The Atlanta Fed’s GDPNow estimate of 3.6% real GDP for Q3, down from 3.7% a week earlier provides the Fed with the narrative necessary to not taper MBS asset purchases (currently approximately $40 billion per month), nor Treasury purchases (approximately $80 billion per month). Investors ought to stick to quality names.
In the face of this muted real GDP growth (which we question, real GDP could very well be zero or negative), the Fed will continue to grow its balance sheet via QE and in support of forthcoming fiscal spending ($2.5-3.5 Trillion prospective spending plan before Congress). Thus, the money supply will continue to grow absent increases in productivity which means asset prices will continue to climb even as the economy shrinks, i.e. Stagflation.
This game only works given the U.S. reserve currency status. We would invest in high-quality companies led by high-quality management teams capable of growing recurring revenues and profits while passing a portion of cash flow returns on to shareholders in the form of a dividend. Our approach does not change regardless of the macro economic backdrop. We would be weary of companies and management teams whose only public company experience has been this most recent Fed-blown bubble.
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