Bidenflation

17 July 2021

Dear Fellow Investor,

Bidenflation

US markets were hit Friday by a combination of factors. The catalyst for the fall were comments by   Treasury  secretary Janet Yellen who said expect inflation to rise over the next few months before falling. Other Federal Reserve officials even suggested that tapering would be scaled back and interest rates might go up. This spooked the markets and the Dow which had been up over 100 points dropped to close down 299 points while the tech heavy Nasdaq dropped 115 points.    

What is the reality ? According to the latest CPI numbers:

Here are the items really driving up inflation: Car rental 87.7% (y/y change) Used cars 45.2% Gas 45.1% Laundry machines 29.4% Airfare 24.6% Moving 17.3% Hotels 16.9% Furniture 8.6% Bacon 8.4% TVs 7.6% Fruit 7.3% Shoes 6.5% Fresh fish 6.4% New cars 5.3% Milk 5.6% Rent (OER) 2.3%

Below is the US Federal Reserve balance sheet as of 15 June 2021.

The trend of money creation is up despite what the authorities are saying about transitory inflation. If the fiscal stimulus programs of 3.4 trillion USD are passed by the US congress the money creation trend will accelerate.  The odds favour it will be passed as politicians love to spend.  Other central banks will join the party . To give a maximum economic boost interest rates will be suppressed . This will benefit stocks . We must remain fully invested.  Buy the dip.  

As pandemic conditions normalize with lockdowns and increased vaccinations  expect Malaysia to recover. Infection rates are up but testing  rates are also up which explains this anomaly.  

There was a very interesting letter to the editor  in last week’s Star. It responded to a Bloomberg article by some UK critics saying Malaysia was a failed state  due to the slow  response to the pandemic.  The truth is that Malaysia has the 2^nd highest vaccination rate in Asia . The critics also said Malaysia is facing financial difficulties. The truth is S & P sovereign credit ratings  rates Malaysia as A- long term and A2 short term. In contrast the sovereign credit ratings of failed state Somalia is D according to the Economist intelligence unit.   In terms of FDI, foreign direct investment of RM 86 billion in the manufacturing services industries   were approved compared to  RM 41.2 billion in the 1st quarter last year. Rising crude oil and high commodity prices will also support our economy and balance of trade.  

Our focus on technology stocks should bear fruit and also our recovery stocks which have pricing power.  Inflation will help.

Stay the course

Bill

Political disputes are settled in the failed state Haiti by shooting the president. Despite the infighting and political bickering  Malaysians would not resort to such extremes  and another reason we are not a failed state.