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The growth outlook for the fourth quarter is opaque, because there is no way to determine when supply chain disruptions will begin to unwind. A reluctant recognition of higher inflation by the Federal Reserve is developing, as supply chain bottlenecks are holding up inflation longer than previously thought. There are currently 72 container ships off the port of Los Angeles which cannot deliver some 550,000 containers coming from Asia. This is due to a lack of investment in US ports over the past 10 years, as well as a shortage of qualified truckers, and may continue into 2022.. Consumers have been warned that Christmas shopping may be severely impaired by empty shelves this year.

Complicating...
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The US savings rate is very elevated at 13.6%, compared with a pre-Covid average of 6% since 2000. Americans have been saving during the pandemic at an unprecedented rate; as the pandemic abates, they will begin spending with pent up demand. This, combined with a rapidly recovering economy, an unprecedented increase in money supply, a Federal Reserve which seems committed to unlimited economic stimulus, ever expanding fiscal stimulus from the government, and a new sense of optimism about a successful vaccination program are keeping spirits high in the stock market.

The Fed has repeatedly committed to keeping the overnight Fed funds rate low, and there has been an unprecedented increase in the...

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One year ago, GDP growth was expected to be 4.8%. Instead, it’s now projected for 2020 at -4%, the largest drop in modern history. Simultaneously, world stock markets increased in value from $80 trillion to $100 trillion even as S&P earnings per share dropped by 15% last year.

This strange stock market behavior can be explained by the sheer size of the stimulus thrown at the Covid-19 crisis. Essentially, the Fed threw $4.5 trillion at the $300 billion problem of lost Covid-19 wages. The enormity of this government stimulus overcame any economic downturn, uncertainty, or political tension. Another $1.9 trillion of stimulus was announced last week by president elect Biden. Two other facto...

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