Let It Run
Posted on Sunday, May 9th, 2021
My daughter came home this weekend for Mother’s Day. She wanted to surprise her mom. She didn’t. You can fool some of the people all of the time. You can fool all of the people some of the time. But you can’t fool mom. Our talk last night turned to student loans. She needs to complete one more semester of school and her scholarship has run out. She does have the money set aside but she is talking about taking out student loans. Why? I knew why but I thought I should ask anyway. Some of her friends are taking out student loans in the hope that the government is going to pay them back for them. Student loan forgiveness chatter out of DC is affecting behavior. Take out the loan. If the folks in DC pay it off for you then great – a $10,000 bonus. If they don’t pay it off she can pay it off out of her savings. I think it’s smart on her part. I was impressed.
Speaking of influencing behavior the jobs market is also being impacted by the folks in DC. There is a lot of talk of late about the abundance of help wanted signs. The fact is that the government is pushing out companies in the job employment arena as they continue to pay people to stay home. Who wants a job when you can get paid to stay home? The US government is now the 800 lb gorilla on the employment front. A huge competitor is now in the game and is driving wages much higher. The employee shortage is also feeling pressure on the retirement end. We are seeing more and more people wrapping up their careers. It seems as though many are taking a “life is short approach” and looking to retire.
Anecdotally, we have talked to several employers ranging from restaurant owners to high tech COO’s who are talking about how hard it is to get and keep good employees. All agreed that there is massive wage inflation. If you remember from your economic textbooks the only inflation that is “real” according the Federal Reserve is that of wage inflation. A tech COO that we spoke to is facing labor issues as competitors are offering his younger employees 30% increases in salary. On the lower wage front we passed one restaurant yesterday that was offering $100 sign on bonuses. Inflation is real and it is coming fast.
Janet Yellen, US Treasury Secretary, made a bit of a blunder this week as she talked about inflation and how the government will have to respond. On Tuesday she stated that interest rates may need to rise to make sure that our economy doesn’t overheat. That’s code for too much inflation. The stock market did not like that one bit. It was a rookie mistake. She is not the Federal Reserve chair any longer and is not in charge of interest rates. Later in the week she walked back her comments. I think that she has given us a clue as to the real thinking behind the scenes. The job market and the economy are overheating. How long will they let it run? That’s the big question. That is why we are long energy and gold while shunning big tech. Not a recommendation. Do your own research. The Fed and the government are boxed in. They need to raise rates and/or stop spending. They will not do either. If they do the whole thing comes tumbling down.
Money is still pouring into energy and financials as they continue to trend higher. There are some warning signs. Large tech stocks like Amazon and Apple refuse to go higher even after posting phenomenal earnings reports. Safe havens such as gold, bonds and consumer staples are catching a bid and speculative stocks have taken a breather. These are all signs that investors are pulling in risk as markets hit all time highs. It is hard to fight this trend and our proprietary model has not flipped to the negative so for now we continue to ride the wave. It looks like it is going to be a messy market this summer. Happy Mother’s Day!!
I think we aspire less to foresee the future and more to be a great contingency planner… you can respond very fast to what’s happening because you thought through all the possibilities, – Lloyd Blankfein
A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty. – Winston Churchill
To learn more about us and Blackthorn Asset Management LLC visit our website at www.BlackthornAsset.com .
Disclosure: This blog is informational and is not a recommendation to buy or sell anything. If you are thinking about investing consider the risk. Everyone’s financial situation is different. Consult your financial advisor.