New data out this week giving a fresh look at
the health of the economy,
The Fed's favorite inflation gauge,
slightly higher than expected at
2.7% annually. Month over month,
inflation remained flat at .3%.
The economy also growing much slower than expected in the
first quarter at
1.6%. That's below the 2.4%
estimate and drastically down from the fourth quarter is nearly
3 1/2 percent.
Joining me now is Invesco Global Market Strategist,
Brian Levitt. Brian, great to have you back,
Great to be here. Thank you.
So higher inflation, lower growth,
not an auspicious combo. Should we use the stagflation word?
I wouldn't call it stagflation.
So it it's certainly not stag.
This is an economy that is still doing well.
If you look beneath the surface of that GDP number,
a lot of it was imports
took away from growth and you had some slowdown business
investment,
the consumer did fine. Now Flation we could debate right
and and yeah,
the numbers are still a little bit hotter.
It's not broad, there's some components driving it and it's
a little bit higher.
But I will still come back to the fact that
good nominal growth
which of course includes inflation is not necessarily the worst
place to be for investors.
Can you just explain that dynamic briefly?
So if you if the country imports more,
that actually subtracts from the GDP.
Well, we have a, you know,
we all probably remember the first day of our economics
classes when they told us GDP equals C + I
+ G plus NX.
So that exports,
exports minus imports. So the consumer's been importing.
So it it it's a bit of a a drag
on it,
but again, the consumer's held in nicely.
It's always dangerous to cherry pick this data point and
that data point.
But I do want to cherry pick nonetheless
in the inflation print, a very large part of that
is something called owner equivalent rent,
right. Can you explain that and how that can
possibly distort inflation numbers? Yeah.
So owners equivalent rent is,
is basically what would it cost you to rent your
home?
But that's a guess. That's a guess.
Nobody's actually paying it, right.
We all have mortgages and whatever expenses and fees we
have.
So it's a guess and it tends to lag.
What's actually happening in the real world I I like
to look at Zillow will put out a number
S&P core logic. We'll put it on a number and
this is what it costs to rent home prices year
over year.
Those peaked over a year ago.
The owner's equivalent rent is peaked but remain pretty elevated.
So it's it's slow to come down and usually lags
a lot of people and myself included suspect that's what's
keeping some of the CPI services sticky.
Now investors and we in the media are guilty of
this as anybody are always looking to will the Fed
cut,
you know in May, will it be July,
will it be September And really for the longer term
investor it's not that important.
What are you watching? What are you telling investors to
be aware of.
It's not this is like the new pastime right.
We used to go to baseball games.
Now we go to parlors and debate with the feds
going to do.
You can bet on it.
Yeah. The beginning of the year the market thought six
rate cuts.
Now you're down to maybe one or two
embedded in the market's expectations.
I don't really care too much.
I'm thrilled that the tightening cycle is over.
We didn't enjoy that in
2022. I'm thrilled it's over.
the Fed will ultimately ease.
It's just a matter of when we get there.
So for the intermediate term investors,
my view has been and it's worked nicely so far.
Peak inflation which happened in June
2022, peak tightening which happened in July 23,
peak rates, all tends to be good for the stock
market over the subsequent years,
doesn't mean every day, but over the subsequent years.
And so far that's been playing out quite nicely.
One more investing question for you.
So we've long said on this show that one should
separate
political beliefs from your investments,
right? Political is very emotional.
That's not the way to treat investments.
But you actually put a chart and numbers on this
and I was actually blown away.
I mean I agreed with you.
I didn't know how much I yeah,
the magnitude of it's pretty significant that down for us.
So the magnitude of it is significant.
What I did was I found an index that goes
back as far as I can.
That's the Dow Jones Industrial Average price,
not total return back to
1896, I believe. I believe Grover Cleveland was president.
I say you put $10,000 and you hold it for
the whole time it climbs to over 10 million.
Then I said what if I came out of the
market and went to cash every time a Democrat was
in office or every time a Republican was in office?
And your results are your 10,000 climbs to a few
100,000. Wow. Right. So much further below the the 10
million.
And you think about it.
If you didn't invest when the Democrat was in office,
you missed 90s under Clinton.
You missed the 20 tens under Obama.
If you didn't invest when a Republican was in office,
you missed the 80s during rate.
You missed those times. It significantly impacts your portfolio.
Vote your conscience. Stay in the market the whole time.
Exactly. Brian Levitt, thanks so much for coming back.
Good luck to the Rangers.
Good luck for the Rangers.
Thank you.