Updated: Jun 24, 2022
Inflation havoc sores the investor's sentiments.
Headlines building the case for Bear Market
Tesla CEO Elon Musk says he has a “super bad feeling” about the economy and wants to cut about 10% of jobs. – Ken Martin, “Musk Says Tesla to Pause Hiring, Wants to Cut 10% of Staff: Report” www.foxbusiness.com, June 3, 2022
JP Morgan CEO Jamie Dimon warned of a coming economic “hurricane” that requires preparation. “Right now, it’s kind of sunny. Things are doing fine. Everyone thinks the Fed can handle this. That hurricane is right out there down the road coming our way. We just don’t know if it’s a minor one or a superstorm.” What is likely giving Dimon pause for concern, aside from persistent inflation, is the Fed’s quantitative tightening program. That includes interest rate hikes and a reduction of its $9 trillion balance sheet. – Matthew Fox, “Brace Yourself: Jamie Dimon Warns of a Coming Economic Hurricane.” https://finance.yahoo.com, June 1, 2022.
The U.S. economy added 390,000 jobs in May, better than expected despite fears of an economic slowdown and with a roaring pace of inflation. At the same time, the unemployment rate held at 3.6%, just above the lowest level since December 1969. Average hourly earnings increased 0.3% from April. The year-over-year increase for wages of 5.2% was in line with expectations. – Jeff Cox, “Payrolls Rose 390,000 in May, Better Than Expected,” www.cnbc.com, June 3.
It's time to think and contemplate before starting the next move. Too much to do, but not enough time.
The current inflation situation is closer to what we saw going into the 1980’s. The economic and stock market path under President Joe Biden is following a very similar pattern to that of Jimmy Carter.
It didn’t end well for Carter and it may not end well for Biden, but he still has time to turn this trend around and it really isn’t that difficult. The way to bring inflation down is simply to increase supply more than demand.
One way to decrease demand is by raising rates, which is what the Fed is doing.
One way to increase supply is to mend the broken supply chain issues and increase production, especially of the fastest rising part of the inflation index, which is energy, and today, specifically, crude oil production and distribution, which is in the purview of the administration.
Biden’s attempt at reducing inflation seems to be
releasing crude oil supplies from the nation’s Strategic Oil Reserves and
increasing the production of alternative sources of energy.
The problem with the first part is that you have to buy back the reserves at much higher prices than they were purchased, which ends up being more inflationary. The problem with the second part is that it will probably be another 5-10 years before alternative sources of energy will be abundant enough to solve the nation’s energy woes. In the meantime, increasing production and supplies is possible while at the same time also continuing to increase efforts to develop alternative sources of energy. You can do both at the same time even as you plan to make fossil fuel-based energy a thing of the past soon. Thus, the problem is not that our energy woes and inflation can’t be reversed. It is that the solution to do so has become political.
Fed has very little role to play in combating the inflation, nonetheless Fed is walking on a thin ice, by rising rates at optimum levels, since Fed has been running their books at flat ZERO % rate all these years.
“It’s an extraordinary moment; we have our first pandemic in 100 years. We have our first invasion in Europe in 75 years. And we have our first inflation around the world in 40 years,” Morgan Stanley co-president Ted Pick said. “When you look at the combination, the intersection of the pandemic, of the war, of the inflation, it signals a paradigm shift, the end of 15 years of financial repression and the next era to come.” – Hugh Son, “A Paradigm Shift Has Begun in Markets,” www.cnbc.com, June 5, 2022.
Didn’t we originally say in 2007-2008 that we wanted inflation, as the stock markets began to crash and the Fed dropped interest rates from over 5% to zero? Wasn’t the idea that ZIRP (zero interest rate policy) and QE (quantitative easing) would eventually cause inflation, and with that we would be able to “inflate” our way out of world and national debt?
So what if that meant the destruction of the retirement and savings class that could rake in $50,000 per year in interest on the one million dollars they had saved up all their working life.
The breakdown in prices, as witnessed last week in stocks and treasuries following the surprisingly strong and disappointing CPI report. Any market that is declining becomes a candidate for a buy.
Nonetheless next week will likely see the return of worries, concerns, and confusion in the midst of the high rolling and wanna-get-rich themes. After all, economic reports like the CPI are about the past. It won’t take long for traders to start looking ahead and changing the narrative from depression and fear to hope and greed once again.
Are the Inflation concerns real ?
Well the commodity basket be it Coal, Iron ore, base metals including the Agro baskets have fallen or have remain modest, except for CrudeOil[CL] which is hovering around $124, The media & Funds have played the Inflation havoc well to terrify the Fed for 75 basis point hike, first in last 3 decades.
Going by experience this doesn't qualify for any worries of recession in the economy, the Funds along with some media houses and/or CMT's in their pockets have played the game very well to terrify the investors to throw away their portfolio, so they can catch at throw away prices. Especially those investors who rely on the borrowed analysis or those whose grip on Economic theory is weak, indeed many investors have fallen for it.
All out Short on Crude Oil was advised moment it traded above $123, or Buy PUTS for Dec 2022 contracts, as my Tgt for CL is $84, below which it can test $58 in later half of 2022 itself.
All the Inflation worries, triggered by CL trading above $120, shall vanish in thin Air, moment CL shall tank & kiss the given targets. On the contrary in Sep 2022 meeting FED may think of rolling back the steep rate hike done in June 2022 to keep it at optimum. Who knows Fed may reduce the interest rates.
That shall be sufficient trigger for Equity markets to catch up the rally as technically speaking the secular Bull run is still under way and shall remain intact, until we ask you to get rid of your Portfolio, hence do not forget to check this column.
Technically speaking, the S&P500 shall bounce back to retest 4200 levels by Sep 2022 to pull back a little and shall head for new ATH in 2023. Although I am targeting S&P500 to test 5450 by Sep 2023, it can surely test 5110 by Jan 2023.
Having said that certain stocks specifics shall bounce back 80% to 100% in next 6 months, get in touch with us in case you need to re-jig your portfolio to catch up the left-over rally. Its time to think rational & logically rather getting panic & going for wanna-get-rich themes. It time to build for Long term portfolio as certain stocks are still available at throw away prices. BUILD IT BEFORE ITS TOO LATE.