Market Trends & Outlook

Last week’s FOMC meeting for once gave the market something to ponder. The $120BN of monthly bond buying looks set to taper before the end of the year, and to be down to zero by next summer. Fed buying of mortgage-backed securities has been especially superfluous, as shown by the red-hot housing market.

Dow 40000! Yes, it will eventually happen. Such should not be surprising given the massive amounts of global liquidity chasing fewer assets. But while Dow 40,000 will undoubtedly bring out the “Party Hats,” it is also a massive disappointment of the promises made to investors.

The consumer goods category has largely been the driver of U.S. GDP over the last year, from a consumption perspective. Many of the best brands that dominate these industries have shown incredible resilience during difficult times and their stocks have performed very well. At this point, though, the wild tailwinds are likely now turning to headwinds from a year-over-year comparisons perspective and from a valuation perspective.

The consumer goods category has largely been the driver of U.S. GDP over the last year, from a consumption perspective. Many of the best brands that dominate these industries have shown incredible resilience during difficult times and their stocks have performed very well. At this point, though, the wild tailwinds are likely now turning to headwinds from a year-over-year comparisons perspective and from a valuation perspective.

What a difference a year can make. In 2020, natural gas prices declined to multi-year lows. According to BP's 2021 Statistical Review of World Energy, prices at U.S. Henry Hub averaged $1.99/mmBTU – the lowest since 1995. Asian LNG prices, meanwhile, declined to their lowest level on record ever.

What a difference a year can make. In 2020, natural gas prices declined to multi-year lows. According to BP's 2021 Statistical Review of World Energy, prices at U.S. Henry Hub averaged $1.99/mmBTU – the lowest since 1995. Asian LNG prices, meanwhile, declined to their lowest level on record ever.

After 40-years of economic erosion, there are still deficit deniers. The belief that debt and deficits “don’t matter” primarily stems from the basis the economy hasn’t collapsed and become a historical equivalent of Weimer, Germany. However, the rather elementary view fails to distinguish that dropping a frog into boiling water or slowly bringing the water to a boil equates to the same outcome. That latter just takes longer to get there.

After 40-years of economic erosion, there are still deficit deniers. The belief that debt and deficits “don’t matter” primarily stems from the basis the economy hasn’t collapsed and become a historical equivalent of Weimer, Germany. However, the rather elementary view fails to distinguish that dropping a frog into boiling water or slowly bringing the water to a boil equates to the same outcome. That latter just takes longer to get there.