Bloomberg TV recently spoke with Axonic Capital Director of Research Peter Cecchini for his early take on the final quarter of 2021.
“We are at peak margins right now and I think, somewhat counterintuitively, that in fact is the problem because the room for margin expansion simply doesn’t exist in an environment that has proven to be much more inflationary than previously thought by many,” says Cecchini.
Why haven’t markets priced inflation in, even though it is well-known by most investors? Cecchini believes that just because investors are aware of it, does not mean they understand it. “I only think it has been quite recently that people have been embracing the idea that this transitory inflation narrative that the Fed must convey given its mandate is likely not going to play out the way they have been representing for so long,” he explains.
“Inflationary periods are hard to wrap one’s head around. They really don’t happen unless there are two factors present in my view,” Cecchini adds later on in the segment. “One is what I have been calling an inorganic demand impulse, usually driven by fiscal policy in the form of deficit spending, which usually leads to excessive public or private lending, which we had, and supply chain disruption. These things typically don’t happen unless there is some sort of geopolitical disruption.”