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And Then We Walked Into Wednesday Morning

CAMS Weekly View from the Corner – Week ending 11/12/21

November 15, 2021

Price Stability and Maximum Employment The above represents the Federal Reserve’s mandates as stipulated upon them by Congress. The Chairman of the Fed references them consistently when speaking. Most notably, in his most recent post-Fed Interest Rate Setting Policy meeting press conference he referenced them often. The point is – he gets it – he is fully aware of said mandates and through his words obviously the Federal Open Market Committee (FOMC) is as well. The FOMC is the official policy setting committee for the Federal Reserve System and through them we the citizenry, with all the hats we where if you will, look to them to effect the above mandates from Congress. We have been chronicling the non-transitory storyline of price inflation through parts of 2021 and have emphasized the topic in various forms in recent editions. Frankly we thought it was time to look into other topics for now after our most recent edition. And Then Came Wednesday Morning First up came Weekly Unemployment Insurance Claims. These are simply the initial claims individuals submit when they have been laid off from their current employer. Historically sub-400,000 Initial Claims reflects an employment backdrop that is viewed as free of recession risks. Sub-300,000 is viewed as a rock solid no-questions-asked employment backdrop. Wednesday’s result: 267,000 Initial claims. Better yet, the four week moving average of said Claims: 278,000. Taken together, Initial Claims data continues to show with each passing week how rock solid the employment backdrop is. While we are looking at employment we will fast forward to Friday of last week as well. The JOLTS report (Job Openings and Labor Turnover Survey) reported that the already off-the-charts Quit Rate had escalated even higher! The historical significance is when people feel emboldened to leave their current employment for proverbial greener pastures (en masse) we can ascertain the employment backdrop is solid. In addition, with this report, the current Job Openings part of the report reflected 10.4 million unfilled jobs. For historical reference the high water mark in this measure, pre-Covid, was 7.5 million and at that time said number was a historically high if not shockingly high number. The current 10.4 million unfilled jobs level? Off-the-charts. Got maximum employment? We Have To Keep Going Deeper Into the Historical Timeline Moving back to Wednesday morning we then received price inflation data. The Consumer Price Index (CPI) was released with a new handle on the number. A “six” level had now been attained – to the chagrin of the citizen/consumer/wage earner/head-of-household within all of us. We have often referenced the consistent and building price inflation levels through much of 2021 with a “4-5 plus percent” type of reference. Now we up that to 6 plus percent as the CPI came in at 6.2% as of Wednesday morning. Per the chart below we have to keep extending our historical red line reference point to place our current inflation levels into context. Now we go back to 1990 when it had reached 6.3%. This now represents a full 31 years since we have attained these inflation levels. In case you are curious; if we exceed 6.3% that will take us fully back to the early 80’s and then we are talking four decades. Got “price stability”?

In the aforementioned most recent post FOMC meeting press conference Chairman Powell iterated the plan of beginning to reduce the emergency money printing policies from early 2020.  This will be a gradual reduction which is to say we will continue to see the printing press churning for some months to come.  This occurs right in the face of historic price inflation and historic employment backdrops. When asked if actual interest rate hikes would be sped up in light of the type of backdrops shared above the Chairman emphasized that was not on the execution board at this time – my summation of a long Q&A session. No interest rate hikes to quell inflation and a slow gradual reduction of printing money for months to come.  It is a legitimate question to entertain if not expect:  Do we have four decade high levels coming our way soon on the price inflation front?  Don’t be surprised if we do. I wish you well…

Ken Reinhart

Director, Market Research & Portfolio Analysis

Footnote:

H&UP’s is a quick summation of a rating system for SPX9 (abbreviation encompassing 9 Sectors of the S&P 500 with 107 sub-groups within those 9 sectors) that quickly references the percentage that is deemed healthy and higher (H&UP). This comes from the proprietary “V-NN” ranking system that is composed of 4 ratings which are “V-H-N-or NN”. A “V” or an “H” is a positive or constructive rank for said sector or sub-group within the sectors.

This commentary is presented only to provide perspectives on investment strategies and opportunities. The material contains opinions of the author, which are subject to markets change without notice. Statements concerning financial market trends are based on current market conditions which fluctuate. References to specific securities and issuers are for descriptive purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. There is no guarantee that any investment strategy will work under all market conditions. Each investor should evaluate their ability to invest for the long-term, especially during periods of downturn in the market. PERFORMANCE IS NOT GUARANTEED AND LOSSES CAN OCCUR WITH ANY INVESTMENT STRATEGY.

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