Transcript:
Easan Arulanantham:
So, you talked about, well, you know, “the market has saw 6.8% inflation, year over year. Why is the market still going up today? You know, I know expectations were seven plus, but I don’t feel like 6.8% versus 7 is that big of a difference?”
Tom Vaughan:
Yeah, I think there’s a couple things that are going on. And there’s one basic to understand. And this would be a great thing to get your head around if you can, when you’re looking at the markets and what might happen, especially in short term moves, there’s expectation, and then there’s reality. So when you look at what’s going on, probably on average, I’d say the expectation was that we would hit 7-7.1%, right? So some of the movement that we’ve seen coming into this day, has been reflecting on this higher inflation number. And so I’d say three quarters of a percent, three quarters of the movement of stock market is looking forward, and one quarter of the move in the stock market, these are just rounding guesses. But one quarter of the move in the stock market has really to do with the reality. So expectation is 7-7.1 reality at 6.8, oh. So now we get a reset in a positive way, in this case, the stock market comes up, if we would hit 7.5. And the expectation was 7-7.1, we would have seen a negative reset, because of the reality. So there’s this expectation, and this happens to individual companies constantly, you know, certain expectation for earnings. And they either beat that or don’t beat that expectation for the guidance that they’ll have going forward. And they either beat that or don’t beat that.
And that’s the how things are kind of adjusted in reality, as far as that goes. So I think you know, there obviously isn’t a significant difference between 6.8 and 7.1. It has more to end, we’re not seeing us huge run up in the market, either. But the adjustment we’re seeing here, it has to do with the expectations versus reality. And that that goes on all the time as far as that goes. So, you know, there’s some expectation that inflation is going to continue to be quite high. Well, if it isn’t, I think we’ll see some adjustments going forward to a better stock market, if it’s worse than expected, right, just long term, not just today. Let’s talk about November of next year, right? So I think things are really interesting. So November of next year, we have a couple things going for us that could create lower inflation. Number one, we’re not comparing ourselves to November of 2020, I think that’s a really big thing to understand. The number that comes out at 6.8 is year over year, November of this year versus November of last year, think about November of last year: no vaccine, mobility data was significantly lower, and the economy wasn’t where it was now or is now because of this, you know, reopening and people starting to live with the virus. But if we talk about November of 2022 to next year versus this November, could be a completely different outlook as far as that goes.
And I would bet anything that’s one of the major drivers of inflation is the supply chain issues, those become so much less a year from now. And so that those two issues kind of a year over year comparison that is more probably accurate. You know, and then this scenario of supply chain, I think labor continues to be a problem. And that you know that we’re increasing the price of labor, right? But that’s hard to get back. But I do believe supply chain issue resolves itself. So we could see some my overall guess right now is that the outlook for inflation for 2022 is higher than we might see it. And so that would create a positive impact on that adjustment. So if inflation comes out at 3%, in November of next year, and people think it’s going to be four or something higher than that, then, you know, we would see up again, that’s an adjustment to reality. That’s what’s happening today.