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Powell’s Jackson Hole Market Message: Yes, Inflation is Transitory But Tapering Will Begin This Year!

Look beneath the surface; let not the several quality of a thing nor its worth escape thee.

MARCUS AURELIUS

With the last week of summer upon us, and the entire nation is going back to school. The onset of a new football season and a lingering hope of more normal conditions across the globe are parts of the transition to fall. In times past, the thought that people would be paid to sit at home and do nothing, or a renter wasn’t able to get thrown out for non payment would be considered absurd. Not in 2020 or 2021, as Covid and it’s variants threw nearly everything conventional out the window. However, as we enter into September, we may start to be able to consider a return to more standard practices. It just may be people have to go to work to get paid. We may see non payment result in evictions. Fans will actually be able to attend football games, albeit with masks and proof of vaccinations. Regardless, a return to more normal circumstances is something many people, including myself, long for. Irrespective of the season, identifying an asset of value greater than what it currently sells for is the quality of money makers. What the asset is, where it is and the current condition, the potential liabilities associated with it, who controls the asset, and it’s ability to consistently generate income (and how much income) are key in determining it’s worth. One can surmise from the quote above that looking much deeper than what might appear to be the case is an essential part of the process.

In the markets this week, the major event was Fed Chairman Powell’s virtual address from Jackson Hole, Wyoming. All went according to plan, which is to reassure market participants that in the Fed’s view, inflation is transitory and not permanent. He reiterated employment figures are getting stronger, and in due course the Fed will slowly start to reduce the rate of asset purchases. Investors should even be able to start factoring in the actual probability that interest rates will go up next year some time. Don’t misunderstand, Jerome isn’t going to do anything to give the investment world pause, meaning he intends to keep interest rates low for as far as the eye can see. Well, at least until he gets reappointed by jumbled Joe, which would be early next year (February). Ex-Fed head and current Treasury Secretary Janet Yellen, also a card carrying member of the accommodating team, has already endorsed Jerome for another term. In looking at the fall trading period, the onset of tapering could bring a dramatic shift in market psychology. The change from rock bottom interest rates to the slow adjustment of a more traditional interest rate environment might bring vastly different allocations of capital to areas of the market which have been shunned for quite some time. It’s our job as investors to, look beneath the surface to consider what those might be. On the earnings front, Salesforce, Toll, Gap, Ulta Salon, and Dick’s Sporting Goods all reported numbers well in excess of market expectations.

In the political sphere, the Afghanistan pullout and how poorly or well it’s executed for the remaining American troops, citizens, and allies will continue to get attention. In the middle of September, the recall election in California and the national contest in Canada will be generate plenty of interest and the results are anybody’s guess. You have to think in a long time Democrat strong hold like California, Governor Newsome and his tremendous fundraising war chest give him a strong chance to survive. The same probably holds true for Justin Trudeau in Canada. Still, with the changing of seasons the mood of the majority of the citizens in these areas is unpredictable. On that note, I hope you have a good week and get ready to enjoy the long Labor Day weekend seven days from now.

Thank you for reading the blog this week, and if you have any questions about investing, please email me at information@y-hc.com.

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Yale Bock, Y H & C Investments, its clients, and the family of Yale Bock have positions in the securities mentioned in the blog,  Investing in securities involves risk and the potential loss of ones principal.  Past performance is no guarantee of future results.  All investment decisions should be considered with respect to ones risk tolerance, return objectives, liquidity needs, tax considerations, and one’s overall financial situation.  The fact that Yale Bock has earned the right to use the CFA designation does not mean Y H & C Investments will outperform broad market indexes.

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