THE BIG DEBATE
- Fed’s Quarles Joins Other Officials in Moving Toward Taper Debate The Federal Reserve’s point man on financial regulation, Randal Quarles, said that if the U.S. economy turns in the strong performance he now expects, the door will soon open to a debate about slowing the pace of the central bank’s bond-buying stimulus.
- Reopening Is Inflation’s Cure, Not Cause Expect prices to moderate as demand shifts to travel and other experiences from consumer goods.
This is from Jason M. Thomas is head of global research at the Carlyle Group.
The rise in inflation doesn’t stem from booming demand associated with the reopening of bars, restaurants, concert venues and stadiums, as many have claimed. It reflects the extent to which manufacturers were caught off balance by the pandemic last year. That’s good news, because the problem is temporary. As more consumer spending gets rerouted in the months ahead from durable goods such as camping gear and hot tubs to experiences like travel and live events, inflation is likely to moderate.
(…) rather than aggressively scale up production schedules once factories were reopened and health and safety protocols were in place, manufacturers remained understandably cautious. For many companies, orders ran ahead of production. Employment remained well below pre-pandemic averages. Many firms kept inventories of finished goods and necessary inputs to a minimum. (…)
Deprived of concerts, vacations, sporting events, fine dining and other experiences, consumers splurged on new and used cars, furniture, computers, phones, games, toys and bikes. Spending on these recreational items was up by 25% or more, on average, during the pandemic. Housing demand reached levels last seen in 2006, as low interest rates, social distancing and remote work spurred households to seek new homes or renovate existing residences. (…)
Shortages of these inputs exacerbate the problem by inhibiting new production, leading to larger backlogs and even greater price pressure. (…)
A shortage of semiconductors has curtailed auto production. With fewer new cars on dealers’ lots, used-car prices rose by 10% in April, while car-rental rates jumped 16%. Furniture backlogs grow as the requisite plastics and resins remain in short supply. Lumber prices have tripled since last June as demand for residential construction outstrips sawmill capacity. February weather in Texas and the Suez Canal blockage compounded many of these issues.
In this context, booming demand for dining out, traveling and tickets to concerts and baseball games isn’t the problem—it’s the solution. (…)
As spending normalizes, travel, concerts and lodging will consume a larger share of household expenditures, leading to a slowdown—or outright decline—in durable-goods consumption that will finally provide some breathing room for manufacturers to scale up production and close the supply-demand gap.
What Mr. Thomas omits to consider is the humongous increase in the pandemic-rescue money that boosted disposable income and personal savings. People may not need to shift from durables to services since they have more than enough savings to spend broadly.
Since December 2020, real spending on services has grown 2.6% but spending on durable goods kept rising (+17.2%). In dollar terms, real spending on services rose $205B in Q1’21 from Q4’20 but spending on durables increased $338B. No substitution just yet through March (we get April data on Friday).
Chase card spending data also show no substitution whatsoever as spending on Travel and Entertainment strongly recovered in recent months. Total and Discretionary spending rose at similar beats.
No question that there is a supply problem. But the demand side is very much present and potentially persistent. The next chart plots total dollar expenditures and personal savings. From February 2020, expenditures rose from $14.9T to $15.4T but savings jumped from $1.4T to $6.0T. Even a half-way retreat in savings would boost expenditures 15%. With savings rates where they are, people have little incentive to hoard money, even less so if inflation accelerates.
GameStop, AMC Shares Soar as Meme Stock Rally Returns Analysts say jump has likely been driven by a crosscurrent of factors that have prompted individual traders to pile in
(…) This week’s rally—though tamer by comparison—has similarly lighted up Reddit forums, Discord chat rooms and Twitter feeds. (…)
With cryptocurrencies having lost much of their steam this month, many nonprofessional traders have re-entered the stock market on the hunt for gains. Platforms such as Reddit’s WallStreetBets forum have provided a source of continued enthusiasm for meme stocks in particular. (…)
Data from VandaTrack show that individual investors poured more than a net $22 million into AMC on Tuesday, more than double the stock’s average 2021 daily net inflow of about $9 million. Excitement about the stock didn’t slow Wednesday. The company’s share price finished the day at $19.56, a 19% daily gain that pushed the stock to its second-highest close this year.
The movie-theater chain ranked as the second-most-traded stock in the U.S. market Wednesday and posted its largest single-day trading volume since late February, according to Dow Jones Market Data. Another individual-investor favorite, Express, also ranked among the most-traded. The fashion retailer finished with a 26% gain Wednesday. (…)
Individual investors on social media are hoping to catch institutional investors on the wrong side of the trade again. Short interest in AMC currently stands at nearly 21% of the stock’s free float, according to data from S3 Partners, up from a 2021 low of nearly 11% in March, but down from the 28% reached earlier this year. GameStop’s short interest stands at about 20%, an increase from about 18% in March but much lower compared with more than 140% in January. (…)
Another force behind GameStop’s rise could also be speculation about the videogame retailer’s foray into another area of booming online speculation—the market for the digital collectibles known as nonfungible tokens, or NFTs.
A subdomain for “GameStop NFT” recently appeared on the company’s website, fueling speculation that GameStop may offer its own suite of digital assets that users can buy and sell. (…)
THE OTHER BIG DEBATE
- The Virus Lab Theory’s New Credibility The evidence catches up to Fauci and other Wuhan Covid deniers.
- Who were the first coronavirus cases? China should help solve the mystery.
I will not speculate on the end game here but I can easily say that this has the potential of getting very, very messy. Particularly if China continues to not cooperate.
Meanwhile, will history rhyme?
Data: CSSE Johns Hopkins University. Chart: Andrew Witherspoon/Axios
U.S. Initiates Trade Dispute Against Canadian Dairy Industry The Biden administration initiated a dispute process against the Canadian dairy industry, triggering the formal dispute mechanism of the new U.S.-Mexico-Canada Agreement for the first time.
Keystone XL on day one, lumber, Enbridge’s Line 5 and now dairy. Friendly Joe!