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Pandemic policy changes have left us with skewed data figures

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By Michael O’Connor

They say history doesn’t repeat itself, but it often rhymes - at this point however, even the rhyming has stopped.

The pandemic policy changes have left us with skewed data figures, manipulated comp stats and a remarkably unfamiliar backdrop resulting in immeasurable uncertainty amongst investors across the globe.

During times like this, it is best to break complex problems down to their simplest forms and concentrate solely on the most crucial variables.

And the most crucial variables in this case are inflation and Fed policy.

An infinite number of potential outcomes are possible over the coming months, but all will be derived based on the aggressiveness of future Fed adjustments and the persistence of inflation.

There will always be risk

There is no perfect scenario here. The inflation we are experiencing is the by-product of an overheating economy.

The cumulative net worth of US Households is now almost $150 Trillion, $80 Trillion more than it was 10 years ago. The US labour market currently boasts two jobs for every one person looking for work, and corporate earnings jumped 35% in 2021, the largest increase since 1950.

Simply put, there is more money in the system than ever before.

The supply side issues have been well documented, but if inflation is to be quelled, then the demand side of the equation needs to be solved.

This is where the Fed’s tightening cycle comes in.

The Fed cannot improve supply issues, but they can negatively impact demand by dampening the labour market and decreasing the amount of capital in the systems through higher interest rates.

This tighter monetary policy is expected to bring inflation under control, but as the Fed increases the speed of rate hikes, the odds of economic contraction also increase.

In short, the goldilocks scenario of a gradual decline in inflation while maintaining labour market strength, household wealth and corporate profits, remains a pipe dream.

To strip inflation out of the system, a period of economic contraction is a necessary evil.

Crucially, this contraction does not need to lead to a crippling recession or anything of the sort. The level of contraction we experience will depend solely on the Fed’s ability to strike a balance between cooling inflation and maintaining demand.

Only time will tell if they can successfully thread the needle.

Jumping back in

Before declaring an all-clear for stocks, investors need to believe we are at the peak of policy tightening and inflationary pressure.

Certainly, we are seeing signs of improvement from an inflationary standpoint. For example, wheat prices are now lower than at the beginning of the war in Ukraine - another showcase of the unpredictability of markets.

With that said, one crucial paradox remains. Investors want interest rates to fall so stocks can rise, but any fall in interest rates is unlikely if stocks rally, somewhat capping the recent upside.

Make a plan

As always, I encourage a long-term focus. Investors will be better served focusing on the bull market opportunity on the other side rather than overemphasising what may be left in the bear market.

Those looking to take advantage of any potential upside need to get their house in order. You need to take the time to develop a clear picture of what your allocation will look like, create a watchlist of preferred names and know your entry points.

Scrambling together a plan after the fact is a sure-fire way to ensure you miss the very opportunity you were trying to capture.

Learn more at

https://www.theislandinvestor.com/

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Black Valley broadband installation gets underway

Works are under way to install a high-speed fibre broadband network in the remote Black Valley area of Kerry. The Black Valley was one of the last areas of Ireland […]

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Works are under way to install a high-speed fibre broadband network in the remote Black Valley area of Kerry.

The Black Valley was one of the last areas of Ireland to be electrified but broadband in the region is expected to be live in the second half of the year with residents already able to pre-order their connection. 
“It is well known that Black Valley was one of the last locations to get electricity due to its remoteness and challenging terrain, so we are extremely pleased to be commencing the rollout of our high-speed fibre network now with a view to connections being available later this year,” said National Broadband Ireland Deployment CEO, TJ Malone.
  
“We are determined to ensure the rollout is as fast as possible and connection is made easy for Black Valley residents, and we have a plan in place to work around the location’s all-important tourist season.

“Black Valley is a symbol of NBI’s mission that no area will be left behind no matter how rural or remote and we are delighted that this beautiful location moves one step closer to high-speed fibre today, with all the opportunities that will unlock for the local community.” 

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Players of the year don’t duck a challenge

They never duck when faced with a big challenge on the field so it was safe to assume that GAA players of the year David Clifford and Louise Ní Mhuircheartaigh […]

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They never duck when faced with a big challenge on the field so it was safe to assume that GAA players of the year David Clifford and Louise Ní Mhuircheartaigh weren’t going to shy away from the latest task on their home patch.

The two top footballers in the country teamed up to launch a charity duck race which will form part of this year’s St Patrick’s Festival in Killarney, where they both live.

When the working day was done, busy secondary school teachers David and Louise had some great quack and they got caught up in the spirit of the occasion along the scenic River Deenagh in Killarney National Park.

The reigning Player of the Year and Ladies Player of the Year award winner demonstrated their competitive streak when they expressed confidence that their own ducks will win The Deenagh Duck Dash on the same river at noon on Monday, March 18.

But, luckily, festival chairman Jason Clifford was there to keep the peace and he even threatened to cry fowl and brandish a card at the star players – with duck yellow deemed the most appropriate colour.

Considered by many to be the greatest players of all time in their respective codes, between them, Fossa hotshot David and Corca Dhuibhne star Louise have an incredible nine All-Star awards.

But they might be tempted to swap one if their duck wins the fun-filled race on the day after St Patrick’s Day.

All proceeds from the event will go to St Francis Special School in Beaufort, Killarney which provides specialist education for young people with learning disabilities.
Festival chairman Jason remarked: “This isn’t just a race – it’s great fun for the whole family.
“Picture the scene with a flotilla of vibrant rubber ducks racing down a winding river, their owners cheering them on and all in the name of a fantastic cause”.
Super prizes await the winners, the cost of a rubber duck to participate in the race is just €5 and they can be bought online at https://stpatricksfestivalkillarney.ie/.

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