For our clients who read our monthly letters, the news and the improving markets are no surprise.

We believe and have explained that recessions, pandemics, and bear markets are like morning sickness. Along with tax reductions, any of these events eventually give birth to new bull markets. The driving issue is that businesses must become more efficient and innovative to survive these issues. The changes not only help businesses to survive but set up the recovery, and the new bull market. In the current case we had multiple issues in the past few years and so we conclude that major changes and a major bull market is probably in order.

It was not a surprise to us that productivity in the fourth quarter at 3% was the best in a year. It was also significantly higher than the previous quarter’s 1.4%. Add that to the decline of 0.1% in inflation in December, and we have great news on the inflation front without a recession. Even better news when you look at the unemployment numbers. Record low numbers in spite of the layoffs by the big tech companies. And a turnaround in inflation without unemployment.

Next week we get January inflation numbers. Hopefully they will be good enough for the FED to understand what many economists already believe. Milton Friedman’s “Inflation is always and everywhere a monetary phenomenon.” The great success the FED has had was caused by their action to sell bonds from their portfolio and remove the cash from circulation. Unemployment is not useful or necessary.

It sure looks as if innovation and efficiencies have worked again.

Katz Family Financial