Amazon breaks record highs despite Bezos flying off - Your Money July 9th 2021

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A surprise rally in bonds sparked more record highs this week right up until Thursday when investors ran for the exits. Some suggest global interest rates will need to stay lower for longer and the expected recovery could derail in the second half of this year. Others argued that inflation will in fact be transitory and as soon as it peaks, rates will trend lower, so much so, we saw another bounce today sending the S&P500 to close in record territory.

I may be the lone wolf in the wilderness because I believe inflation will not turn down as fast as some predict. I base that on the 9.2 million job openings reported this week. There is either a major structural problem with employers looking for a certain skill set and unemployed labor with a different skill set. Or we have a large segment of the labor force happy to sit at home collecting unemployment benefits that pay more than an hourly paid job. Companies are being forced to add bells and whistles, to their employees to keep them from moving to a new job or taking time off. Right now it appears the companies can pass those costs off to consumers and blame product price increases on shortages. Call me crazy but that is inflation folks.

Now to add insult to injury, we see the US administration pushing up Corporate and personal tax rates on the uber rich. That is a sure fire recipe for companies to move production offshore and or raising their prices. As for the uber rich, they will just ask for a bigger raise to offset the tax burden. No question in my mind, investors will keep a sharp eye on the US CPI data on Tuesday and Producer Prices on Wednesday. Any outlying numbers will likely cause markets to gyrate. I should also point out volumes are lighter during the summer doldrums so a lack of buyers cause markets to fall and a lack of sellers pushes markets higher. So a little more volatility all else being equal.

I forgot to mention next week Jay Powell spends Wednesday and Thursday explaining how monetary policy works and if history is any example, it will go over the heads of most of them. One just has to listen to politician after politician asking what type of government policy he thinks should be implemented.  Apparently they don’t understand his role is to provide stable prices (inflation),  and work towards full employment and a stable currency.

Speaking of Central Bankers, in Canada, we added over 230,000 jobs in June but drilling down, you will find full time jobs fell and part time jobs swelled as economies reopened and restaurants and bars reopened. We note the Calgary Stampede is also underway, so we will see if it negatively impacts covid cases over the next couple of weeks. Still when you add the employment data and another bump in crude oil prices, our Looney had a nice recovery and so did the TSX. However the biggest winners were Tech and Real Estate while the Energy sub index actually closed down this week.

However, the better jobs data will likely force the Bank of Canada to reduce money supply faster than their US and European counterparts. Our high vaccination rates coupled with falling oil supplies is providing a tail wind to our economy.

Next week, investors will be keying in on Tuesday’s Second Quarter earnings from Goldman Sachs and JP Morgan (Aritizia in Canada also reports as does Pepsi in the US.) Those numbers will be followed by Bank of America, Citigroup and Wells Fargo on Wednesday (plus Cogeco in Canada.)

Happy trading and Stay Safe out there.

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Steve Bokor

Steve Bokor

Portfolio Manager