THE SUMMER LETTER
I have always imagined Paradise as a kind of library.”
— Jorge Luis Borges (1899–1986)
Economic Perspective
Although we officially emerged from recession in April 2020 [sic] according to the National Bureau of Economic Research, the economic recovery only went into hyperdrive with the first widespread availability of Covid vaccines in the spring of this year. Consequently, economic activity rebounded at rates not seen in decades.
Everybody is busy. It takes weeks to get an appointment at a car repair shop. Pacific rental rates in China for US bound shipping containers soared from $2000 to $10,000. Inflation spiked. The rapid resurgence in the global, and especially US, economy highlighted supply chain bottlenecks. The supply demand imbalances have spawned sharp, but temporary inflation. Yet, millions of workers remain unemployed. Persistent inflation only comes with rises in labor rates at near full employment.
Recent bursts of inflation reflected in rising gas prices and other price spikes haunt the economy. A sustained bout of inflation would accelerate the Federal Reserve’s timetable for interest rate increases. So far, only an interest rate hike or two in 2023 remains in the forecast. Earlier action could curb economic growth or even abort the expansion.
Market Thoughts
The S&P 500 staged a dramatic advance (up 14%) in the first half of the year, driven by a wave of business re-openings across the US and abroad, release of the Pfizer and Moderna Covid-19 vaccines and sustained stimulus from the Federal Reserve. Markets remain vulnerable and volatile. The stock market alternates between bouts of confidence due to the economic reopening and panic at a possible resurgence of Covid inducing a shutting down of the economy again.
In an effort to navigate the challenging equity markets, we emphasize sectors like: consumer staples (Church & Dwight, Nestle, Unilever); travel (Boeing); pharmaceuticals (Bristol-Myers, Eli Lilly, Gilead); entertainment (Comcast, Disney, Liberty Media); selected technology (Google, Microsoft, nVidia); financials (First American Financial, Wells Fargo); and, dividend plays like Prologis (warehouses) and ONEOK (energy pipelines).
Privacy Policy
Bache Capital Management, an independent investment advisory firm, is committed to safeguarding the confidential information of its clients. We hold all personal information provided to our firm in the strictest confidence. These records include all personal information that we collect from you or receive from other firms in connection with any of the financial services provided by Bache Capital Management. We also require other firms with whom we deal to restrict the use of your information. A complete privacy statement concerning our firm’s policy is available upon request. If you did not receive and return a confirmation of this policy, please contact us.
Stephen K. Bache, CFA
Sources: Bloomberg Business Week, The Economist, New York Times, The Wall Street Journal, Mikhail Bulgakov, The Master and Margarita; 2 Samuel 18:33 (KJV)
