Consumer Confidence Wanes, Looming Covid Setbacks, and A Deep Look at Inflation

While supply bottlenecks are starting to ease, what will Delta and Omicron do to the global economy? Just what is Consumer confidence in the U.S.? What are dividend and bond rates telling us? Will corporate profits, the highest in 7 decades, get derailed by inflation? Some interesting updates and perspectives on inflation including an “OK Boomer” that cannot be dismissed.

1. Since consumers make up ~70% of our economy, consumer sentiment is key. The divergence below is interesting, the difference is the University of Michigan Consumer Confidence Index is focused more on inflation, while the Conference Board Consumer Confidence Index is focused more on the job markets. Both showed recent declines:

Source: @TheTerminal, Bloomberg Finance L.P. from 12/1/21

2. With bond yields so low, this is welcome news:

Source: @financialtimes from 12/1/21

3. Once again Covid is wreaking havoc on the market’s forward views. Most indices are barely at an ordinary pullback so panic should not be in the cards…yet. Here is a snap shot of the market’s breadth:

Source: TheDailyShot and Bloomberg from 12/1/21

4. Throw in a much more Hawkish Fed. Real rates have been rising which affects high P/E multiples:

Source: TheDailyShot from 12/2/21

5. The goldilocks markets since the 2020 Covid lows has invigorated the IPO market:

Source: BofA Global Research; @MikeZaccardi

6. The Regional Fed surveys have been mixed. Overall, U.S. manufacturing remains strong:

Source: TheDailyShot from 12/1/21

7. What will Omicron do to this trend?

Source: @SteveRattner

8. While the FED keeps to its transitory (and just how long is “transitory”?) narrative, many inflated prices/inputs will not retreat in price when inflation finally moderates…

Source: @acemaxx, @sffed, @JohnAuthers

9. This is an issue. Most investors, economists, analysts and prognosticators have no idea what inflation is like, how it permeates the economy, and how it devastates consumers. Textbooks don’t cut it on this one!

Source: Trahan Macro Research

10. Producer inflation looks similar in most of the world. Either the higher costs are passed through, corporate margins take the hit, or a little of both:

Source: TheDailyShot from 12/2/21

11. Speaking of margins, they are the highest in almost 70 years:

Source: @markets

12. Transitory or not, consumers are already feeling the inflationary pain. Their net worth may be high thanks to the markets, government pandemic relief and debt reduction, but their daily expenses have skyrocketed! Look at the annualized rates:

Source: OECD