1: The recent spike in inflation is pushing real yields on US Treasuries (first chart) and corporate earnings (second and third charts) deep into negative territory. Negative real yields is an unattractive characteristic for an investment because it signifies that inflation is eating away nominal returns.
The million dollar question is when will inflation return to normal?
Real yields will creep back up if and when inflation returns to normal. Unfortunately, getting back to normal doesn’t appear to be a simple (or painless) process. Today’s unique inflation challenge is the perfect storm of a) soaring demand (fourth chart), b) supply constraints, c) shortages and d) expansionary fiscal and monetary policy.
Source: Bridgewater
2: Inflation is an illusive concept until it isn’t. Housing and car prices are up, but these are occasional purchases that most people can defer. For most people, inflation becomes palpable - and fearsome - when they see food prices rising in the double-digits.
3: COP26 is over but the job is far from done. The world remains well above its greenhouse gas emissions target to limit warming to 1.5 degrees Celsius. (Remember, we’re already at about 1.1 or 1.2 degrees.)
Love your commentary, I have to say. That chart with real free cash flow. Could you explain exactly what you mean by cash flow as it pertains to tech stocks? Also, interesting that the last time this metric was negative was in 1999 and early 2000.