The economy is booming and everyone should enjoy it. The American economy is benefitting from tremendous amounts of pent-up demand and in some of the hardest-hit industries’ activity is beginning to tick back up above 2019 levels. Along with that boom, there are clear signs of inflation and concerns about overheating. Even Janet Yellen seemed concerned for a few hours last week.
Animal spirits are driving momentum across the economy, especially in capital markets. There’s hundreds of billions of dollars waiting to be invested via vehicles like SPACs. Valuations are extreme, yet they are justified by low interest rates. Meanwhile demand is exceeding supply in industries like semi-conductors, housing and transport. Companies are citing inflationary pressures. But the Fed and Treasury are united behind continued stimulus. “We have the tools to deal with that risk.”
The Year in Review: 2020 was an unprecedented year and The Transcript covered the economy throughout all of its twists and turns. Even though China was battling Covid in 2019, no one really knew what was in store for all of us in 2020. Technology, capital markets, and housing were three industries that boomed. While the stimulus was integral, the economic hero of 2020 was the US consumer. Optimism is high that 2021 will be a more normal year.
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Succinct Summary: Capital markets are ending 2020 with a bang thanks in part to last week’s hot IPOs. Business leaders are feeling confident about 2021 and expect next year’s earnings to exceed 2019’s. Consumer spending is similarly strong. Even the housing market is stronger than in ’05. It’s a K shaped recovery for some industries but a vaccine should unleash pent up demand and high unemployment means that interest rates will stay low for longer. Readers should keep an eye on growing supply chain bottlenecks. This could be a source of some inflationary pressure.
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Succinct Summary: Retailers reported strong quarters last week showing that the US consumer remains resilient despite high unemployment. A new wave of Covid could slow the economy back down but vaccines are almost here. It will be interesting to see what behaviors have been permanently altered by the pandemic and which ones will return to the way that they were. Business travel is one thing that may be permanently changed.
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Succinct Summary: It was hard to pay attention to anything other than politics last week, but we’re trying our best to keep a focus on the economy. Economic activity appears robust from the earnings reports that we’re reading. Even the hardest-hit industries appear to be performing much better than expected. The tech industries that surged may be normalizing though. We’re getting a strong new surge in Covid cases, but people seem to feel more prepared than they did last spring.
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Succinct Summary: Many companies and individuals have been hard hit by the pandemic and are having a tough time. All eyes are on another stimulus package to try to cushion them. Worryingly, cases are rising worldwide even in areas that were thought to have contained the virus. The picture from July and early August is one of a mixed and uneven recovery.
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Succinct Summary: Infections are accelerating in the US and it’s unclear how or if this has affected economic activity. The economy seems to be continuing to improve. Yet distressed borrowers are starting to reach the end of their reserves. Bankruptcies are likely to begin to surge. Washington is working hard to pass another stimulus bill to prevent this from happening.
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A Personal Note: A lot has happened in the last two weeks we have been away. We start on a very positive note—warm congratulations to my co-author Scott Krisiloff and his wife on the birth of their beautiful twins this past week. On a different note, the challenge of racism has come to the forefront of global news. This week, we have a special section on quotes on the reactions from corporate management teams on the issued of racism. The bottom line is that we have a problem that needs fixing. I have also written a personal article about my experience of racism in Scandinavia. – Erick Mokaya
Succinct Summary: There are some glimmers of hope across such industries like airlines, travel and retail as demand picks up from the April lows. We are, however, being cautioned about being too excited and urged to be cautious. All in all, there is significant pent-up demand.
Succinct Summary: Companies are reporting signs of improvement in the economy. But the rebound is coming off such a low base that these numbers would still be considered very bad in any other environment. The duration of this rebound will depend heavily on whether or not there’s a second wave of infections. Still, even without the virus it probably will take the economy a long time to recover from such a severe shock.
On an industry basis: private capital markets are searching for price levels; consumers are dreaming of the future; tech is chugging along; and the industrial/energy economy is feeling immense pain.
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