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Two Smart Guys

12/11/2021

Two of my favorite investment strategists are Jeremy Siegel of Wharton and Jeff Gundlach of Doubletree.  One is an affable professor, and the other is an aggressive CEO.  They’re both brilliant.

Neither thinks the stock market is facing any imminent collapse.  Dr. Siegel thinks it is riding the huge increase in money supply.  Gundlach thinks it is riding the huge increase in debt.

Both are worried about inflation.  Siegel thinks it is a 3 to 5 year problem, while Gundlach thinks it will slow during the second half of next year.  Both think the supply chain crisis was temporarily inflationary but is already subsiding.

Gundach thinks the rate of inflation is higher than reported, because housing inflation is computed with rent instead of purchase prices.  Housing values have been increasing faster than rental payments on those houses.  Otherwise, he argues the inflation rate would be nearly twice as high.  In addition, Gundlach argues that inflation will be driven by increased labor costs, which is great for recently emboldened workers in the short run but bad for inflation in the long run.

Neither mentions “inflationary expectations”, which influences how difficult it will be increase prices.  If consumers expect lots of inflation ahead, they don’t object to each and every increase now.

I have a couple of thoughts:  First, some things cannot be unseen.  Those of us who witnessed the runaway inflation of the 1970’s and 1980’s now see a repeat behind every data point.  It is possible to have a relatively minor, brief episode of inflation.

Second, a little inflation might help correct the terrible imbalance between rich and poor, because it gives license to unions.

Third, inflation is not all bad, as it helps us deal with the national debt, which has been rising faster than national income.  If income is increased by inflation, it reduces the percentage increase in the ratio between debt and income.  Maybe, we can “inflate-away” a portion of the national debt.

Fourth, while no pundit is 100% correct nor 100% wrong, I think Gundlach’s beliefs are more correct and that a slowdown late next year will dampen inflation.  The Fed signaled last week that it is now ready to withdraw stimulus more quickly . . . good!

This too will pass!

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