China’s Real Estate Turmoil, Today’s Inflation vs. the ‘70’s, and Today’s Markets Undo 50+ Years of Financial Planning
December 14, 2021 | FIRESIDE CHARTS
Is there a growing storm in China’s Real Estate market? Is it their 2007-08? With the Fed scheduled to meet, we offer some updates on inflation. How does the current inflationary environment compare to the 1970’s? Which is higher: the long-term market P/E in 1999 or today? An illustration of why today’s markets unravel 50+ years of financial planning. Finally, while the press lets the headlines fade, global economics and supply chains will depend on the health of all of humanity.
1. China’s property debt situation is coming to a climax. So far, Beijing has not indicated it will help or bail developers out. We remind readers that the Real Estate sector is 25-30% of the Chinese GDP. Will there be any contagion from the world’s second largest economy?
Source: Fitch Ratings from 12/9/21
2. What a prospective default looks like:
Source: Bloomberg; The Daily Shot from 12/13/21
3. The latest CPI print of 6.8% has actually brought us back to the 2% growth trend that the FED targeted back before the pandemic. Now we shall see how much overshoot they will or will not allow:
Source: ANZ Research
4. One of the stimulants the FED has used to get to the 2% trend line has been the money supply. QE reversal should help slow this inflationary factor:
Source: The Daily Shot from 12/13/21
5. Many of the “transitory” inflationary items are turning out to be not-so-transitory:
Source: The Daily Shot from 12/10/21
6. Energy inflation is rampant in Europe. This will work its way into their PPI and CPI, especially due to electricity costs:
Source: TheDailyShot from 12/14/21
7. A good historical look at inflation. Note how many years the spikes covered; inflation is not an event but a process:
Source: Thechartstore.com from 12/10/21
8. Which one of these is not like the others? Just how long will it last?
Source: Yardeni Research
9. Can we agree the markets are getting frothy?
Source: Bloomberg; The Daily Shot from 12/13/21
10. Millions of financial plans were written using a 60/40 or similar allocation. Given the low rate environment and elevated equity valuations, investors must take on (much) more risk, use tactical strategies to try to bridge the gap, or lower spending.
Source: J.P. Morgan Asset Management
11. As the world grapples with its 6th wave of Covid, we worry about the global supply chain (again!). Europe is experiencing hundreds of thousands of new cases /day and now Vietnam (“conduit” for China), South Korea and even Australia are suffering breakouts. Put another way, ~50,000 people are dying every week and Omicron is just getting started…
Source: The Center for Systems Science and Engineering (CSSE) at JHU
Disclosure: The charts and infographics contained in this blog are typically based on data obtained from 3rd parties and are believed to be accurate. The commentary included is the opinion of the author and subject to change at any time. Any reference to specific securities or investments are for illustrative purposes only and are not intended as investment advice nor are they a recommendation to take any action. Individual securities mentioned may be held in client accounts. Past performance is no guarantee of future results.