What's in a Name?
If you’ve been watching the markets over the past week, you no doubt have a case of whiplash. The big declines we saw last Friday and Monday have more than been made up for by the last four trading sessions. I mentioned last week that it’s as if investors are torn between the glowing economic data and their fears over inflation. That’s not to say every sector did well this week, but that growth took the reigns over value and positive earnings announcements buoyed investor sentiment.
While we’ve been talking about inflation for some time now, this week I heard the dreaded word “stagflation” mentioned for the first time in a very long time. Mohamed El-Erian, CEO of PIMCO and the chief economic advisor at Allianz, said that he believes stagflation represents the biggest worry for the economy. Now I’m not one to go head to head against giants, but this seems like one of the more foolish things I’ve heard in some time. The inflation we’re experiencing is a direct byproduct of the federal stimulus that has pumped trillions of dollars into the economy over the past twelve months. As part of that stimulus, huge amounts of money have been directed at individuals which has allowed for unprecedented consumption. One doesn’t have to look far to see its effects on the housing market, the automobile industry, and a host of other items both large and small. With trillions of additional stimulus coming in the form of infrastructure spending and the advanced child tax credit, it is hard to imagine a period of stagnation anytime in the near future. Not to mention the Federal Reserve can raise interest rates at any time, thereby slowing the economy and any inflationary pressure. Whether inflation is transitory or not is a fair question. Whether we’re setting up for a period of stagflation is not.
So what is driving volatility these days? Unfortunately, it is the rise in new cases of COVID and what that means for potential government mandates in the coming months. You may be surprised to learn that consumer discretionary stocks have not performed as well as might have been expected coming out of this pandemic. In large part, it is because there has always been this persistent fear of its return. Among the worst performers for the year are utilities, consumer staples, and consumer cyclicals. The best performers have been the energy, real estate, and financials. Fortunately, it doesn’t seem there’s much appetite to shut things down again. And truth be told, the virus wasn’t ever going to completely go away, see the common cold or flu for evidence. However, our ability to adapt and live with it are growing by the day. In time investors will once more focus on fundamentals and put behind us this unfortunate period of anxiety and fear. With each passing day I am more optimistic due to the improving economic data, fundamental data, and corporate guidance being released.
In company news, Tiffany and Costco have ended an eight-year ring dispute. I remember hearing this at the time and thinking it sounded odd. It seems Costco was selling “Tiffany” rings which weren’t manufactured by Tiffany. They argued the term Tiffany is so ubiquitous that it can be used to refer to any ring in the Tiffany “style.” Tiffany naturally sued on the grounds of trademark infringement and selling counterfeit rings. Unfortunately, we will never know how this might have been adjudicated because they settled out of court for undisclosed terms. But in researching this I came across other trademarks that have gone generic including, aspirin, cellophane, granola, heroin, kerosene, linoleum, and saran wrap. Some that are still active trademarks but are often used generically are alka seltzer, band aid, brillo pad, cheerios, jeep, frisbee, jello, plexiglass, thermos, laundromat, and jacuzzi among many others.
In closing, I turn to garbage. More specifically, the receptacles we throw our garbage in when we’re out and about. With incredulity, I read this week that San Francisco is replacing its public garbage cans with a new design with each can costing between $12,000-$20,000, according to the San Francisco Chronicle. The pilot calls for 15 of these newly designed trash cans to be placed throughout San Francisco this fall. The newly designed “smart” cans were designed to complement the design of the new JCDecaux public toilets located throughout the city. If the cost of the cans wasn’t enough, it seems the public works department is looking for approval for the $537,000 it cost to design the new trash cans. According to one person involved, “Our streets and our sidewalks are a mess and the cans we have out there now are actually part of the problem.” I know San Francisco has lots of issues. I didn’t think this was one of them. Now you know.
Bruce J. Mason, MBA