Folks, we talked a little yesterday about Growthflation—this once-in-a-lifetime global growth story that’s coupled with inflationary pressure on the demand side—and I wanted to pick up on that more today. I believe that if we tune out the day-to-day noise—Greece, the Fed press conference, the pullback in oil this morning—and take a macro view of the world, this is the scenario that will drive the markets higher for years to come. Let’s look at some more evidence, shall we?
Growth. Here in the U.S., we tend to be a bit myopic. We think the world ends at our shores. But for proof of a global growth story, let’s look at the World Bank’s GDP numbers in China and Brazil over the last decade (2009 was the most recent data available).
And guess who’s making money in these rapidly growing economies? U.S. multinational corporations, which are really global corporations that are U.S.-dollar denominated. A lot of those profits may not make it home due to our obscene corporate tax policy, but let’s not confuse that with lower earnings.
Inflation. John Cochrane, the brilliant University of Chicago economist, once said that when an economy that falls apart, like ours did in 2008, governments have to make a choice: either to grow, or to inflate. And because Inflation is the easier of the two paths, it’s the one they always choose. Last week’s numbers told us that the velocity of inflation had been tamed, but make no mistake: the inflation genie is absolutely out of the bottle.
The last time we saw this kind of growth simultaneous to this kind of inflationary pressure was coming out of the Great Depression. From 1932 to 1937, the Dow Jones Industrial Average (DIA) went from around 41 to over 194. I would have loved to have bought near the bottom of that market. Wouldn’t you?