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My Gut Feeling For Today, June 8, 2022:  Economic Dysfunction

My Gut Feeling For Today, June 8, 2022: Economic Dysfunction

June 08, 2022

Economic and finance are behavioral sciences, which rely on quantitative analysis as a basis of forming opinions. In the current economic environment, there appears to be ignorance which drives dysfunctional behavior. Let me lay out a few examples.

It would be hard to argue that inflation is not the number one nemesis of our current economic woes here in the United States. Rather than tackle the causes of inflation and take action to subdue pricing pressures, we are being told to accept higher prices as a means to an end. Apparently that end is a long-term goal of renewable energy. While that is an admirable goal, it is wrecking the economy right now and will do so for some time, if corrective action is not taken for energy prices.

"And when it comes to the gas prices, we're going through an incredible transition that is taking place that, God willing, when it's over, we'll be stronger and the world will be stronger and less reliant on fossil fuels when this is over," said Joe Biden per Newsweek on May 24. When that objective will be met is open-ended. In the meantime, the price of regular grade gasoline has surged from $2.285/gallon when Biden took office to $4.70/gallon last.

The current administration is using a modest means to lower prices; release of the Strategic Petroleum Reserve (SPR), without a quantifiable benefit to consumers. Those high gasoline prices are forcing consumers to decide whether to sacrifice eating versus filling up one’s gas tank. Of course, food prices are also on the rise, so the economic decision is a type of Hobson’s Choice.

However, the President is not the only decision maker to suffer from economic dysfunction. Secretary of the Treasury Janet Yellen admitted last week that she was wrong on the path of inflation, expecting a normalization to have already taken place. Energy Secretary Jennifer Granholm appears to be jocular when asked about rising energy prices. Transportation Secretary Pete Buttigieg is pointing the problem at oil companies for not increasing production. Well, it's hard to do so as building of pipelines was halted on Day 1 of the Biden Administration and more recently, drilling leases were cancelled. Buttigieg is also clueless on the impact of record diesel prices on the transportation of goods across the country.

Despite all that dysfunction, it does appear that inflationary pressures may be peaking for products other than food and gas. The reason for that is slowly supply chains are beginning to open up and products are getting unloaded from cargo ships. Inventories in retail stores are slowly going from scarcity to glut and, except for baby formula, may be normalized by the fall.

If that is indeed the case, then we just might escape from the clutches of a full-blown national recession. I believe so far, we have not been in a nationwide recession, although some regions of the country may be experiencing a mild recession.

That of course brings us to the Masters of Dysfunction, the Federal Reserve Open Market Committee (FOMC). The FOMC’s obsession with tightening monetary policy may in and of itself push us into a recession. The FOMC will overshoot interest rate hikes and find itself in a position of having to reverse course if monetary policy slows down economic behavior too much. The American Consumer is resilient. If the FOMC does not damage the consumers’ psyche, we will skirt a nationwide recession.

Let me throw out a stock that just might be recession proof. One stock that comes to mind when we are talking about energy and infrastructure is Marathon Petroleum (MPC). I have held that stock in the Dividend and Energy Portfolios for a lengthy period. While It is tempting to take some profits in MPC, I am not inclined to liquidate our full positions as my price target is higher.




Disclosure: At the time of this commentary Scott Rothbort, his family and/or clients of LakeView Asset Management, LLC was long MPC -  although positions can change at any time.
Scott Rothbort is the President & Founder of LakeView Asset Management, LLC, (LVAM) an investment advisor representative, specializing in high net worth private wealth management. LVAM is affiliated with Kingswood Wealth Advisors Services, a registered investment advisor. For more information on investing with LakeView Asset Management, LLC call us at 888-9LAKEVIEW or request more information by clicking on the contact button on the top right-hand corner of the website. LakeView Management, LLC is a Nevada LLC, with its principal office located in Henderson, NV and branch office located in Millburn, NJ

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