E Stagflation?

Yesterday the market decided to get back into technology and telecoms, recycling, energy, drugs, Canada, China, and Mexico. None of this could have been foreseen last week because of the trigger for the revival of these sectors which had not been forecast. It was, alas, the crash of another Boeing Max 8 airplane during take-off which led to the rush to other stock sectors. Unlike the Indonesian Lion airline which crashed last October, Ethiopian Airlines is reputed to be well-run and safe. The hit spread to Boeing's suppliers worldwide.

Another new factor was the Feb. Chinese auto sales figure, down 14% year/year, the 8th month of decline. This naturally hit suppliers.

Today's blog is extremely focused on stocks I want to keep.

David Goldman (AKA Spengler) writing on AsiaTimes.com over the weekend warns that low employment growth and wage rises both reflect a low pool of labor and consumers refusing to pay higher costs for labor. I hope he will continue to feature in US media, but I hope no longer plug for my ex-neighbor, Lyndon LaRouche.

In case you thought inflation is dead, Liz Ann Sonders writing for Market Commentary at Charles Schwab raised the possibility that it merely in “a long slumber from which it's about to stir”. She doesn't think the government deficit will trigger price hikes but she does think that “secular forces” like protectionism, nationalism, and trade wars, plus “traditional triggers like a tight labor market” are evident.

She notes that most forecasts still expect inflation to be low, with the exception of the U of Michigan's. And she also says that the 10-year breakeven rate has hit 1.9% which means it retraced nearly half its decline from 2.17% last Oct. Apart from the low level of new hiring reported last Friday there also was an ominous exit from the labor force entirely, which means that companies may have to boost their wages to get workers.

Meanwhile, in the NY Times, David Leonhardt warns that US economic growth for 12 years has failed to reach the levels forecast by the Federal Reserve. Rather than the 26% cumulative GDP growth predicted from 2007 to now, it has only risen 20%, even if you remove the period of the global financial crisis. He quotes Larry Summers and ex-IMF economist Olivier Blanchard as warning about “secular stagnation. It could even become the worst of all worlds, stagflation. It's worth reading the end of the article to see what I am doing about this risk.

Brazil

*Cosan was upgraded to overweight from neutral yesterday by JP Morgan and CZZ stock gained 4.7%. It is buying back prefs of Comgas by a voluntary offer at Reais 82/sh for up to 14.77% of the share-out.

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Comments

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Carol Klein 6 months ago Member's comment

Good article Vivian, but I think you made an error. I read the article by David Goldman you referenced. But on Seeking Alpha, not Asia Times.

Leslie Miriam 6 months ago Member's comment

Thanks, have the link?

Carol Klein 6 months ago Member's comment

I think it was deleted. Maybe something fishy is going on.