There are no bones about it, the US economy is all fizz, bang and pop. The CEO of Goldman Sachs has said as much: “I’d state quite clearly, and I said in the prepared remarks, that we think that we’re going to have very, very robust economic growth in the second half of 2021 into 2022.” And it’s not just David Solomon, it’s Blackrock, Delta Airlines, US Bancorp and many others. Consumer spending is hitting new records, and cities are coming back to life. According to Bank of New York Mellon, US households are holding 15% of GDP, in cash. Ka-BOOM. Companies meanwhile – according to the top table at JP. Morgan – have about $2 trillion of excess cash sloshing around on balance sheets. Despite all the sweat and spittle of a late-cycle euphoria flaring pockets of the market from SPACs to crypto-coins, given the backdrop of a fast healing economy being whooped on by monetary and fiscal mandarins, there seems little in the way to stop markets go-going higher through the long hot summer of BBQs and small talk. Rich valuations can get richer. As recessions go the 2020 pandemic-induced offer has cut its own path, but whilst every recession sees businesses boarded up, there is a sense that this one is, according to some strategists, more like the experience of textbooks, with a flavour of Schumpeter’s creative destruction. What matters going forward is employment. How long does it take to get back to the mystical full employment? According to one broker note last week, layoffs are plunging. They write that over the past four weeks, layoffs have averaged under seven hundred. When coupled with a new high in the slightly full-in-the-mouth ‘NFIB Small Business Job Openings Hard to Fill’ index, it is perhaps no wonder that the broker warns that the unemployment rate is fast heading back towards the pre-pandemic 3% level. With an exclamation mark for added effect. Indeed some metrics, like the recently charred Taylor Rule, suggest the Fed should be hiking rates already. The Fed will have to hike rates, it is inevitable, the question is when. And how fast. Another question is how to profit from it. Now some questions are more easily answered than others, but the business models of the online brokerages, like Schwab and Interactive Brokers, can perhaps answer one of them.
The securities mentioned in this blog may be held by funds managed by Majedie Asset Management Ltd.