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Monday 11 October 2021
Funny (or sad, depending on your perspective) short story from last week that will inspire you to (hopefully) question your portfolio as you head into 2022.
I’ve been enjoying grocery shopping, really since shutting down the canning shelves with my mom as a kid. The thrill of finding that perfect-looking steak, or the fish – or the lemon – is somewhat therapeutic. A real moment of relaxation away from the addicting color of the iPhone and in my world of the seductive laptop.
Last week, during a 10-minute break around 7:00 p.m. ET, I picked up a piece of heaven (no, not from Whole Paycheck) at the butcher at the local supermarket: a five-inch-thick ribeye steak. Yum. I put the steak in my basket, not thinking much about it as I buy the same steak once a week. The cashier rings the steak and I almost fall to the floor: $ 45. Too late to put the steak on hold, I didn’t want that person in line.
After paying, I went back into the store and checked out the prices for “stuff” like I was still a stock analyst doing channel checks. In each aisle, it was like being hit in the head by little dancing sticker prices, each seemingly 35% higher than a week earlier. All these little dancing sticker prizes laughed at me, of course.
Given this expedition (a bizarre one at that), I can confidently share this portion of wisdom with you at the start of the week. Inflation ain’t going nowhere baby In fact, you get struck in the head with laughing sticker prices for groceries, gasoline, heating oil, jeans, Red Bull, and maybe even clean air if you haven’t already.
All year long, the Federal Reserve has been pushing Mr. Market’s throat that inflation is temporary. I would encourage all of these government employees in their gilded offices to tour grocery stores for a week and maybe work on site for failing investors.
The story goes on
The oil price is at a seven-year high. Natural gas prices have almost doubled in six months. West Coast gas prices are north of $ 4 per gallon, according to the AAA. Cotton prices have risen 25% since September 20th (statistics from NYSE analyst Michael Reinking).
Start saving so you can let off steam with inflationary meat.
After digesting this impressive in-depth look at the shipping crisis from Yahoo Finance Editor-in-Chief Andy Serwer – and my recent shopping spree – it’s clear that all kinds of price inflation are going to stay here. In other words, this idea of temporary inflation is a cruel joke from a Fed trying to cover its own backside.
If you’re not inclined to accept the statistics above, take a look at what top executives recently told me about inflation on Yahoo Finance Live:
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“The reality is that everything has some inflation. I agree with your point that it is [inflation] doesn’t feel very ephemeral at the moment. The reality is that we are through the pandemic that essentially closed the industrial and consumer sectors and demand has now fallen much faster than pretty much anyone predicted. ”- Dow CFO Howard Ungerleider. He added that he “is” working to raise prices “to offset higher costs.
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“We were able to fix the cotton price in the very, very low single-digit range for the first half of next year [percentage] Inflation. We are negotiating for the second half [of 2022] and we believe we can offset inflationary prices. “- Levi Strauss CFO Harmit Singh
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“There really isn’t a company that is immune to raw material and operating cost inflation. In a world where prices go up, prices have gone up a bit for everyone.” —PepsiCo CFO Hugh Johnston
Inflation seems to be so persistent that “stagflation” – a backdrop of slow economic growth and high inflation rates – has become a de jure issue among Goldman Sachs customers.
“Stagflation was the most frequent word in customer meetings this week as equity market volatility remained high,” said David Kostin, US equity strategist at Goldman Sachs.
According to Goldman’s research, the markets hated stagflation in the past.
“Over the past 60 years the S&P 500 has posted an average total real return of + 2.5% per quarter, but that quarterly return fell to -2.1% in a stagflationary environment, worse than average returns in an environment that is characterized solely by weak economic growth or high inflation, “added Kostin.
Strong paper towels = increasingly beefy price.
So what’s the game for investors in a world where inflation is nowhere going for the foreseeable future? Well, it could be complex, depending on your level of investment expertise. Here’s what several market veterans told me about how to invest in the midst of pesky inflation:
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“As cost inflation accelerates, we recommend dividend growth stocks that benefit from inflation. Large Caps: The stock market offers a far more attractive inflation-protected return than TIPS [Treasury Inflation Protected Securities]. “- Savita Subramanian, Bank of America Equity and Quant Strategist
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“From a sector perspective, higher energy prices are often associated with rising inflation, and we currently weight the energy sector, which benefits from higher oil prices, overweight financials; We’re also overweight We’re also overweight REITs – the index is a mixed bag of industries, but as we’re seeing rising rents and shortages in housing, and areas like cell towers having pricing power, this is another area that should benefit. Outside of sectors, commodities should generally benefit from supply disruptions – and the Bloomberg commodities index has just hit a cycle high. In a portfolio context, you should generally underweight fixed income investments in rising prices to deal with inflation and TIPS that are pegged to inflation. “- Keith Lerner, Co-Chief Investment Officer / Chief Market Strategist, Truist Wealth
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“From a market perspective, it’s banks and commodities / resources. Banks benefit from rising interest rates. Commodity stocks (miners, energy companies, agribusinesses) benefit from rising commodity prices. Commodity exposure mixed, but not too strong. Only a few as they are volatile (and most investors should only use ETFs). In general, value growth. Look for floating rate or short dated debt in the fixed income space. Bank loans or senior secured debt, which are frequently revalued, will outperform when interest rates rise. Look out Finally, on the exits. At some point the Fed will kill inflation and the markets will fall. But we are probably years away from that. ” – Tom Essaye, founder of Sevens Report Research
Go ahead now and kill the inflationary beast that is coming for your portfolio. As for me, I’m looking for a cheaper steak or opening a crypto trading account so I can afford the ribeye I’ve been eating for 20 years.
bits and pieces
Bank income: Speaking of price gains, banking stocks set fire to earnings in JPMorgan, Bank of America, Goldman Sachs and Morgan Stanley this week (previewed here by Yahoo Finance’s Emily McCormick). The KBW Bank Index has risen by 40% year-on-year (Wells Fargo has risen the most among the big banks, arithmetically + 59%), as traders expect rising interest rates (positive for banks’ margins) in 2022 and a supportive economy for credit growth. Since the last monetary policy decision by the Fed on September 22nd – when it signaled that a plan to reduce bonds is approaching – the KBW Bank index has risen 6.5%. I would say the backdrop for bank stocks is ripe for a selling event – banks’ profit margins could disappoint increased expectations due to rising talent costs due to inflationary spending, among other things. A few points to look for in these reports: 1) trading income given the increase in activity in stocks and bonds towards the end of the quarter; 2) customer debit and credit card spending in a slowing growth environment; 3) Indications of new cost-cutting programs at the end of the year to counter inflationary costs; 4) Efforts on the crypto front.
Hasbro: I send my best wishes to Hasbro CEO Brian Goldner. Hasbro announced yesterday that its longtime CEO will be taking medical time off to focus on his health. Goldner announced in August 2020 that he is undergoing ongoing medical treatment following cancer treatment in 2014. Goldner gave me full transparency in one of my first “CEO interviews” when I got into this crazy news business. He has headed the stock corporation for over 13 years. I wish him a speedy full recovery.
By Brian Sozzi, Editor at Yahoo Finance and Moderator at Yahoo Finance Live. Follow him at @BrianSozzi
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What can be seen today
business
Merits
politics
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the US House of Representatives and senate will both be out of service until October 18th.
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the World Bank Group and the International Monetary Fund (IMF) their annual meetings begin in Washington DC. Tomorrow morning they will publish the World Economic Outlook.
Top news
European markets are getting off to a sluggish start amid interest rate concerns [Yahoo Finance UK]
Lenovo shares down 17% after Shanghai listing application was withdrawn [Reuters]
Southwest cancels many flights, blames weather and air traffic control problems [Reuters]
Chinese tech stocks are extending the rebound on relief from the Meituan fine [Bloomberg]
Yahoo financial highlights
Federal Student Aid Cordray details have improved student loan oversight
Childcare issues keep the small business “fighting for the people” while employment growth fizzles out
Natty Light Introduces Flavored Vodka as Domestic Beer Sales Slump: “Nothing is Off the Table”
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