A year ago we were all waiting for the other shoe to drop. Covid cases were starting to swing up and we were heading into a tough summer.
Nine months ago we hit a whole new level, now with an even bigger swing in cases in the works with a huge, steaming pile of political mayhem tossed on top.
Three months ago, depending on the state, vaccines rolled out to all adults. We finally got to the point where we could start having real talks about the post-pandemic world.
Though there is certainly still a profound amount of risk in the economy, it started to feel safer and safer to hope that the other shoe wasn't going to drop at all.
Now we're realizing it was speeding towards us from behind. The economy is so hot right now that we're all staggering from a kick to the backside.
A month ago, which seems like ages ago, I wrote about how everything was unbelievable, if we even knew what to believe.
Since then there is only more to add to that list.
Year-over-year inflation, which seemed high already in April's numbers, came in at 4.9%, the largest jump in 13 years. Core inflation came in at 3.8%, the biggest jump in just under 29 years.
The Fed, finally realizing it already overshot its targets and it'll take many months to turn a boat the size of the U.S. economy around, is talking about tapering its massive bond-buying scheme.
It is even talking about a couple 0.25% interest rate bumps. A milquetoast measure in "normal" times, which we haven't seen in a dozen years and should probably forget, but quite the bold move these days.
Real GDP growth clocked in at 6.8% in the first quarter. Estimates for the full year are above 6%. The kind of number we haven't seen in the U.S. since 1984 and that is normally only found in emerging markets or China's cooked books otherwise.
Make no mistake about it. This economy is so hot right now that we don't even know what is good and bad in the long run. Just that there is a whole lot going on all at once.
So what is going on right now?
Lumber prices finally deflated some with futures down nearly half from their peak, which was bound to happen since no one could afford to pay to build anything. If that added to inflation, just wait for the surge in home building that will follow the drop.
The Port of Los Angeles just had its busiest month ever with over a million shipping containers unloaded and boats are parked up and down the west coast for up to a week waiting in line. Shipping costs are soaring to the point where they, normally a negligible issue for inflation, are now front and center.
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Depending on the port, costs have doubled, tripled, or more. According to Drewry Shipping, moving a container from Shanghai to Rotterdam costs 547% more than the seasonally adjusted five-year average. Plus all signs point to the rise only accelerating.
There are already rumblings and rumors about this holiday season being even worse than the last. Count on placing your orders months in advance and hope they aren't lost or canceled yet again.
The Fed just raised its inflation estimate for the year to 3.4%. Granted I certainly don't have the same expertise, but there is no precedent to consider. There is absolutely no model for this kind of economy.
I'm not sure how useful that expertise really is as costs and growth both surge across the board, all while the Fed keeps programs in place as if the economy is limping along. The $120 billion in mortgage-backed securities it buys each month are particularly egregious considering the housing market right now.
As for what we can do?
Well we got a good kick in the behind and we're staggering forward, nearly out of control. Yet, for all the pain and risk, the simple fact of the matter is the economy is hot right now.
That means money is being passed around and pocketed like we haven't seen in decades. Now is not the time to be timid and stuck in analysis paralysis.
Keeping a hedge on inflation is going to be part of that. Luke Burgess and his readers have done well in recent months with an eye on gold and metals stocks.
Speaking of Luke, I just heard he has a big batch of picks and updated analysis that he's about to drop in a couple days, so keep an eye out for that.
Another part is simply hiking up your socks and wading in. We're pulling out of one of the weirdest and nastiest recessions anyone alive today has seen. Now is the time when markets can hit a bull run that mints fortunes.
Be wary but be bold.
Take care,
Adam English
Adam's editorial talents and analysis drew the attention of senior editors at Outsider Club, which he joined in mid-2012. While he has acquired years of hands-on experience in the editorial room by working side by side with ex-brokers, options floor traders, and financial advisors, he is acutely aware of the challenges faced by retail investors after starting at the ground floor in the financial publishing field. For more on Adam, check out his editor's page.