More Inflation is Coming.. but it’s the "good" kind
Anti-Goldilocks Update
Some good news.. for the US economically
Now that inflation is an accepted secular phenomenon whether the Fed admits it or not, and the economy is slowly retooling itself from Finance to Manufacturing.. there is a new step to note on the West’s economic path.
As the government throws fiscal money at the economy in subsidy-form to get people to focus on what it wants.. the companies benefitting will eventually be told to invest in these gov’t projects as well or suffer consequences. That is how corporatism works.
This is all part of the plan. It has to happen or the US will not reboot properly in time to compensate for global de-dollarization by growing its manufacturing exports.
Therefore, companies will at some point start investing in their own biz for multiple reasons.
they want to do well in the next phase
they were told to do this to receive future breaks
tax laws may be changed to make it better to sink money into research.
Just know if/when companies start to do CAPEX… we will get more inflation. This is waiting in the wings and will likely happen after Powell gets to claim inflation is under control.
As of right now, the CAPEX cycle is very slow to start. But it is helpful to know why it starts before it actually does.
profits are good
buying their own shares is not as smart as it was before
Future expenses are solidified and unions are done re-negotiating
Uncle Sam tells them to or else
We think one reason CAPEX hasn’t taken off yet is due to these companies holding out for more goodies in the form of subsidies.. and because they are waiting for Powell to ease rates.
Steven Blitz, in a report we just read (at bottom), similarly thinks they are waiting for confirmation of a soft landing. If they lose faith one is coming, then no Capex and more people get fired. If the CAPEX cycle does not follow profits as it normally does, then those companies are not so confident their profits are sustainable. They will fire you and rightly blame Powell.
We knew about this, and brought it up several times in our handicapping how Anti-Goldilocks will manifest over the next 10 years……but never took the time to drill down on it as this is a commodity centered publication.
Steven’s report reminded us this is a big deal and we wanted to draw your attention somewhat to it for future awareness. He explains the process and where we are in the cycle nicely. Great touchstone for where we are right now.
Russell Napier also has a good handle on it. He explains better than most and is well suited for commodity types.
