An Update from Our CIOs: What Was Coming Is Now Upon Us (notes:)New to us: a situation of high nomi

May 24, 2022
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An Update from Our CIOs: What Was Coming Is Now Upon Us

(notes:)

New to us: a situation of high nominal growth. Nominal growth = real growth + inflation. Stagflation = the high nominal growth is absorbed by higher prices but output (production) doesn't keep up (low real growth).

Labor productivity has been positive so far (output rose), but nominal spending was far greater.

A reduction in nominal spending is the only viable solution, because it looks like productivity can't be raised much. Economies are approaching capacity constraints. Note: a simple raise in rates isn't necessarily 'tightening' unless it is relative to what is discounted and relative to economic conditions. Note: short-term interest rates.

Inflation is increasingly entrenched and supplies and inventories are low.

Stocks: Companies that are most liquidity-sensitive and longer-duration cash flow, have seen the biggest value effect.

War in Ukraine: big effect on commodities (R a supplier). Normal short-term flight to quality (weeks or a month) and afterwards unfolding macro pressures typically dominate.

Expect reinforced capex cycle (surge in demand). Lingering bottlenecks. Capexs to boost efficiency. Particularly industrials and materials (companies reshoring to US from Asia due to supplychain disruptions). Automation. Software and info processing equipment over past couple years.

Governments' choice: tighten to control inflation and face a potential economic downturn, or don't tighten and allow inflation.

Household balance sheets stronger (than 2018). Lots of cash in bank, appreciated home values and stocks. Poor people wealthier than past 60 years.

Banks are very liquid. Money printing found its home there. Reallocating into loans.

#Dalio
Update Post

<div><b><a target="_blank" href="https://www.bridgewater.com/an-update-from-our-cios-what-was-coming-is-now-upon-us">An Update from Our CIOs: What Was Coming Is Now Upon Us</a> </b><br></div><div><br></div><div>(notes:)<br></div><div><br></div><div>New to us: a situation of high nominal growth. Nominal growth = real growth + inflation. Stagflation = the high nominal growth is absorbed by higher prices but output (production) doesn't keep up (low real growth).</div><div><br></div><div>Labor productivity has been positive so far (output rose), but nominal spending was far greater. <br></div><div><br></div><div>A reduction in nominal spending is the only viable solution, because it looks like productivity can't be raised much. Economies are approaching capacity constraints. Note: a simple raise in rates isn't necessarily 'tightening' unless it is relative to what is discounted and relative to economic conditions. Note: short-term interest rates.<br></div><div><br></div><div>Inflation is increasingly entrenched and supplies and inventories are low.</div><div><br></div><div>Stocks: Companies that are most liquidity-sensitive and longer-duration cash flow, have seen the biggest value effect.</div><div><br></div><div>War in Ukraine: big effect on commodities (R a supplier). Normal short-term flight to quality (weeks or a month) and afterwards unfolding macro pressures typically dominate. <br></div><div><br></div><div>Expect reinforced capex cycle (surge in demand). Lingering bottlenecks. Capexs to boost efficiency. Particularly industrials and materials (companies reshoring to US from Asia due to supplychain disruptions). Automation. Software and info processing equipment over past couple years.<br></div><div><br></div><div>Governments' choice: tighten to control inflation and face a potential economic downturn, or don't tighten and allow inflation.</div><div><br></div><div>Household balance sheets stronger (than 2018). Lots of cash in bank, appreciated home values and stocks. Poor people wealthier than past 60 years. <br></div><div><br></div><div>Banks are very liquid. Money printing found its home there. Reallocating into loans. <br></div><div><br></div><div><a href="http://landandseajournal.com/post/hashtag/Dalio"><a href="http://landandseajournal.com/post/hashtag/Dalio">#Dalio</a></a><br></div>
An Update from Our CIOs: What Was Coming Is Now Upon Us

(notes:)

New to us: a situation of high nominal growth. Nominal growth = real growth + inflation. Stagflation = the high nominal growth is absorbed by higher prices but output (production) doesn't keep up (low real growth).

Labor productivity has been positive so far (output rose), but nominal spending was far greater.

A reduction in nominal spending is the only viable solution, because it looks like productivity can't be raised much. Economies are approaching capacity constraints. Note: a simple raise in rates isn't necessarily 'tightening' unless it is relative to what is discounted and relative to economic conditions. Note: short-term interest rates.

Inflation is increasingly entrenched and supplies and inventories are low.

Stocks: Companies that are most liquidity-sensitive and longer-duration cash flow, have seen the biggest value effect.

War in Ukraine: big effect on commodities (R a supplier). Normal short-term flight to quality (weeks or a month) and afterwards unfolding macro pressures typically dominate.

Expect reinforced capex cycle (surge in demand). Lingering bottlenecks. Capexs to boost efficiency. Particularly industrials and materials (companies reshoring to US from Asia due to supplychain disruptions). Automation. Software and info processing equipment over past couple years.

Governments' choice: tighten to control inflation and face a potential economic downturn, or don't tighten and allow inflation.

Household balance sheets stronger (than 2018). Lots of cash in bank, appreciated home values and stocks. Poor people wealthier than past 60 years.

Banks are very liquid. Money printing found its home there. Reallocating into loans.

#Dalio

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