ADP revealed a ‘slowdown’ in job creation: 145k vs. the expected 210k new jobs in March. Coupled with the slowdown in the JOLTS report, and coupled with weaker manufacturing PMIs, that is pointing to a slowing economy with still stubbornly high inflation. And THAT is suggesting that we are moving into the next phase of the economic cycle – Stagflation, writes Kenny Polcari, managing partner at Kace Captial Advisors LLC.
For those of you who are unaware or were not alive during the last bout of stagflation in the last century (mid to late 70’s), let me enlighten you…It ain’t pretty. Stagflation is the combination of slow growth, high prices, and high unemployment. Let me repeat that. Slow Growth, High Prices (inflation), and High Unemployment.
In other words, we have now gone from “bad news is good news” to “bad news may in fact be bad news.” We have gone from being preoccupied about another banking crisis to focusing on the risk of recession (which is what we should always have been focused on frankly).
What did everyone really think was going to happen after 13 years of stimulation and zero interest rates? I said this before and I’ll say it again: It took us 13 years to get here and anyone who thinks we are getting out of this in 12 – 16 months needs to go back to school and study Econ 101, 201 and 301. Then let’s have a conversation.
The concern over the economy is causing Treasury prices to rise (and yields to fall) as investors move into the ‘safety trade.’ Many asset managers are now telling clients that with a slowdown more likely, investors need to consider opportunities in the bond market.
I would say the slowdown was ALWAYS likely. Bonds have been telling you that for more than a year now. The Fed has made it abundantly clear that a slowdown was always the goal. The only question was “How bad is it going to be?” I was never in the “soft” camp. In fact, I kept screaming about how using “soft” and “landing” in the same sentence was a mistake.
So now, it’s about building a portfolio that can weather the storm. And that means pulling in on some risk and moving into the big, boring, but beautiful names that will provide shelter in the storm. They pay good divvy’s and they give you exposure to the equity markets. Think utilities, healthcare, and consumer staples.
