Today is Father’s Day, a sad reminder that it has been 19 years since you left us. I know, as I have known in years past, that I can never actually give you this letter.
Yet, the thoughts of how I was the Saturday chalk boy – ripping the latest Dow averages off the teletype machine each half hour and writing them on a blackboard for everyone in the office to see – is still fresh in my mind.
Although both computer technology and sophisticated mathematics have become an integral part of the investment world, many of the principles you taught graduate students using Graham and Dodd’s classic “Security Analysis” text remain relevant, even in today’s complex world of financial engineering.
Giving a sideways glance at my well used and underlined fourth edition, I wonder what you would think of today’s investment world. It is unlikely you would recognize the Street or the economic environment in which it exists that you once knew so well.
As I wrote last year, our country has been engulfed in a global pandemic. Currently the death toll in the United States alone has reached 604,852. Compare that to the 58,220 lost in the Vietnam War and 405,399 lost during World War II. Sadly, the daily death rate, while declining, is still adding to the total each day.
Nonetheless, the economy is starting to improve. Joe Biden, who you knew as a young man, is now the President. As of June 5, the unemployment rate was 5.8%, the lowest since March of 2020. Yet approximately 9.3 million remain unemployed.
Dad, you would find this hard to believe but the 10-year Treasury recently posted an average rate of 1.46%, with the Fed Funds target rate still at 0.00-0.25%. In addition, the federal government stepped in and replaced the wages of millions of newly out-of-work Americans.
In the aggregate, benefit checks made up for all the lost paychecks and then some, although the creaky systems for delivering unemployment insurance or one-time stimulus payments meant that many people missed out.
The scale of this innovation is what Jan Hatzius, chief economist at Goldman Sachs, has called “the most amazing statistic of this entire period.”
In the second quarter of 2020, a time when economic activity as measured by GDP was shrinking at the fastest pace on record, household income went up.
However, the concern of the day is inflation. The Street’s prognosticators raised their estimates for the consumer price index and for the personal consumption expenditures index for every quarter through the first half of next year, according to the latest monthly survey by Bloomberg.
Jerome Powell still believes the current inflation numbers are transitory. And yes, I also believe they are. Nonetheless, the financial markets are increasingly jittery over the question.
The CPI is now forecast to remain above 3% through March 2022, peaking at a 4.3% year-over-year gain in the current quarter, according to the median forecast in a June 4-9 survey of 77 economists. More recent data showed the gauge rose more than expected for a third straight month.
The PCE price index is expected to rise 3.5% in the April to June period, up from the 3% estimate in the May survey and well above the Fed’s 2% goal.
Nonetheless, the forecast for economic growth for the remaining part of this year is optimistic. Some believe GDP could grow by as much as 10%. As for the stock market, its volatility is unlike anything I can recall during my 50-plus years on the Street. And the future … who knows.
Well Dad, that is all for now. I continue to follow in your footsteps by teaching and writing newspaper columns with the hope that my words may one day, and in some way enhance, the investment life of others.
Your loving son.
Note to readers: Many of you ask how I have come to write a column dedicated to my dad every Father’s Day. The idea was derived many years ago from watching Alan Alda as Hawkeye Pierce in the TV series “MASH” as he wrote symbolic letters to his dad about the war in Korea.
This column and the “Toys for Tots” column I write each year are, based on reader input, my two most popular ongoing columns in my 33 years of writing Streetwise.
You can write to Lauren Rudd at [email protected] or call him at 941-706-3449. For back columns go to RuddInternational.com.