{"id":10074,"date":"2021-12-28T18:05:56","date_gmt":"2021-12-28T18:05:56","guid":{"rendered":"https:\/\/zackspcg.com\/blog\/?p=10074"},"modified":"2022-02-26T13:05:37","modified_gmt":"2022-02-26T13:05:37","slug":"are-we-returning-to-1970s-style-inflation","status":"publish","type":"post","link":"https:\/\/zacksim.com\/blog\/are-we-returning-to-1970s-style-inflation\/","title":{"rendered":"Are We Returning to 1970s-Style Inflation?"},"content":{"rendered":"\n<p class=\"wp-block-paragraph\">In 2004, <em>The Economist <\/em>ran a feature on global inflation, and on the cover of the magazine they posed the question: \u201cBack to the 1970s?\u201d Readers today know the U.S.<sup>1<\/sup> and developed world economy did not enter a period of 1970s-style inflation in the early 2000s, and in fact the U.S. was on the verge of a decade-plus run of below-average inflation. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Fast forward to today, and many are again asking the\nquestion if we\u2019re heading for 1970s-style inflation, and at worst, a period of\nstagflation.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">These gloomy comparisons happen a lot. I\u2019ve been in the\ninvestment business for a long time, and I can assure readers that any time the\nU.S. economy has experienced above-consensus inflation for a period, the\ncomparisons to the 1970s start coming out. Admittedly, 2021 has some interesting\nparallels to the 1970s \u2013 the U.S. just ended a long and troubling war (Afghanistan\nversus Vietnam), there is a semblance of a cold war (Soviet Union versus China\nand Russia), and labor shortages\/supply chain issues have created some problems\n(some readers may remember the 1970s for its shortages).<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">__________________________________________________________________________<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2021_12_27&amp;content=stock_market_outlook_report\">Preparing for Your Long-Term Investment Goals for 2022!<\/a><\/strong><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">It\u2019s evident that the market is constantly changing \u2013 with worries still surrounding Covid-19, labor shortage, and inflation fears. While there may be a lot of economic uncertainty and many unknowns, this does not mean you cannot go into 2022 with a strong plan for your investments. The key is to stay focused on hard data and economic indicators to help guide your investments in the New Year.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">To help you do this, I am offering all readers\nour just-released Stock Market Outlook report. This report contains some of our\nkey forecasts to consider such as:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><em>Zacks rank S&amp;P 500 sector picks<\/em><\/li><li><em>Zacks view on equity markets<\/em><\/li><li><em>What produces optimism in 2022?<\/em><\/li><li><em>Zacks forecasts for the remainder of the year and the New Year<\/em><\/li><li><em>Zacks ranks industry tables<\/em><\/li><li><em>Sell-side and buy-side consensus<\/em><\/li><li><em>And much more<\/em><\/li><\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">If you have $500,000 or more to invest and want to learn more about these forecasts, click on the link below to get your free report today!\u00a0<br> <strong><br>IT\u2019S FREE.\u00a0<a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2021_12_27&amp;content=stock_market_outlook_report\">Download the Just-Released January 2022 Stock Market Outlook<\/a><sup><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2021_12_27&amp;content=stock_market_outlook_report\">2<\/a><\/sup><\/strong><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">__________________________________________________________________________<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">A return to 1970s-style inflation does not necessarily make\nfor great holiday reading. But not to worry \u2013 below I offer two key reasons\n2021\/22 should not encounter the same long-term inflation problems seen during\nthe 1970s. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The first reason is oil. A key driver of inflation in the\n70\u2019s was the wild surge of oil prices, from $2 a barrel to $32 a barrel over\nthe course of the decade. That\u2019s a 16-fold increase, which in today\u2019s terms,\nwould mean oil skyrocketing from the comfortable $40 to $60 range (for\nargument\u2019s sake) to at least $640 a barrel. This is unlikely. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Since the 1970s, there have been \u2018supply shock prevention\nmeasures\u2019 put in place that arguably would not allow such a massive increase\nover a short period of time. OPEC is one of them, and there has also been a\nshale boom here in the U.S. that has vaulted us to being the world\u2019s top\nproducer. Oil prices remain volatile, of course, but compared to the 1970s\nprices should largely be viewed as stable. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Consumers are also in a better position today to weather\nslightly higher prices. Wages are on the rise, there are more available jobs\nthan there are people looking for work, and we spend less overall on energy \u2013\nin the 1970s, for instance, gasoline made up 6% of spending, compared to 2%\ntoday.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The second key reason is the supply side of the equation.\nThe 1970s was known for supply constraints, which gave rise to demand \u201cchasing\ntoo few goods.\u201d A lot has changed since then. One of the biggest factors is a\nsurge in global trade, particularly as China has become the biggest export\neconomy in the world. Supply of goods has not been a problem since, except for\nin the current moment driven by the Covid-19 pandemic. The argument for a\nreturn to 1970s inflation implies that current supply issues are set to become\npermanent or semi-permanent, which I do not believe to be the case. Today\u2019s\nsupply chain bottlenecks are not a result of a global economy unwinding, but\nrather a product of rolling economic closures and restrictions being met with a\ndrastic shift in demand for goods (versus services). It\u2019s only a matter of\ntime, in my view, before these issues are resolved and price pressures ease. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Finally, there is the question of stagflation. For readers\nwho are not familiar, stagflation refers to the economic condition of high\ninflation and low or negative growth. When inflation runs higher than growth,\nthe \u2018real\u2019 growth rate of the economy turns negative, which of course is a bad\noutcome. But I think these worries focus too much on a small data set (2021\u2019s summer\nmonths), and are not taking into account the possibility \u2013 or in my view, the\nlikelihood \u2013 that the global economy will continue to press ahead with growth\nwhile inflation wanes over time. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>Bottom Line for\nInvestors <\/strong><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Any time economic conditions are flashing warnings signals \u2013\nhigh inflation, low wage growth, weak jobs markets, etc. \u2013 the comparisons to\ndarker economic times tend to emerge in full force. Higher- and\nlonger-than-expected inflation today is drawing comparisons to the 1970s, when\ninflation was rampant, and the Federal Reserve drastically engaged in a\nmonetary tightening cycle that culminated in a 20% fed funds rate. Oil prices\nrose 16-fold, and supply constraints abound. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">We\u2019re not seeing these types of outcomes today \u2013 the jobs\nmarket is very tight, wages are rising, prices are rising but largely in\nresponse to too much demand bumping up against temporary supply chain issues.\nThe Federal Reserve may raise the fed funds rate in 2022, but basically off the\nzero bound (not up to 20%). Point is, comparisons to times like the 1970s tend\nto garner a lot of attention and media buzz, but the economic conditions and\nfundamentals simply don\u2019t line up. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">So instead of listening to the media buzz, I recommend focusing on the fundamentals are saying. To help you do this, I am offering all readers our <strong><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2021_12_27&amp;content=stock_market_outlook_report\">Just-Released January 2022 Stock Market Outlook Report.<\/a><\/strong><br> \u00a0<br>This Special Report is packed with newly revised predictions to consider for 2022 that can help you base your next investment move on hard data. For example, you&#8217;ll discover Zacks\u2019 view on:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><em>Zacks rank S&amp;P 500 sector picks<\/em><\/li><li><em>Zacks view on equity markets<\/em><\/li><li><em>What produces optimism in 2022?<\/em><\/li><li><em>Zacks forecasts for the remainder of the year and the New Year<\/em><\/li><li><em>Zacks ranks industry tables<\/em><\/li><li><em>Sell-side and buy-side consensus<\/em><\/li><li><em>And much more<\/em><\/li><\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">If you have $500,000 or more to invest and want to learn more about these forecasts, click on the link below to get your free report today!\u00a0<br><\/p>\n","protected":false},"excerpt":{"rendered":"<p>As the inflation rate rises, comparisons to the &#8217;70s and &#8216;stagflation&#8217; are emerging. Mitch offers his expert view. <\/p>\n","protected":false},"author":3,"featured_media":8874,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[63,71],"tags":[],"class_list":["post-10074","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-mitch-on-the-markets","category-private-client-group"],"acf":[],"_links":{"self":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/10074","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/comments?post=10074"}],"version-history":[{"count":1,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/10074\/revisions"}],"predecessor-version":[{"id":10231,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/10074\/revisions\/10231"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/media?parent=10074"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/categories?post=10074"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/tags?post=10074"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}