The Delta Variant's Impact On Economic Fundamentals, Fritz Meyer Economic Update, August 2021

Stocks repeatedly broke record highs since last month’s webinar, having been driven higher by upward earnings estimate revisions and ultra-low bond yields.  

After the July 27-28 FOMC meeting, the Fed said the economy has made progress toward employment and inflation goals, suggesting a tapering of its bond-buying program isn’t far off. Investors aren’t worried. Stocks have shrugged off concerns about the taper.

The economic data remain very positive. Jobs recovery, strong income and spending, continued strength in the ISM purchasing managers indexes, strength in construction, strength in the leading economic indicators. Cash in consumers’ accounts available for spending (M2) remains astounding!

Will the Delta variant hobble the economy? Not likely, according to most economists. Richard Thaler says, “So I think we’re going to start to see that if you want to insist on your right to be unvaccinated, you will lose some other rights.”

Inflation is surging but higher inflation will be transitory, the Fed says. The topic is under considerable debate by economists. Only time will tell. For now, however, investors are going with “transitory,” and we will zero in on the timeline of events to look for and the risk of a Fed mistake.

In this month’s webinar we’ll update the economic data and rising earnings forecasts and relate both to the market’s current valuation.
 

This webinar is eligible for one hour of CE credit towards the CIMA® and CPWA® certifications, and it is eligible for CFP® CE, PACE credit toward the CLU® and ChFC® designations, and live CPA CPE credit.

Inflation Drill-Down, Amid A Spectacular Surge in Spending, Saving, And Inflation

If you have not been following along for the past decade, my weekly conversations with economist Fritz Meyer lately drill into a single topic. This week, Fritz, the most independent thinker I’ve ever known, summarized the spectacular simultaneous surge in savings, spending, and inflation and answered my questions about inflation, yielding real results: The inflation situation will be resolved in early 2021. Until then, stock prices could go sideways but be more volatile.

Could Fritz Meyer be Wrong? Could The Fed's Bold Inflation Policy Be Based On Market Psychology Data?

The Fed insists the spike in inflation won’t last. Fritz Meyer is highly skeptical, as is reported eight minute s into the video below.

On the right, is an automated marketing update in a video emailed earlier this week to clients of advisors, UHNWIs and HNWIs. 

Fritz might be wrong. Maybe the Fed has data to back up its assertion that the spike in inflation is indeed likely to be temporary. 

Whether the Fed will be right about letting inflation rise to 3% or beyond -- much higher than its 2% target rate -- will not be known for months. It is a question of inflation psychology. 

Macro financial psychology trends can be measured and maybe the Fed has done that! 

Could the Fed have data on inflation sentiment? Is it possible that the Fed is not winging it?

Probably not. 

The Fed Is Winging It, Fritz Says; Expect Inflation-Inspired Stock-Price Spasms For Rest of 2021

After a three-minute roundup of the latest economic data -- rebounding optimism of business owners and the unprecedented retail sales report for April -- Fritz Meyer explains in five minutes why the rest of 2021 is likely to be unusually volatile for stocks, as inflation clouds the investment outlook. 

Last Wednesday, stocks plunged about 2% but prices recovered by Friday’s close. Stocks had tanked after the government reported the Consumer Price Index surged by a faster-than-expected 4.2% in April. 

Fritz says the rest of the year could be similarly choppy – filled with spikes and dips -- because fears of inflation are likely to persist into 2022.

How deeply embedded in the psyche of the American consumer is the notion that inflation? In the long run, will consumers revert to the Fed’s 2% CAGR target? 

Tax Fairness, A Hot Potato For Advisors, Summarized Apolitically

The Advisor Products team and I created this video summarizing Fritz’s 10-minute presentation in under 90 seconds. It will be FINRA reviewed and advisors can narrate it using our proprietary software.

If you’re just tuning in, Fritz Meyer and I teamed up a decade ago to provide a continuing professional education feed to financial advisors and advisor clients; the fruits of our collaboration are shown in this 90 second video about tax fairness.

Fritz presents his analysis of President Biden’s tax plan at today’s CE class live on Advisors4Advisors.com at 4 EST today. (it will be available for replays within a few hours of the CPA CPE-credit eligible class.) Fritz dissects the numbers behind this hot potato issue. The IRS data was compiled and analyzed initially by Yardeni Research. Fritz walks through the bar charts to explain them to advisors. It’s a politically charged issue but Fritz just sticks with the facts.

As an advisor to “one-percenters” discussed in this video, you need to know about the tax proposals on capital gains and income increases expected to be put into effect in 2021. The video version for advisor clients works no matter the advisor’s or the client’s political views, giving clients context for understanding the first reversal in U.S. tax policy since the election of President Reagan. Fritz’s presentation enabled this “we report, you decide” approach that strikes just the right tone of a professional.

The Bad Jobs Surprise

The bad jobs surprise may be nothing more than a statistical anomaly caused by the combination of a seasonal adjustment made by the Bureau of Economic Analysis and the distorting effects of the pandemic’s effect.

Analysts had expected the economy to net an increase of 1 million jobs last month but the figure came in Friday at 266,000. The disappointment became a political point over the weekend and President Biden responded Monday to criticism that generous jobless benefits were encouraging the unemployed to stay on the sidelines and collect benefits rather than return to work.

As we reported in our consumer feed last Friday, stock market investors brushed aside fears that the sorely disappointing jobs report was a sign that the economy is not as strong as generally expected and that it was the first hint of trouble ahead.

Every other key economic fundamental indicator is going strong, says Fritz Meyer in this presentation recorded Friday May 10. Fritz is an independent economist not affiliated with any financial products.

Backing up his analysis, was this statement from Cecilia Rouse, Chair of The Council of Economic Advisers. It lends credence to Fritz’s point of view on why the stock market discounted the importance of the sorely disappointing jobs report, chalking it up to a statistical anomaly.

“There is often month-to-month volatility in the jobs numbers,” said Ms. Rouse.“ However, the same ‘amount’ of volatility is more striking when the volume of changes is larger, as it has been during the pandemic.”

Can You Identify Differences Between Videos For Advisors And This One For Advisor Clients?

Fritz Meyer’s  update above is brilliant but it’s not for sharing with clients. Here’s a video of Fritz turned into a video for clients. Can you name the differences?  

1.      Shorter. The version on the right for clients and social sharing is short.  Videos about financial planning should only be long enough to say something important.

2.      Branded. Videos you send to clients and share on social networks must be branded with your logo and contact information. 

3.      Graphical. Advisor videos about economics are “edutaining” – educational but entertaining. Government news videos, iconography, callouts optimize using the medium. The “Good News” graphic (12 seconds) illustrates the different graphical approach. The graphics are not sensational or eye-candy they’re sober.  Stock videos are added that make the message easier to consumer, is shown at 40 seconds.    

4.      Voiceover. The professional voiceover earns his pay by slowing the cadence of the good news. (You can record your own voiceover on top of our client videos.)

5.      Simple But Not Dumbed Down. Sixty seconds into the client video delivers news of the 259% increase in government transfer payments. And the video ends with a bold summary of Fritz Meyer’s outlook.

6.      FINRA Reviewed. Economic content is not technically subject to FINRA-review, and RIAs with no broke/dealer affiliation do not need advertising FINRA-reviewed. However, it is nice for RIAs to have FINRA reviewed content. This video will be FINRA reviewed.