finance

Inflation Expectations are… well, Inflating

One of my concerns is that the reduction in supply for products due to closed businesses and supply chain issues coupled with stimulus money will lead to inflation. The market is starting to expect more inflation as well.

This chart is the Treasury Yield (Nominal) minus the TIPS yield (real), which gives you inflation expectations.

When the crisis first hit, inflation expectations for the next 5 to 10 years crashed and were at less than 0.5% per year.

Now inflation expectations are 1.2% per year for the next 5-years and 1.4% for the next 10-years, up quite a bit from the bottom.

I expect inflation expectations will continue to increase from here, giving a boost to Gold, TIPS, and firms with good dividends and pricing power.

By Christopher Schwarz, ago

Job Recovery Good… and Bad

Most people today are focused on the 4 million job number. I’ll note that the 11.1% unemployment rate is still worse than any point during the great recession.

The more concerning part is a. the continued growth in permanent job losses and consistent initial claims and now continuing claims.

Here’s a graph comparing the number of unemployed persons on a temporary and permanent basis.

While temporary layoffs have been reduced, some of that is because they have become permanent layoffs. These will be much more difficult to recover going forward.

Not only that but continuing claims, which has fallen almost 5 million from the peak has stopped declining.

Continuing Claims

And new claims is stuck at 1.5 million a week. Which sounds better than 7 million a week, but is still 2.5 times higher than ANY point before COVID-19.

Initial Claims

The bottom line is this is a good report. Future reports may not be as rosy.

By Christopher Schwarz, ago