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Monday, July 18, 2022
So there I am drinking a cold brew on Saturday morning and one of our producers shoots over a story in which millennials are blamed for runaway inflation.
As a proud millennial, this rubbed me the wrong way.
The basic gist of the argument goes as follows: There are a lot of millennials, these folks aged into prime consumption age during the pandemic, and part of this spending is pushing prices higher.
More spending, too few goods, up goes inflation… or so suggested my Econ 101 textbooks.
Of course, Twitter is having a field day with the guy’s comments.
I am familiar with the investor who made the statements — Bill Smead of Smead Capital Management, which counts $4.3 billion in assets under management. Bill is a colorful quote, most often cited for his expertise on Warren Buffett’s Berkshire Hathaway, and so I can’t I am surprised by his latest offering.
But these comments quickly had me feeling an urge to rattle off a few things Boomers, millennials, and everyone else ought to consider when blaming one generation for our current economic predicament:
Boomers like Smead are running the Federal Reserve, which has been embarrassingly slow to address red-hot inflation.
Boomers are in control of the Chinese government, which is running a zero COVID strategy that is upending the functioning of key supply chains. In turn, inflation is raging as Boomers, millennials, Gen Xers, and Gen Zers are buying goods that are scarce in numbers.
Most of the largest companies in the world are run by Boomers. And these are the Boomers that for decades have under-invested in U.S. supply chains in order to cut costs and deliver an earnings number to Wall Street (and all its rain-making Boomers). In turn, the economy has become ill-prepared to handle shocks like the COVID-19 pandemic.
Wealthy Boomers arguably benefitted from the pandemic through their outsized ownership of stocks. The wealthiest 10% of Americans own more than 90% of U.S. stocks held by households. Markets ripped higher from the COVID lows in March 2020, driving more wealth to Boomer households and maintaining their standard of living. millennial households had to shoulder the burden of a rapid shift to work from home life — and all the known and unknown costs related to it — or job losses that zapped purchasing power.
The average millennial is sitting on $40,000 in student debt on average, according to Experian. So you mean to tell these are the consumers that have been out there consuming goods and services willy nilly in the past two years as they struggle to pay that debt and deal with higher costs of everything during of a pandemic? Come on man.
I left out ten more bullets because that cold brew put me in a great mood.
But bottom line: there is all sorts of blame to go around for the current inflation situation. The world was hit with a historic shock no one — Boomers, millennials, or otherwise — has endured before. And when something like that happens, an array of skeletons in an economy’s closet will be exposed.
But ultimately, debating who deserves the most blame for inflation — Boomers or millennials — is a complete waste of time.
The reality is that inflation not only continues to run alarmingly close to 10% — or mid-teens percentages if you are a food company in PepsiCo or Conagra — but it’s still surprising markets to the upside.
As long as that continues, inflation will hang over one’s investing life.
And that means a more aggressive Federal Reserve, subsequent lower future returns on stocks, and greater difficulty for investors in finding winning investments.
Indeed that is a backdrop unfriendly for both Boomers… and millennials.
We’re all in this together, folks.
What to Watch Today
10:00 a.m. ET: NAHB Housing Market Index, July (65 expected, 67 during prior month)
4:00 p.m. ET: Net Long-Term TIC Outflows, May ($87.7 billion during prior month)
4:00 p.m. ET: Total Net TIC Outflows, May (1.3 billion during prior month)
Bank of America (BAC) is expected to report adjusted earnings of 75 cents per share on revenue of $22.86 billion
Goldman Sachs (GS) is expected to report adjusted earnings of $6.65 per share on revenue of $10.67 billion
Charles Schwab (SCHW) is expected to report adjusted earnings of 90 cents per share on revenue of $5.03 billion
Synchrony Financial (SYF) is expected to report adjusted earnings of $1.45 per share on revenue of $2.77 billion
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