J.P.Morgan Insights (audio)

A number of years ago, as part of a team-building exercise at an overseas conference, I got bullied into taking a ride on a particularly fearsome roller coaster. For someone who suffers from vertigo and is an admitted control freak, the next 90 seconds were not pleasant. Once the ride stopped, I stumbled out of the contraption. However, I could not proceed with our merry band of team-builders until I had done a serious inventory of the state of the world, starting with some rather fundamental questions. For additional insights from Dr. David Kelly, listen to the Insights Now podcast.

Last Thursday, as I headed home from a conference, the car I’d booked to take me to the airport didn’t show up. Luckily there was a taxi nearby so I hopped in and discovered that, in addition to a comfortable ride to my destination, the fare entitled me to a free lecture on the state of the labor market. “The reason your car didn’t show up”, opined the retired police sergeant at the wheel, “is you can’t find drivers anymore. It’s the millennials - they just don’t want to work”. For additional insights from Dr. David Kelly, listen to the Insights Now podcast

Despite their best intentions, the Federal Reserve sometimes appears to be trying to steer a big boat, through violent rapids, armed only with a small paddle. The reality is that forces well beyond their control will mostly determine the fate of the economy. However, the energy with which they paddle could have a major impact on investments. For additional insights from Dr. David Kelly, listen to the Insights Now podcast.

At 5:30AM on Saturday morning, Coach Jack posted on the team Facebook page – the training run was a go.  Just as well. The Boston Marathon is now five weeks away and as a proud member of the gasping geezers division of the Dana-Farber Marathon Challenge team, I knew we needed to get in a long run.  Between Covid and the weather, training has not exactly been easy.  On Saturday, the forecast was for rain with the possibility of torrential downpours.  But getting wet on Saturday was a better choice than waiting any longer for ideal training conditions.  Sometimes, despite adverse conditions and uncertainty, you just have to get going. For additional insights from Dr. David Kelly, listen to the Insights Now podcast

In the week ahead, the world’s attention will continue to be focused on the horrific human consequences of the Russian invasion of Ukraine.  However, American investors will also be considering what it means for financial assets.  While the most severe economic consequences will likely be felt in Europe, the most important effects on U.S. portfolios depend on the implications of Ukraine for the U.S. economy.

Every winter, here in eastern Massachusetts, we are visited by Nor’easters. Each storm is plotted on weather maps days in advance. A low pressure area swoops down from the Rockies, gathers moisture in the Gulf of Mexico, rides up the east coast over the warm waters of the Gulf Stream and then stalls in the Gulf of Maine, churning itself into its full intensity. Every storm has the potential to turn into a blizzard. But whether it does or not depends on two things: First, what is the exact track of the center of the storm and second, how much cold air is in place before the storm arrives? For additional insights from Dr. David Kelly, listen to the Insights Now podcast.

Financial markets sold off last week as investors worried about a possible Russian invasion of Ukraine.  Before engaging in any analysis of what this could mean for long-term investors, three broad points are worth emphasizing.

So far this year, the 10-year Treasury yield has risen from 1.52% to 1.93%.  This increase has been accompanied by broadly lower equity markets, with value outperforming growth and international stocks outpacing their U.S. counterparts.

In the last few weeks, it seems everyone is playing Wordle. Each morning, a UK website posts a new game and you get six attempts to guess the five letter word. If you guess the right letter in the right square, the square turns green. If you get the right letter in the wrong square, the square turns a mustard yellow. If you get it all done in four tries the program says “splendid!” If it takes you six tries, it says “phew”. It’s a nice distraction in what we all desperately hope are the waning days of the pandemic. It’s also not particularly difficult, provided the right answer doesn’t include too many rare letters.

n Saturday, at an average home, on an average road in Maplewood, New Jersey, the realtors staged an open house. Even for a January, this was a rare event and parking was at a premium as dozens of mostly young couples lined up outside, braving cold and Covid. There was a whiff of desperation in the air as the multitude assessed its own numbers. The more experienced in the crowd, though well-armed with bank pre-approvals and hefty down payments, shared in the general pessimism, knowing that the property would go quickly and for well above asking.

Our baseline view of the world does not include a U.S. recession in the next two years. However, it is certainly possible, and investors would be well advised to consider what it might mean for their portfolios. With that in mind, it is worth thinking about what could cause a U.S. recession, the implications of such a recession for financial markets, inflation and monetary and fiscal policy and how assets would fare in its wake.

There is an old and much-quoted saying by the Greek philosopher Heraclitus: “A man never steps in the same river twice” – because it is not the same river and it is not the same man. A very similar observation could be made about investors considering their portfolios as the pandemic, hopefully, begins to wane. Covid-19, and the policy choices it triggered, changed the economic and financial landscape in a significant manner. However, it also changed investors, leaving them, for the most part, with larger portfolios but also with portfolios that are more seriously out of balance.

Growing up in Dublin, my parents were of the firm belief that the streets of the city were safer without David behind the wheel of a car.  Consequently, I first learnt to drive in my early 20s on the backroads and highways of Michigan, with my future wife, Sari, as my instructor.  There were a number of perils associated with this including my tendency to ignore all traffic signs when focused on the task of steering the car or my habit of stalling out due a chronic inability to synchronize the application of the clutch and the accelerator.  It didn’t help that Sari would burst into a fit of giggles at the moments when I put us in the greatest and most imminent danger and was in particular need of quick and level-headed advice.

When our children were very young and they committed some transgression, we had a rule in our house. It wasn’t enough to say sorry. You had to say what you were sorry for. That way, we had some hope that they wouldn’t make the same mistake again.

Despite a disappointing gain in non-farm payrolls in November, numerous recent data points show an extraordinary excess demand for workers.  This excess demand won’t persist forever.  However, it’s important to understand its causes as this can provide some guidance on two crucial questions, namely, how long might it last and how will it be resolved.  The answers to these questions can also help in assessing which asset classes could outperform in 2022 and beyond.

Financial markets tumbled last week as reports spread of a new, highly-mutated variant of Covid-19 which could be more contagious than the Delta variant and which could evade some of the immunity built up around the globe over the past year through vaccinations and infections.

The week ahead will, of course, be dominated by Thanksgiving, leading, appropriately, to less focus on financial markets. That being said, this should also be a week of greater clarity on fiscal and monetary policy. This clarity should reinforce the view that Washington aid will become considerably less generous in the year ahead, reducing inflation fears but posing some threat to recently very strong profit growth.

Financial market commentary in the week ahead will likely center around the question of inflation.  The headlines speak for themselves.  CPI inflation jumped to 6.2% year-over-year in October, its highest reading in 31 years. 

My first summer job as a teenager was in the mailroom of a Dublin law-firm.  The more intellectual duties of this position involved substantial paper-folding, envelope-licking and a daily fight with the franking machine. However, the important part of the job was buzzing around Dublin on my 10-speed bike (with the dropdown handlebars), delivering the mail directly to various law offices and clients and thus eliminating the inevitable delays of the Dublin postal service.

It feels like so long ago, but back in 2019, the economic and financial environment was remarkably placid. Real GDP growth was plodding along at 2.3% pace, unemployment drifted down to end the year at 3.6% and corporate profits were growing slowly from very high levels. Consumption deflator inflation was still running below the Fed’s 2% target and, in recognition of this fact, as well as market volatility at the end of 2018 and a sluggish global economy, the Fed cut the federal funds rate three times to end the year in a range of 1.50%-1.75%. While the political weather in America was stormy, the investment environment was remarkably calm.