Markets remain range bound. Central banks continue to emphasise support (or is it endless subsidy?) despite economies reopening. On the other hand, Covid flareups are still happening and while the Biden administration’s chief medical officer, Dr Anthony Fauci, made it clear he didn’t expect a return to lockdowns, he commented that “things are going to get a lot worse” as the more contagious Delta strain of Covid-19 spreads.
Then there’s inflation. Official statistics prove it’s rising everywhere although a trip to the supermarket or attempt to hire a tradesperson would confirm the same. US inflation has now breached 5% and logically, the Federal Reserve should be aggressively tightening monetary policy by raising interest rates. However, inflation is the only reason it’s got to raise rates and we can think of a dozen others that, collectively, offer an excuse not to. This will, ultimately, lead to serious problems further down the line but central banks have long since refrained from worrying about the future.
We anticipate inflation will not be quite as transitory as the Federal Reserve, Bank of England, European Central Bank et al are telling us it will be. We also anticipate no political will to curb the extraordinary monetary policies of recent years that, to date, have enabled governments to print money and get away with it. But that’s the problem with the future; you may not worry about it but it will arrive, just the same. To our eyes, the best protection remains exposure to those businesses capable of sustaining both high returns on capital and possessing pricing power.
