The Long Term Investor

Husker.....I have no idea. I have not owned any fidelity products for a long time. Later today when I check my account I will put in an order for Fidelity product and see if Schwab shows a fee.

I know they were charging me a fee on buying Vanguard products.....so I now longer use the Vanguard SP500 Index fund.....I switched to Schwab where there is no fee.

 

Hey.....I did copyright that earlier in this thread.

 

Husker

I just went into my Schwab account and put in an order for $5000 of Fidelity Magellan fund. The fee from Schwab for this buy would have been $75. Back when I had Vanguard SP500 Index Fund in my Schwab account.....the fee to buy shares was also $75. On small purchases that is a killer fee. That is why I simply use the Schwab SP500 Index Fund now.....with no fee.

I know there are many outside products that Schwab does not charge a fee.......thousands actually. I think they list them under their name...."OneSource" or "OneSource Select List". For example QQQ....I dont think they charge a fee on that one.

 

HERE.....is the FED info for today.

Fed holds rates at near zero, tees up interest rate increase to quell inflation

https://finance.yahoo.com/news/fed-fomc-monetary-policy-decision-january-2022-140443689.html

(BOLD is my opinion OR whatI consider important content)

"The Federal Reserve on Wednesday held interest rates at near zero, but reiterated its commitment to withdrawing its pandemic-era easy money policies in the face of rapid price increases.

“With inflation well above 2% and a strong labor market, the Committee expects it will soon be appropriate to raise the target range for the federal funds rate,” the policy-setting Federal Open Market Committee said in its updated statement.

In its first policy-setting meeting of 2022, the Fed reiterated that U.S. economic activity continues to strengthen despite the emergence of the Omicron variant of COVID-19.

But a surge in prices since last year is weighing on the FOMC, where policymakers are coming around to the view that higher interest rates will be needed to prevent runaway inflation.

Higher rates could address inflation by raising borrowing costs and dampening demand — particularly for goods.

The Fed did not opt to raise interest rates Wednesday because policymakers have messaged that they want to end the central bank’s pandemic-era policy of asset purchases first. The FOMC reaffirmed Wednesday that it will wrap up that process in early March, meaning the first pandemic-era rate hike could be coming in six weeks.

Looking ahead, the FOMC released a document detailing “principles” for how it may — down the line — actively shrink its asset holdings, noting that such a process would “commence after the process of increasing the target range for the federal funds rate has begun.”

The statement suggests the Fed would allow maturing assets to roll off of its balance sheet, with a bias toward holding “primarily Treasury securities” (as opposed to the agency mortgage-backed securities it has also accumulated since the pandemic began).

“The Committee is prepared to adjust any of the details of its approach to reducing the size of the balance sheet in light of economic and financial developments,” the Fed statement reads.

The decision to hold rates at near zero in Wednesday’s meeting was unanimously agreed upon by the FOMC’s voting members.

Dual mandate
The Fed has a dual mandate of stable prices and maximum employment. On stable prices, the FOMC acknowledged that inflation remains elevated.

The Consumer Price Index showed prices in the United States growing by 7.0% between December 2020 and December 2021, the fastest year-over-year pace of inflation seen since June 1982.

Fed officials have been warning that elevated inflation readings could persist through the beginning of this year, increasing the pressure to tighten policy.

In the last meeting in December, all 18 of the FOMC’s members saw the case for at least one rate increase (of 25 basis points) this year.

Supporting the case for withdrawing its pandemic-era easy money policies: a labor market recovery that appears to be chugging along. In December, the unemployment rate tilted down to 3.9% — inching closer to the pre-pandemic rate of 3.5%. None of the FOMC members had expected the headline figure to be so low.

“Job gains have been solid in recent months, and the unemployment rate has declined substantially,” the FOMC statement reads.

The Fed’s next policy-setting meeting is scheduled for March 15 and 16."

MY COMMENT

No surprise here.....EXACTLY as expected from past statements. Some just LOVE to stir up drama and trouble by speculating that they are NOT going to do exactly what they said. SO......we are still looking at March for the first rate increase as they have now said for....months.

This is.....absolutely.....nothing new. EVERY investor in the world should have been aware of this months ago. Just SILLY....as usual.

 

As we see rising interest rates over the next year or two, we will see more normal mortgage rates.

Rate pressure pushes down mortgage applications
Refinance applications decline 12.6%

https://www.housingwire.com/articles/rate-pressure-pushes-down-mortgage-applications/

(BOLD is my opinion OR what I consider important content)

"Mortgage applications fell 7.1% from the previous week, following an increase in rates to the highest level since the pandemic onset, according to the Mortgage Bankers Association (MBA) survey for the week ending Jan. 21.

The seasonally adjusted Refinance Index decreased 12.6% in the same period, with applications falling for the fourth straight week. Meanwhile, the Purchase Index declined 1.8%.

Compared to the same week one year ago, mortgage apps overall dropped 34.6%, with a sharp decline in refinance (-46.6%) compared to purchase (-8.5%).

According to Joel Kan, MBA’s associate vice president of economic and industry forecasting, all mortgage rates continue to climb, but the 30-year fixed rate rose for the fifth consecutive week to its highest level since March 2020.

The trade group estimates that the average contract 30-year fixed-rate mortgage for conforming loans ($647,200 or less) increased from 3.64% to 3.72%. For jumbo mortgage loans (greater than $647,200), rates went to 3.56% from 3.54% the week prior.

“After almost two years of lower rates, there are not many borrowers left who have an incentive to refinance. Of those who are still in the market for a refinance, these higher rates are proving much less attractive to them,” Kan said in a statement.

Regarding purchases, he said that the decline was led by a 5% drop in government applications, compared to less than 1% drop in conventional loans applications.

“The relative weakness in government purchase activity continues to contribute to higher loan sizes. The average purchase loan size was $433,500, eclipsing the previous record of $418,500 set two weeks ago.”

The refinance share of mortgage activity decreased to 55.5% of total applications last week, from 60.3% the previous week. The VA apps went from 10% to 9.9% in the same period.

The FHA share of total applications decreased from 9.3% to 8.6%. Meanwhile, the adjustable-rate mortgage share of activity increased from 3.8% of total applications to 4.4%. The USDA share of total applications went from 0.4% to 0.5%."

MY COMMENT

It will be interesting to see how the real property markets respond to the normalization of mortgage rates over the next couple of years. Future buyers......get ready......you are going to see conventional 30 year rates in the 4.5% to 6.5% range soon (a year or two). Rates are still EXTREMELY low by historic norms. Anyone that is planing to buy......and ready to buy...... a home might want to think about doing so before the rates move up.

What impact this will have on home prices is a BIG unknown. I suspect that it will have little to no impact in the DESIRABLE areas and cities.

 

TESLA.....this is an AMAZING earnings report.

Tesla posts record revenue and profits in third quarter

https://www.cnbc.com/2021/10/20/tesla-tsla-earnings-q3-2021.html

(BOLD is my pinion OR what I consider important content)

"Key Points

• Tesla reported third-quarter earnings after the bell Wednesday, and it’s a beat on both the top and bottom lines.
• The record results were driven by improved gross margins of 30.5% on its automotive business and 26.6% overall, both of which are records for at least the last five quarters.
• The company’s stock dropped less than a point after hours on the results.

Tesla reported third-quarter earnings after the bell Wednesday, and it’s a beat on both the top and bottom lines.

The company’s stock dropped by 1.5% after hours. Here are the results.

• Earnings per share (adjusted): $1.86 vs $1.59 expected per Refinitiv
• Revenue: $13.76 billion vs $13.63 billion expected per Refinitiv

The company reported $1.62 billion in (GAAP) net income for the quarter, the second time it has surpassed $1 billion. In the year-ago quarter, net income was $331 million.

The record results were driven by improved gross margins of 30.5% on its automotive business and 26.6% overall, both of which are records for at least the last five quarters.

Automotive revenue rose to $12.06 billion and costs of automotive revenue amounted to $8.38 billion for the quarter.

Tesla also generated $806 million in revenue from its energy business, which combines solar and energy storage products, and $894 million in services and other revenue, which includes vehicle maintenance and repairs, auto insurance and sales of Tesla-branded merchandise among other things, Tesla has disclosed in past financial filings.

For its energy and storage business, costs of revenue rose to the highest number in the last five quarters to $803 million during the third quarter.

In a shareholder deck that Tesla released before a call to discuss Q3 results, the company said, “A variety of challenges, including semiconductor shortages, congestion at ports and rolling blackouts, have been impacting our ability to keep factories running at full speed.”

Even with those issues, the company reiterated prior guidance that it expects to “achieve 50% average annual growth in vehicle deliveries” over a multi-year horizon.

During the third quarter, Tesla recorded a $51 million impairment related to its investment in bitcoin, which it reported under “restructuring and other” expenses.

Tesla had previously disclosed deliveries of 241,300 electric vehicles and production of 237,823 vehicles during the period ending September 30, 2021.

Unlike other automakers, Tesla’s sales rose during the quarter, setting a new company record, despite chip shortages and supply chain challenges weighing on the industry. (Deliveries are the closest approximation of sales that Tesla reports.)

Many other automakers have reported record profits during the semiconductor chip shortage due to resilient consumer demand, but they have not been able to produce better sales due to the supplier constraints.

In a Q3 2021 shareholder deck, Tesla remained non-committal on the start date for production of the hotly anticipated Cybertruck. The company is saying only that production of the non-traditional truck will begin at some point after Model Y production commences in Austin, where Tesla is building a new vehicle assembly plant.

Tesla also said in the deck that for all of its standard range vehicles, it will be “shifting to Lithium Iron Phosphate (LFP) battery chemistry globally.”

Previously, Tesla used lithium-ion battery cells with a nickel cathode in its standard range vehicles made for customers in North America. Because iron is more abundant than raw materials used in other lithium-ion battery cells, like nickel and cobalt, LFP batteries are generally more affordable to produce.

The two top producers of these types of battery cells are CATL and BYD in China. Tesla is already procuring batteries from CATL, the companies previously revealed.

Analysts asked Tesla executives on Wednesday if they were planning to procure all their LFP batteries from China. Tesla senior vice president of powertrain and energy engineering, Drew Baglino, said ultimately the company’s goal is to “localize” production of cars and batteries as much as possible to the continents where it makes cars. That goal extends to battery cells, he suggested.

Shareholders also asked Tesla how the company would deal with a stricter-seeming or more critical federal vehicle safety regulator.

The National Highway Traffic and Safety Administration is currently investigating Tesla for possible safety defects in its Autopilot driver assistance system after a string of crashes that involved Tesla drivers colliding with parked, first-responder vehicles while using Autopilot.

Tesla’s vice president of vehicle engineering Lars Moravy spoke of Tesla’s relationship with NHTSA as a partnership on Wednesday’s call. “We always cooperate fully with NHTSA,” Moravy said. As NHTSA figures out the rules and regulations for vehicles with more features enabled by software, he added, “We’re happy to be a part of that journey.”

The comments stood in contrast to remarks by Tesla CEO Elon Musk. Previously, Musk accused the Biden administration of anti-Tesla bias in general.

And this week, Musk griped about a new NHTSA safety advisor, Missy Cummings, to his tens of millions of followers on Twitter.

A Duke University engineering and computer science professor, Cummings was previously critical of Tesla’s approach with the driver assistance systems that it markets as Autopilot and Full Self-Driving options. Neither system makes Tesla vehicles autonomous, or safe for use without a driver at the wheel.

“Objectively, her track record is extremely biased against Tesla,” Musk wrote.

US Transportation Secretary Pete Buttigieg said at a press event on Wednesday, “He’s welcome to call me if he’s concerned.”

Last quarter, Musk said he would no longer lead earnings calls by default.

The bombastic CEO chose not to address shareholders and analysts on Wednesday, and the earnings call was relatively dry compared to prior quarterly calls when Musk famously insulted analysts, or called pandemic related health orders fascist."

MY COMMENT

It has got to be a JOKE that the stock is down after hours on this report. These are BLOW OUT numbers. This shows a company that is jumping up to a much higher level. AND....consider that the Berlin and Austin plants are not online yet. Those plants will come online over the next 6 months so so.

Gross margin of 30.5% on an automotive business is fantastic. Net income WAY surpassed one billion and blew away the prior time that net income was over one billion. The comparison to the same quarter a year ago......$1.62BILLION now.....versus.....$331MILLION a year ago is just a.....RIDICULOUS.....blow out improvement.

When you extrapolate the coming Berlin and Austin plants and these numbers.....this is a company that is jumping way ahead to a totally different level of business.

I was out by the Austin plant about five days ago. They were still moving equipment into the plant with cranes through big doors. I could not see any glass in any of the windows yet. My guess is that they are still about 6 months from production. I did not see anything to make me believe that any sort of production was happening yet.

 

I had a nice gain in my account today......a green day for me. I also got in a needed beat on the SP500 by 0.75%.

Icing on the cake of the TESLA earnings. So far the two of my companies that have reported.....Microsoft and Tesla.....have hit it out of the park.

 

I have been wondering when I would see some mention of.....As goes January.....so goes the year. But...I do like this little article.

As goes January, so goes the year?

https://www.evidenceinvestor.com/as-goes-january-so-goes-the-year/

(BOLD is my opinion OR what I consider important content)

"There’s an old saying on Wall Street that “as goes January, so goes the year.” In other words, what happens on the financial markets in the first few weeks of the calendar year tends to set the tone for the rest of the year ahead. (It was, apparently, Yale Hirsh of the Stock Trader’s Almanac who first mooted the theory in 1972, but please correct us if we’re wrong).

Well, if the adage turns out to be true in 2022 then we’re in for a rollercoaster ride. But is there really any evidence to back the “as goes January” theory up?

LARRY SWEDROE has been looking at what happened in previous years that started badly for equities. Of course, as regular TEBI readers know, the past does not predict the future. Nevertheless, Larry’s findings may provide some reassurance to those who are anxious about where the markets may be heading.

In investing, convention is to define a market correction as a decline of ten percent or more from its most recent peak. The S&P 500 Index closed 2021 at 4,766. On January 24, 2022, it hit a low of 4,223, a drop of 11.4 percent, qualifying as a correction. A drop that sharp, only the ninth drop of 10 percent for a full month since 1950, causes many investors’ stomachs to roil, often leading to panicked selling. Adding to investor angst might be the old adage that “as goes January, so goes the year”. And if those were not enough to push someone into panicked selling, Jeremy Grantham’s (chief investment strategist of GMO) prediction of an “epic crash” might have been. To help prevent you from abandoning your well-thought-out plan, let’s look at each of these three points.

We will begin with a review of how the S&P 500 Index performed after a month in which it lost at least 10 percent. Since 1950 there were eight other months when that occurred. The worst loss, -21.5 percent, was in October 1987, and the average loss was -13.7 percent. Over the next three, six, and 12 months, the S&P 500 Index provided a total return of 9.5 percent, 16.4 percent and 26.6 percent, respectively. Investors who abandoned their plans due to panicked selling not only missed out on those great returns, but they were then faced with the extremely difficult decision of determining when it was safe to get back in. That’s one of the problems with market timing — you have to be right twice, not once.

To determine the success of market timing efforts of professional investors, we will review the results of the study Static Indexing Beats Tactical Asset Allocation, published in The Journal of Index Investing Spring/Summer 2021. The authors, Joseph McCarthy and Edward Tower, examined how the returns of tactical asset allocation funds (funds that attempt to add value by shifting their allocations) compared with a portfolio of Vanguard’s index ETFs having the same investment style and bond- and foreign-market-augmented same-style Fama-French benchmarks. Their data sample covered the period July 2007-June 2020. As of June 2020, Morningstar listed 85 TAA funds. They found that tactical asset allocation (TAA) mutual funds and fund-of-fund ETFs substantially underperformed static index funds (by 1.77 to 5.15 percentage points per year) that have the same style by far more than the differences in their expense ratios, as well as Fama-French factor benchmarks (by 1.92 to 5.08 percentage points per year) while exhibiting greater volatility.

Vanguard’s tactical asset allocation fund

Using Mr. Peabody’s famousWayback Machine, we can see how unsuccessful Vanguard was at its attempt at tactical asset allocation. On September 30, 2011, Vanguard announced it was closing one of its worst performing funds, the Vanguard Asset Allocation Fund (VAAPX), firing its advisor, Mellon Capital Management, and transferring the remaining $8.6 billion in assets to another fund, its Balanced Index Fund (VBINX), which follows a passive investment strategy.

Introduced in 1988, the Asset Allocation Fund was free to invest up to 100 percent of its assets in either U.S. stocks, bonds or money market instruments. The fund tactically shifted its asset allocation to take advantage of the “best” opportunities. Unfortunately, the fund underperformed its moderate risk target by almost 3.5 percentage points a year over its last 10 years. And it lagged 96 percent of its peers over the last five years and 79 percent over the last decade while taking more risk.

The failure of VAAPX to achieve its objective highlights just how difficult it is for active managers to generate alpha after the expenses of the effort. Remember, Vanguard is one of the largest money managers in the world, with tremendous resources at its disposal. In choosing the manager to advise the fund, you can be sure it employed its deep team of analysts, and their funds tend to have the lowest expense ratios in their category, yet they failed to find a manager that would generate future alpha. What advantage do you or your financial advisor have over Vanguard that would allow you to believe you are likely to succeed where they failed? Do you have more resources than they do? Are you smarter than they are, or harder working? If you are honest with yourself, the answer is that you don’t have any advantage, nor does your advisor if you have one.

We now turn to the advice from two of the greatest investors of all time on whether you should try to time the market.

Peter Lynch and Warren Buffett weigh in

Peter Lynch, perhaps the greatest fund manager of all time, advised: “Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.” Warren Buffett advised in his 1996 letter to Berkshire Hathaway shareholders: “Inactivity strikes us as intelligent behavior.” In his 1988 letter, he stated: “Our favorite holding period is forever.” And in his 1996 letter, he advised: “We continue to make more money when snoring than when active” and added that “our stay-put behavior reflects our view that the stock market serves as a relocation center at which money is moved from the active to the patient.” And finally, he famously advised investors that if they could not avoid the temptation to time the market, at least they should “be fearful when others are greedy and greedy when others are fearful.” It has always seemed to me that the greatest anomaly in all of finance is that, while investors idolize these two legends, so many not only ignore their advice but tend to do the opposite.

We turn now to addressing the question of whether market performance in January determines how it will do the rest of the year.

As goes January, so goes the rest of the year?

To determine if this is wisdom or just another of Wall Street’s myths (like sell in May and go away) or fact-based advice, we go to our trusty videotape and examine returns for each January beginning in 1950 to see if a negative January reliably predicted a negative performance the rest of the year. Over this period there were 28 years in which January produced a negative return for the S&P 500. The average loss for the month in those 28 years was 3.6 percent. However, over those 28 years, the average return over the following 11 months was 5.4 percent. Clearly, it is a myth that as goes January, so goes the rest of the year.

We now turn to considering whether you should act on Jeremy Grantham’s dire forecast.

Acting on the forecasts of market gurus

Before reviewing Grantham’s own record, it’s worth learning what Warren Buffett had to say on the matter of paying attention to such forecasts. In his 2013 shareholder letter, he stated: “Forming macro opinions or listening to the macro or market predictions of others is a waste of time.” And in his book Trade Like Warren Buffett, author James Altucher quoted the Oracle of Omaha advising investors: “We have long felt that the only value of stock forecasters is to make fortune-tellers look good. Even now, Charlie (Munger) and I continue to believe that short-term market forecasts are poison and should be kept locked up in a safe place, away from children and also from grown-ups who behave in the market like children.” Turning specifically to Grantham, we can review his record of similar forecasts of doom and gloom.

In February 2012, with the Shiller CAPE 10 at 21.8, Grantham warned that investors who bought stocks at that time could expect meagre returns over the next seven years. GMO forecasted that after figuring for 2.5 percent in annualized inflation, U.S. large-cap stocks (namely the S&P 500) were poised to return slightly less than 1 percent per year, or under 3.5 percent in nominal terms. How did that turn out? From 2012 through 2018, the S&P 500 Index defied Grantham and returned 12.7 percent per annum, well above its long-term return.

In mid-November 2013, with the CAPE 10 now at an even higher 24.6, Grantham offered the following dire warning: “Combining the current P/E of over 19 for the S&P 500 and a return on sales about 42 percent over the historical average, we would get an estimate that the S&P 500 is approximately 75 percent overvalued.” The firm’s model gave them an estimated real return to the S&P 500 of-1.3 percent per year for the next seven years, after inflation. Over the next seven years, 2014-2020, the S&P 500 returned 12.9 percent, while inflation was just 1.6 percent. Thus, while Grantham forecasted a real return of -1.3 percent, the S&P 500 Index outperformed that forecast by 12 percentage points a year. It’s really hard to be that wrong. And Grantham has continued to forecast epic collapses. Of course, like a broken clock, if you keep repeating the same forecast, eventually you’ll be right. However, investors who acted based on Grantham’s dire warnings missed out on historically very high real returns.

Jason Zweig, columnist for the Wall Street Journal, had this to say about forecasters: “Whenever some analyst seems to know what he’s talking about, remember that pigs will fly before he’ll ever release a full list of his past forecasts, including the bloopers.” And Jonathan Clements, long-time columnist for the Wall Street Journal, offered this sage advice: “What to do when the market goes down? Read the opinions of the investment gurus who are quoted in the WSJ. And, as you read, laugh. We all know that the pundits can’t predict short-term market movements. Yet there they are, desperately trying to sound intelligent when they really haven’t got a clue.” For those interested, this article I wrote in 2015 for Advisor Perspectives explains why I thought Grantham’s forecasts were based on poor assumptions.

Conclusion

We examined each of the three concerns investors might be dealing with and demonstrated that none of them are reasons to abandon a well-thought-out plan, one that anticipates that bear markets are inevitable and unpredictable. In fact, if they didn’t appear in unpredictable fashion, there would be a much smaller equity risk premium (stocks would have produced much lower long-term returns) because stock investing would be much less risky! In other words, investors should consider bear markets a necessary evil to be planned for and not a cause for action other than to rebalance the portfolio and tax-loss harvest, as appropriate.

A fitting conclusion is from legendary investor Charles Ellis, author of the wonderful book Winning the Loser’s Game, who offered this advice: “Market timing is unappealing to long-term investors. As in hunting deer or fishing for rainbow trout, investors have learned the importance of ‘being there’ and using patient persistence so they are there when opportunity knocks.”"

MY COMMENT

NOT much I can add to the above. NO...January is not a indicator of the rest of the year. YES.....Buffett and lynch know what they are talking about. As to all the DIRE forecasts that are thrown about in the media daily....they are a JOKE.

NO....market timing does not work and is not possible. What works....is just like the fishing analogy in the article......you have to have your line in the water to catch a fish.

 

To cap off a very nice....money....day. I got official notice from Social Security today that I won my appeal of my extra Medicare and Drug premiums and they have been taken off. My wife and I will now ONLY pay the standard Medicare part B premium of $170 per month each. With the way that our taxes are now set up....this should be the case for the rest of our lives.

 

Now we wait for Apple to report tomorrow. We are starting to see earnings pick up steam as the number of companies reporting broadens out.

Poor Boeing.....they continue to have terrible news for investors. This is a company that is in free-fall lately and can not do anything right. Total management disaster. They used to be such a great company when their HQ and work force were all located in the Seattle area. They are the perfect NEGATIVE lesson in disjointed, disconnected, management and attempting to manufacture all over the world.

Boeing posts third annual loss in a row as Dreamliner costs hit $5.5 billion

https://www.cnbc.com/2022/01/26/boeing-ba-4q-21-results.html

Here is a company with little to no real competition.......and they can not manage any sort of win. They nearly have a monopoly.

 

For our drug plan we use the Humana........."Walmart Plan". We are not on any sort of high priced or unusual drugs. Cost is about $22 per month per person. Under this plan and with Walmart special pricing...most of our prescriptions are in the $1 to $4 range.

https://www.humana.com/medicare/part-d-2022/walmart-value-rx?kc=0300030019

These drug plan all vary greatly. It is very important for people to shop around through a good agent for a drug plan based on the particular medications that they use regularly and to compare prices.

 

Are you in that business Emmett? You must be too young to be looking for or thinking about a plan.

 

A nice strong open today in general.

BUT......the IDIOCY that we have seen for the past 3-4 years continues. Tesla is the latest victim of the GREAT EARNINGS curse. They post historic earnings......and.....the stock is down by 4% the next day. Of course....there is absolutely no REAL reason for the drop. The only thing I can see is that they warned about supply chain issues over the next year. BIT....they have been dealing with those exact same issues for the past year and STILL put up amazing numbers. So....obviously the continuation of those issues is NOT going to be a problem for them. In addition they said they see the same issues.....CONTINUING.......NOT....WORSENING.

Just another example of the STUPIDITY of the markets over the very short term and the impact of TRADERS and the BIG BANKS.......that drive the day to day markets.

 

HERE is a big reason for the open today.

GDP grew at a 6.9% pace to close out 2021, stronger than expected despite omicron spread

https://www.cnbc.com/2022/01/27/gdp...ger-than-expected-despite-omicron-spread.html

(BOLD is my opinion OR what I consider important content)

"Key Points

• Gross domestic product accelerated at a 6.9% annualized pace in the fourth quarter, well ahead of the 5.5% estimate.
• Consumer activity and business spending led the gains, which propelled the U.S. economy to its strongest full year since 1984.
• Jobless claims remained elevated at 260,000 while orders for long-lasting goods hit their lowest point since April 2020, signaling an end-of-year slowdown.

The U.S. economy grew at a much better than expected pace to end 2021 from sizeable boosts in inventories and consumer spending and despite signs that though the acceleration likely tailed off towards the end of the year.

Gross domestic product, the sum of all goods and services produced during the October-through-December period, increased at a 6.9% annualized pace, the Commerce Department reported Thursday. Economists surveyed by Dow Jones had been looking for a gain of 5.5%.

The increase was well above the unrevised 2.3% growth in the third quarter and came despite a surge in omicron cases that likely slowed hiring and output as businesses dealt with large numbers of sick workers.

Gains came from increases in private inventory investment, strong consumer activity as reflected in personal consumption expenditures, exports and business spending as measured by nonresidential fixed investment.

Across-the-board decreases in the pace of government spending subtracted from GDP, as did imports, which are measured as a drag on output.

The quarter brought an end to a 2021 that saw a 5.7% increase in annualized GDP, the strongest pace since 1984 as the U.S. tried to pull away from the unprecedented drop in activity during the early days of the Covid pandemic.

Markets reacted positive to the news, with stock futures posting gains while government bond yields were mixed.

In other economic news Thursday, jobless claims totaled 260,000 for the week ended Jan. 22, slightly less than the 265,000 estimate and a decline of 30,000 from the previous week.

Also, orders for long-lasting goods declined 0.9% for December, worse than the estimate for a 0.6% drop. Orders for durables hit their lowest point since April 2020, reflecting an end-of-year slowdown as omicron cases skyrocketed. The decline was driven largely by a 3.9% slump in transportation orders.

The GDP report, though, reflected an overall solid period for the economy after output had slowed considerably over the summer. Supply chain issues tied to the pandemic coupled with robust demand spurred by unprecedented stimulus from Congress and the Federal Reserve led to imbalances across the economic spectrum.

Consumer activity, which accounts for more than two-thirds of GDP, rose 3.3% for the quarter. Gross private domestic investment, a gauge of business spending and inventory build, soared 32%.

Inventories added 4.9 percentage points to the headline growth, boosted in particular by motor vehicle dealers, the Bureau of Economic Analysis said.

Impact on policy

Economic growth came as inflation surged in 2021, particularly in the second half of the year, as supply couldn’t keep up with strong demand, particularly for goods over services.

The U.S. heads into 2022 on uncertain footing, with Fed Chairman Jerome Powell warning Wednesday that growth in the early part of the year is slowing, though he views the economy overall as strong.

To that measure, the Fed telegraphed a March interest rate hike, the first since 2018. Central bankers also expect to end their monthly asset purchases the same month and to start unwinding their bond holdings shortly after.

Those tightening moves come in response to inflation running at its highest pace in nearly 40 years. Data on the Fed’s preferred inflation gauge, the personal consumption expenditures price index, will be released Friday morning.

The fourth-quarter data reflected those price pressures as well, with the price index for gross domestic purchases up 6.9% in the fourth quarter and 3.9% for the full year. The Fed considers 2% a health level for inflation, though a new policy approach adopted in 2020 allows for higher levels over a short period of time in the interest of generating full employment.

Powell said Wednesday that Fed officials believe they have largely achieved both ends of their employment/inflation mandate and are ready to start raising rates and otherwise tightening monetary policy."

MY COMMENT

SO....last year was a very strong year for GDP. Seems to me that I remember a lot of the....."experts"....saying that this would not happen.

BUT.......that is hindsight data. The real question is where we go this year. I would think that things will be just as strong this year.....except....for the fact that the FED is going to start taking action. I do believe they need to raise rates. BUT.....the issue is going to be how they do it and whether or not they screw up.......which they often do......and put the economy into a recession. Lets hope they somehow manage to get it right this time around.