M* says no position greater than 7%
Not to beg the question @Sven asks, which is a good one. For what I suspect lies ahead …..
Good companies reasonably priced is one thing I would want to own. I’d want some exposure to foreign currencies either through my fixed income or equity holdings in case the dollar turns south. I’d want a bit in precious metals (5-7%) as a hedge against the unexpected - but I wouldn’t overdo it because they’re very volatile. And of course, I’d want a cash cushion suitable to my risk appetite (or the equivalent in short to intermediate term high quality bonds).
The above make sense to me in just about any period, but especially as we come off the huge bubble in many assets that has developed and perhaps enter into the end of years of easy money and stimulative monetary policy.
Current economic conditions appear to be ok except for high inflation.
FWIW, I just don't see stagflation on the horizon.
We'll eventually get a recession but that is a normal part of the economic cycle.
I understood "stagflation" to mean persistent inflation with a declining GDP if not mild recession. As prices usually drop during a recession, stagflation would seem to require on outside "shock" that does not depend on economic activity to keep prices high. ie oil embargo, deglobilzation, supply chain disruptions, war in areas that produce large % of the world's food etc.
I appreciate everyone’s inputs on this tread.