Stumbling to Scarcity

Plastic Explosion
Abundance to Shortage
Wage Inflation
Puerto Rican Opportunities, Thoughts on Taxes, SIC, and Airplanes

In economic forecasting, reality is usually somewhere between the extremes. The best-case and worst-case rarely happen. That’s why, when they do happen, markets react so quickly to the “missed expectations.”

I saw this early in my career. Realizing we will “muddle through” most of our problems was immensely valuable and sometimes profitable. But as our problems grow in scale, I’ve had to change my attitude. Now I usually expect to “stumble through,” as we see more of those extremes, and more extreme reactions to them. We still make it, but with some bruised knees and painful scrapes.

Consider two views of the current US inflation outlook.

Some expect major economic growth as we subdue the coronavirus and stimulus spending moves through the economy. Prices will rise and generate significant inflation, due to both increased demand and supply chain disruption. That’s why the Fed maintains (and I agree) that we will likely see higher inflation but it will be transitory. Nine to 12 months from now, much of the supply/demand mismatch should be back in balance—at least in the US. Much of the world is far from that point.

Another view is that controlling the virus will simply send the economy back where it was in 2019, with low growth, low inflation, low interest rates, and already-excessive debt that is now far worse. People saw problems coming but thought they had time.

My view is somewhere in between those. I think we will probably have a few months of significantly higher inflation. It will fade but meanwhile hurt certain people and industries. It will be like one of those extremes causing bruised knees and volatile markets.