{"id":230941,"date":"2021-10-22T12:36:28","date_gmt":"2021-10-22T12:36:28","guid":{"rendered":"https:\/\/aptuscapitaladvisors.com\/?p=230941"},"modified":"2023-03-16T17:49:24","modified_gmt":"2023-03-16T17:49:24","slug":"what-is-stagflation","status":"publish","type":"post","link":"https:\/\/aptuscapitaladvisors.com\/what-is-stagflation\/","title":{"rendered":"What is Stagflation?"},"content":{"rendered":"

Stagflation has been a buzzword here lately \u2013 side note, I think that buzzwords are for the birds, much like this topic. I believe that today\u2019s fa\u00e7ade of stagflation will disappear shortly \u2013 some economists have been arguing that we are currently witnessing it (over the short-term), given high unemployment, current demand, and persistent inflation. I\u2019d argue against it. Let\u2019s dive in.<\/p>\n

What is Stagflation<\/em>? <\/strong><\/h5>\n

Stagflation is a difficult environment for a market to navigate \u2013 it combines three (3) market factors:<\/p>\n

    \n
  1. Stagnant consumer demand <\/em><\/li>\n
  2. Persistent inflation, and <\/em><\/li>\n
  3. Relatively high unemployment <\/em><\/li>\n<\/ol>\n

    Now, let\u2019s walk through these three components in today\u2019s context:<\/p>\n

      \n
    1. Stagnant Consumer Demand<\/u>: Simply put, I don\u2019t believe that we have stagnant consumer demand. We are in a different environment, as most potential growth problems are not demand driven, more so supply constrained \u2013 we have the latter. We don\u2019t have weak new orders, we don\u2019t have shrinking backlogs \u2013 we don\u2019t have an aggregate demand issue. We do have a pandemic, that seems to be \u201cending\u201d as it relates to the economy\u2019s ability to properly function. That pandemic is causing significant supply side disruptions, in the context of extremely strong demand. Extremely strong demand means that we are not in a stagflationary environment.<\/li>\n<\/ol>\n
        \n
      1. Persistent Inflation<\/u>: Right now, and this will be music to John Luke\u2019s ears, we do have persisting <\/em>inflation. But the big question regarding this is \u2013 how much of this continues to be COVID-related? If Delta is the last major wave that triggers restrictive economic measures (e.g. global factories and ports closing), we\u2019d finally be officially entering \u201cthe new normal\u201d (i.e. living with COVID in a post-vaccine, herd immunity, post-therapeutic world) \u2013 enhanced benefits expired, in-person schooling back, and the global leisure & hospitality open for business. Are we not heading into a world in 2022 in which labor supply loosens, factories and ports stay open, and freight logistics decongest? Are those not some of the biggest problems companies are talking about today regarding inflation?<\/li>\n<\/ol>\n
          \n
        1. Relatively High Unemployment<\/u>:<\/li>\n<\/ol>\n
            \n
          • Yes; relatively speaking, we do have a relatively high unemployment rate, but we think it is going down — and was driven by specific policies (massive fiscal stimulus, max easy monetary policy, school closures, business closures\/restrictions), in the context of a pandemic that presented inherent health concerns.<\/li>\n
          • More importantly, when people talk about relatively high unemployment in a stagflation environment — they are referring to a consumer wallet that is contracting and depressed (even though prices are rising). A toxic combination. But not the combination that exists today. The relatively high unemployment rate today is not because the consumer is struggling. We believe the relatively high unemployment rate today exists for the very opposite reason: the consumer wallet grew so substantially in 2020\/2021 \u2013 due to policies in response to COVID \u2013 that the incentive to work at pre-COVID wage levels dropped dramatically. Simply look at the JOLTS numbers.<\/li>\n
          • Furthermore, U.S. Households are very <\/em> At 20% growth over the past year, net worth is growing at its fastest pace of the post-war era. $31 trillion has been added to household net worth in the past five quarters. Consumer balance sheets are well fortified, and this might be the biggest positive going for our economy.<\/li>\n<\/ul>\n

             <\/p>\n

            Bring this all together \u2013 I do not believe that we are in a stagflationary environment. Could it be construed that we are in this environment given supply-chain issues? Absolutely. But, we have a consumer that has a fortified balance sheet, i.e., a very high net worth (Total Assets \u2013 Liabilities), coupled with substantial pent up demand. If I were a betting man (and I am \u2013 my mortal lock for next week is Florida -3.5 against LSU), I would never bet against the propensity for the consumer to spend money – I would never bet against America. Remember, consumer spending accounts for 2\/3rds of GDP \u2013 this may be the biggest positive for our economy moving forward into 2022.<\/p>\n

             <\/p>\n

            Disclosures<\/u>:<\/strong><\/p>\n

            This commentary offers generalized research, not personalized investment advice. It is for informational purposes only and does not constitute a complete description of our investment services or performance. Nothing in this commentary should be interpreted to state or imply that past results are an indication of future investment returns. All investments involve risk and unless otherwise stated, are not guaranteed. Be sure to consult with an investment & tax professional before implementing any investment strategy. Investing involves risk. Principal loss is possible.<\/p>\n

            Advisory services offered through Aptus Capital Advisors, LLC, a Registered Investment Adviser registered with the Securities and Exchange Commission. Registration does not imply a certain level or skill or training. More information about the advisor, its investment strategies and objectives, is included in the firm\u2019s Form ADV Part 2, which can be obtained, at no charge, by calling (251) 517-7198. Aptus Capital Advisors, LLC is headquartered in Fairhope, Alabama. ACA-2110-14.<\/p>\n","protected":false},"excerpt":{"rendered":"

            Stagflation has been a buzzword here lately \u2013 side note, I think that buzzwords are for the birds, much like this topic. I believe that today\u2019s fa\u00e7ade of stagflation will disappear shortly \u2013 some economists have been arguing that we are currently witnessing it (over the short-term), given high unemployment, current demand, and persistent inflation. […]<\/p>\n","protected":false},"author":11,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_et_pb_use_builder":"","_et_pb_old_content":"","_et_gb_content_width":"","content-type":"","inline_featured_image":false,"footnotes":""},"categories":[20],"tags":[],"class_list":["post-230941","post","type-post","status-publish","format-standard","hentry","category-blog"],"yoast_head":"\nWhat is Stagflation? - Aptus Capital Advisors<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/aptuscapitaladvisors.com\/what-is-stagflation\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"What is Stagflation? - Aptus Capital Advisors\" \/>\n<meta property=\"og:description\" content=\"Stagflation has been a buzzword here lately \u2013 side note, I think that buzzwords are for the birds, much like this topic. 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