The Long Term Investor

And to continue the above.

U.S. Inflation-Adjusted Spending Falls as Prices Temper Demand

https://finance.yahoo.com/news/u-inflation-adjusted-spending-falls-123805446.html

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

"(Bloomberg) -- U.S. inflation-adjusted consumer spending declined in February, suggesting the fastest pace of price increases in four decades is starting to temper demand.

Purchases of goods and services, adjusted for changes in prices, fell 0.4% from the prior month, following a 2.1% jump in January, according to Commerce Department figures Thursday. Spending on goods settled back after the prior month’s surge, while a decline in Covid-19 cases supported a pickup in outlays for services.

The personal consumption expenditures price index, which the Federal Reserve uses for its inflation target, increased 0.6% from a month earlier and 6.4% from February 2021, the most since 1982. Unadjusted for inflation, spending advanced 0.2% from January, while incomes rose 0.5%.

The median forecasts in a Bloomberg survey of economists called for a 0.2% decrease in inflation-adjusted spending from the prior month and a 6.4% rise in the price index from a year ago.

After omicron-related volatility in the prior two months, the government’s data suggest American consumers are feeling the pinch of the fastest inflation in decades. Continued strength in the labor market -- along with excess savings -- has provided many households the wherewithal to keep spending.

Still, rapid inflation has eroded wage growth and driven up the costs of necessities like energy, food and rent. This comes at the same time as families receive less government pandemic aid, weighing on the prospects for spending.

The acceleration in inflation last month only adds to concerns about the breadth and persistence of price pressures, corroborating calls for more aggressive Fed rate increases. A solid March jobs report on Friday, on the heels of the latest price data, may cement expectations for a half percentage point hike in the Fed’s benchmark rate in May.

“It continues to seem likely that hoped-for supply-side healing will come over time as the world ultimately settles into some new normal, but the timing and scope of that relief are highly uncertain,” Fed Chair Jerome Powell said in a speech last week. “In the meantime, as we set policy, we will be looking to actual progress on these issues and not assuming significant near-term supply-side relief.”

Treasury yields remained lower, the S&P 500 opened lower and the dollar stayed higher following the data. Money-market derivatives left intact pricing for a 70%-plus chance the Fed lifts rates by 50 basis points at its May meeting.

Fed’s Challenge

The Fed will have to balance tackling even higher inflation with growing risks of a slowdown in consumption amid rising prices and increased uncertainty.

Inflation-adjusted goods expenditures declined 2.1% from the prior month after a January surge of 5.6%. Spending on services climbed 0.6%, the most in seven months.

The core PCE price index, which excludes food and energy and is often seen as a more reliable guide to underlying inflation, rose 0.4% from the prior month and was up 5.4% from a year ago.

The report largely reflects an inflationary environment before the onset of Russia’s war in Ukraine, which has pushed up prices even more. Rapid inflation across the U.S. economy has left households with less cash to spend on discretionary items and services like dining out. And though wages and salaries rose the most in four months, inflation eroded much of the increase.

The personal saving rate -- or personal saving as a share of disposable income -- ticked up to 6.3%, though remains near an eight-year low. When adjusted for inflation, disposable personal income declined for a seventh straight month.

The data precede Friday’s March jobs report. Economists estimate employers added about a half million jobs as pandemic restrictions faded. They also see an acceleration in hourly earnings growth and a pickup in labor force participation.

A separate report out Thursday showed applications for state unemployment benefits increased last week from a level that matched the lowest since 1969."

MY COMMENT

YES.....we are probably going to see a half percentage rate increase from the FED in the next month or two. Unfortunately any action by the FED is going to be meaningless. Raising rates is NOT going to have any impact on this situation in the slightest. I still see the probability of the FED pushing us into a recession as about 50/50. Now....if they do push us into recession and kill the economy......for a while....that might actually have some impact on the inflation.

People in general are spending money like crazy right now and outstripping any supply of various products and services. So prices are going up. Wages and compensation are higher than ever. We are ONLY two month beyond the last of the FREE MONEY programs. There remains a HUGE mount of excess money sloshing around in the economy since many people saved that FREE MONEY out of fear during the pandemic. Now that the pandemic is over that money is being spent.

At the same time.....I continue to believe....that the world wide underlying economic condition is......a deflationary environment. Once we work our way through the current distortions and disruptions and the world economy gets back to near normal it will become apparent that most of the world will be STRUGGLING SEVERELY to achieve any sort of economic growth.

 

Here is a TYPICAL financial media article that reflects the current mind-set of the financial media and in fact....most people.

'Mystifying' U.S. stock rally defies economic unease

https://finance.yahoo.com/news/analysis-mystifying-u-stock-rally-050433934.html

MY COMMENT

This article is talking about the "STUNNING" rise in stocks and funds in the face of all that is going on. It also goes into various reasons for why this is happening. Most of the article is discussing that fact that all the "EXPERTS" are "MYSTIFIED" with what is happening.

BUT.....way down toward the bottom of the article is the answer:

"The corporate earnings outlook also remains solid, even as higher energy and other prices threaten to erode profit margins. Estimates for S&P 500 profits have risen since the start of the year with companies overall expected to increase earnings by 8.8% in 2022, according to Refinitiv IBES.

"Stocks were knocked down, but earnings estimates just kept going up," said Matthew Miskin, co-chief investment strategist at John Hancock Investment Management. "Investors are hesitant to really unload on stocks here as the earnings and economic picture looks still very favorable.""

When I saw that headline......without reading the article....I immediately thought....well DUH stocks are going up because earnings have been GREAT and STRONG. AND.....they look like they will continue to do so. EARNINGS drive stock prices and create money for investors.

This little article is a classic example of the modern investor and all the so called "experts" missing the OBVIOUS. It shows a total lack of understanding of basic investing concepts on the part of people that supposedly know what is going on and why.

UNFORTUNATELY....many investors get all caught up in this stuff and end up trading and investing based on short term events and drama that really is irrelevant. It is all about......EARNINGS and COMPANY FUNDAMENTALS. AND.....over the long term....in general..... earnings will increase and drive stocks. Companies that do not produce in terms of earnings pay the price and drop from favor. It is that simple.

 

I ended in the red today.....was there any other way? Not for me. The end of the first quarter probably jinxed the markets today......literally and figuratively. I also got beat by the SP500 by 0.36% for the day.

Tomorrow will determine the direction for the week for the markets. At the moment we are slightly in the red.

 

Speaking of today being the last day of the quarter.

Dow drops 500 points to end worst quarter for stocks in 2 years

https://www.cnbc.com/2022/03/30/stock-market-futures-open-to-close-news.html

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

"Stocks fell for the second straight session on Thursday as traders wrapped up a rocky first quarter for Wall Street.

The Dow Jones Industrial Average slid 550.46 points, or 1.56%, to 34,678.35. The S&P 500 shed 1.57% to 4,530.41, and the Nasdaq Composite was down 1.54% to 14,220.52. Losses deepened in the final hour of trading, and stocks closed at session lows.

Thursday marked the last trading day of March and of the first quarter, which may have contributed to the late day weakness as professional money managers tweaked their portfolios for the end of the period.



CNBC

For the first quarter, the Dow and S&P 500 closed down 4.6% and 4.9%, respectively. The Nasdaq lost 9%. For the three major averages, this was worst period since the first quarter of 2020, which marked the start of the Covid pandemic in the U.S. and saw the S&P 500 tumble 20%. The start of a rate hiking cycle from the Federal Reserve, high inflation and Russia’s invasion of Ukraine all contributed to the struggles for equities this quarter.

March was a bit of a bright spot, however, as the major averages enjoyed a solid two week rally in the back half of the month. The S&P 500 and Nasdaq rose more than 3% in March, while the Dow added 2.2%.

“There’s been a nice relief rally, partly on beginning to look past the invasion, some clarity around central bank actions, and some technical buying, as there was a lot of money on the sidelines,” said Erik Knutzen, the chief investment officer for multi-asset class strategies at Neuberger Berman.

“But we think from here investors are going to, at some point, realize, wait a second, growth is slowing and interest rates are rising and inflation is still high. This is still a challenging set-up for equities.”

Semiconductor and tech hardware stocks came under pressure Thursday amid analyst concerns over the PC market going forward. AMD shares slid more than 8% after analysts at Barclays downgraded the stock to equal weight from overweight. Meanwhile, HP Inc and Dell dropped 6.5% and 7.6%, respectively, after being downgraded to equal weight from overweight at Morgan Stanley.

Shares of Walgreens Boots Alliance dropped 5%, weighing on the Dow. The pharmacy chain beat estimates for its fiscal second quarter, though that was due in part to demand for pandemic-related products.

Bank stocks were another area of weakness, with JPMorgan Chase dropping 3% and Goldman Sachs shedding 1.6% as the so-called yield curve narrowed.

On the data front, core PCE prices, a key inflation measure watched by the Fed, came in at 5.4% growth year over year for February. That was just below the expectations of 5.5%.

The market posted losses Thursday even as some relief came on the energy front.

Oil prices fell, with West Texas Intermediate futures dropping more than 6% to around $100 per barrel, as President Joe Biden’s administration announced a plan to release 1 million barrels of oil per day from the strategic petroleum reserve for about six months.

In Ukraine, Russian forces continued to hold their positions around Kyiv and shell the capital city, according to UK intelligence officials. Russia president Vladimir Putin said payments for Russian natural gas will need to be made in rubles, Reuters reported, further complicating energy supply issues for Europe.

“We’re going to be bouncing around between good news and bad news, unfortunately,” said George Mateyo, Key Private Bank chief investment officer. “That’s going to create some volatility.”

Elsewhere, weekly jobless claims came in at 202,000. Economists surveyed by Dow Jones were expecting 196,000. Personal income rose 0.5%, meeting expectations, while consumer spending rose less than expected.

The data releases came ahead of the closely followed monthly jobs report from the Labor Department. The report for March will be released before the opening bell on Friday"

MY COMMENT

Today was probably one of those days that was doomed from the start....due to the economic releases today and the end of the quarter. Fortunately April tends to be a great month for investors......if you believe that sort of stuff.

 

The challenging news continues for home buyers.

U.S. mortgage rates jump by the most in 11 years -MBA

https://finance.yahoo.com/news/u-mortgage-rates-jump-most-110000279.html

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

"March 30 (Reuters) - The interest rate on the most popular U.S. home loan jumped last week by the most in 11 years as bond market investors rapidly repositioned for the Federal Reserve to take more aggressive action to contain inflation, a survey showed on Wednesday.

The Mortgage Bankers Association (MBA) said the contract rate on a 30-year fixed-rate mortgage shot to 4.8% in the week ended March 25 from 4.5% a week earlier. That was the largest one-week increase since February 2011, and it brought mortgage rates to their highest level since December 2018.

Mortgage rates have now climbed by nearly 1.5 percentage points since the start of the year, the most rapid run-up in home borrowing costs since 1994.

With rates climbing so rapidly, mortgage application activity has fallen sharply in recent weeks. The MBA said its Market Composite Index, a measure of mortgage loan application volume, tumbled 6.8% on a seasonally adjusted basis to 425.1, the lowest level since December 2019.

The refinance index dropped 14.9% to the lowest since May 2019, while the purchase index was little changed, MBA said.

Yields on the U.S. Treasury securities that act as a benchmark for mortgage rates have surged in the last month after the Fed lifted its policy rate for the first time since 2018, and policymakers including Chair Jerome Powell have signaled since that they are prepared to raise rates faster and further in the year ahead to rein in inflation that is running at the highest pace in 40 years. (Reporting by Dan Burns Editing by Leslie Adler)"

MY COMMENT

I dont see any impact on home pricing....at least yet. It continues to be a very challenging market for people looking to purchase a home. I saw somewhere today that the average nationwide rate today for a 30 year mortgage was 4.67%. The good news.....this is STILL a very low rate by historic standards.

 

That is good news Emmett....glad to see that your net worth is benefiting from the housing boom. By the time you retire you will be all set.

 

I posted about this Amazon union drive a day or two ago. Looks like the one in Alabama is going to fail again.

Amazon Unionization Effort in Alabama Appears to Fail Again

https://www.newsmax.com/newsfront/amazon-unionization-alabama-labor/2022/03/31/id/1063847/

MY COMMENT

I am sure there will be the usual appeals and this will just go on, and on, and on.

On a side note.....one of my siblings......was in a government job that went union....SEIU......and like you hear many times as an anecdotal story......their net pay went down by about $5 per pay period as a result. The politicians of the state loved it.....but.....there was little to no benefit to the actual workers.

 

I totally agree and know it is real Emmett. I would bet that the vast majority of employees dont agree with this stuff but like you.....they just say what is expected of them to keep their jobs and be able to advance. It is not fair to put employees in that position.....but "the man" does not care. No one can fault employees for "going along to get along".........you have to do what you have to do to protect yourself.

 

I like this view.....of course I agree with it.

Our Perspective on Stubbornly High Global Inflation Rates
Persistent inflation is painful and hard on many, but stocks don’t need perfection

https://www.fisherinvestments.com/e...ive-on-stubbornly-high-global-inflation-rates

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

"There is a lot of inflation data out this week, and as you might have seen, it isn’t good. Grabbing most eyeballs on our shores, February’s Personal Consumption Expenditures (PCE) price index—the Fed’s preferred inflation measure—accelerated to 6.4% y/y, another multi-decade high. Meanwhile, preliminary March numbers in the eurozone suggest more pain is in store: the French Consumer Price Index (CPI) sped to 5.1% y/y, and Germany’s jumped to an eye-popping 7.2%.[ii] Last week, Britain reported February CPI rose 5.5% y/y, up from 4.9% in January.[iii] Another uptick seems likely when March data hit. The extended surge of fast inflation is a hardship for many and painful for all. Yet for stocks, “painful” often isn’t part of the calculus. Rather, are the ongoing disruptions forcing prices higher big enough to offset all the underappreciated positive drivers out there? We don’t think so.

Now, please note: Inflation is an increasingly partisan issue in many parts of the world. We favor no party nor any politician. Our comments on inflation are limited to the economics in question, viewed through a market-oriented lens. With that out of the way, we suspect it is worth noting inflation probably will peak higher—and stay elevated for longer—than we thought likely last summer. There is a simple reason for this: Russian “President” Vladimir Putin’s invasion of Ukraine, which rippled through oil, natural gas and other commodity markets, as well as complicating shipping routes. We have all felt this at the gas pump and when paying our electricity bills. Soon, fertilizer shortages may show up in food prices. So, too, might the potential shortages of wheat. Pricier petrochemical feedstocks will drive up costs for plastic and a range of consumer goods.

This is all happening at a time when the forces that drove prices higher throughout 2021 should be starting to wane. Last spring and summer—which might feel like an eternity ago—prices jumped off a depressed base as businesses reopened from lockdowns. Many businesses weren’t prepared for the sudden demand influx, sending prices higher throughout travel and leisure. Car prices also surged, in part because rental company activity was skewing the market. Those fast increases, with 2020’s lockdown-deflated prices as the denominator in the year-over-year calculation, were primarily responsible for inflation as 2021 progressed, with supply chain issues adding dislocations later in the year.

Yet these factors were poised to fade. The base effect would have left the math starting in April, raising the denominator. Logistical pressures appeared to be easing. It all pointed to prices rising more slowly off a higher base—making 2021’s faster inflation a one-off headache that eventually worked its way through the system. But then Putin invaded, replacing those fading inflationary forces with new supply-side price spikes. If oil and gas prices hover around today’s level, that points to inflation staying elevated for another year, simply due to inflation math, even if other prices are benign. We don’t mean to alarm you, but we think it is important to be realistic.

That is the bad news. The good news? There are a lot of positive forces out there right now to offset these headwinds. They aren’t getting much attention, because good news rarely does when stocks are in a correction (sharp, sentiment-fueled drop of -10% to -20%). As we detailed earlier this week, Purchasing Managers’ Indexes (PMIs) show European economies are still growing despite the fallout from Putin’s war. The EU is the most exposed major region, since it is dependent on Russian gas and most at risk of shortages and rationing. Yet even as surging oil drove French and German inflation higher, PMIs registered expansion. Why? Because the demand boost from COVID restrictions finally ending seemingly counterbalanced it. Several US states are experiencing a similar reopening wave, along with Japan. Not coincidentally, The Conference Board’s US Leading Economic Index (LEI) is on a long upswing.[iv] So is eurozone LEI.[v]

Yield curves globally are steepening. Yes, steepening! The gap between 3-month and 10-year yields, which is the portion of the curve that most translates to banks’ lending profit margins, is at its widest point since 2017—a great year for the US economy.[vi] Eurozone nations’ curves have also overall steepened in the past few months.[vii] It all points to more capital fueling more investment and growth. High prices incentivize investment all the more, as we are seeing in the oil industry right now. Tech hardware and industrial equipment are also big beneficiaries, attracting huge investment in Q4.

Paying higher prices at the pump and grocery store in the interim may be unpleasant for as long as they persist, likely a function of how long the war’s disruptions linger. But note: Stocks did fantastic in 2021 despite inflation accelerating to 40-year highs throughout the year. That isn’t all that unusual, as inflation isn’t inherently bearish. So take a deep breath and remember stocks have seen this movie before, and continued economic growth should help them weather the ongoing inflation storm."

MY COMMENT

AMEN.....stocks often follow their own course separate from the general economy.

 

BUMMER.....we have now slipped into a mixed market with the DOW and the SP500 down....at the moment. The Nasdaq is hanging in there so far.

 

Here is more irrelevant economic data.......at least to long term investors.

March jobs report: Payrolls rise by 431,000 as unemployment rate falls to 3.6%

https://finance.yahoo.com/news/marc...or-department-unemployment-usa-210149591.html

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


"The U.S. economy notched another sizable payroll gain in March as the labor market extended a strong and speedy recovery to bring employment closer to pre-pandemic levels.

The Labor Department released its March jobs report Friday at 8:30 a.m. ET. Here were the main metrics from the print, compared to consensus estimates compiled by Bloomberg.

• Non-farm payrolls: +431,000 vs. +490,000 expected and an upwardly revised +750,000 in February
• Unemployment rate: 3.6%, vs. 3.7 expected, 3.8% in February
• Average hourly earnings, month-over-month: 0.4% vs. 0.4% expected and an upwardly revised 0.1% in February
• Average hourly earnings, year-over-year: 5.6% vs. 5.5% expected and an upwardly revised 5.6% in February

March's closely-watched jobs report saw payrolls come in lower than expected but still marked a fifteenth consecutive month of expansion for the U.S. workforce. Economists surveyed by Bloomberg had anticipated payrolls to rise by 490,000, according to consensus data. At 678,000, last month's employment report reflected a stunning upside surprise to investors, with payrolls rising 255,000 more than consensus estimates projected at the time. Moreover, job gains from the last report were also upwardly revised even further to show 750,000 jobs added or created.

The unemployment rate dropped a more-than-expected two-tenths of 1%, edging closer to the historic low of 3.5% seen in February 2020, Bankrate senior economic analyst Mark Hamrick noted, though pointing out that the labor force participation rate remains 1 percentage point below its pre-pandemic level.

The labor force participation ticked up slightly to 62.4% after an unexpected jump to 62.3% in last month's data signaled more individuals were returning to look for work or be placed in jobs after being sidelined by COVID-19.

Still, FWDBONDS chief economist Christopher Rupkey points out that payroll employment remains 1.6 million or 1.0% below its February 2020 level.

"Many of those jobs will take years to come back and even if restaurants and bars and amusement parks wanted to increase staff, they wouldn’t be able to because of the millions of labor force dropouts from baby boomers retiring at the age of 65," he said. "The economy will run into a wall if it can’t get any more workers, and economic growth is already slowing down to a crawl this quarter."

Although the recovery has room to continue before pre-pandemic employment levels are restored, the past several months of data have reflected continued momentum in the labor market recovery, even as an Omicron surge in cases of COVID-19 put a dent in demand for workers earlier this year. March figures showed broad gains in employment across industries, particularly in the high-contact services sector, that were hit hard by the pandemic as virus cases retreated further in recent weeks.

Leisure and hospitality employers added back 112,000 jobs to build on a jump of 179,000 from February, with more job growth seen in food services and drinking venues at 61,000, and accommodation at 25,000. Notably, retail trade employment rose by 49,000 to reach 278,000 above its level in February 2020. The manufacturing industry saw 38,000 new jobs added or created during the period.
JoAnne Feeney, Advisors Capital Management partner and portfolio manager, told Yahoo Finance Live that although any read in the upper 400,000 range will be viewed as positive, there are still too few people looking for jobs.

"The real thing we're focused on is labor force participation. Do we get more workers coming back?" she said. "That is the biggest constraint right now on the economy continuing to grow, because there are just not enough people to take these jobs, so getting them to come back into the workforce I think is going to be the better signal about how much growth is ahead of us.”

Labor shortages have been a major challenge, not only for U.S. employers struggling to find enough labor to meet demand as millions of Americans remain on the sidelines of the workforce, but also for the Federal Reserve as it attempts to meet its primary economic goals of maximum employment and price stability.

This labor market tightness has strongly informed the central bank’s decision to rein in monetary policy, with economic strength suggesting to officials that the U.S. economy could weather less accommodative financial conditions.

“The Federal Reserve has a dual mandate to promote employment and stable prices,” Bankrate senior industry analyst Ted Rossman said in a note. “The strong labor market is leading the Fed to focus squarely on combating the high inflation rate. Fed Chair Jerome Powell recently hinted at a more aggressive pace of rate hikes, and this report fits that narrative since inflation is a much bigger concern than unemployment right now.”
Average hourly wage growth accelerated in March. On an annual basis, wages rose 5.6%, up from last month's 5.1%. And over last month, average hourly earnings ticked up 0.1% after they stayed flat in February.

Wages have climbed to well above pre-pandemic trends and in turn, contributed to much of the inflationary pressures running hot across the U.S. economy.

Powell acknowledged in recent testimony before the House Financial Services Committee that while labor demand is strong, and labor participation has edged higher, the supply of workers remains subdued.

"As a result, employers are having difficulties filling job openings, an unprecedented number of workers are quitting to take new jobs, and wages are rising at their fastest pace in many years," Powell said.

Bank of America pointed out in a recent note that amid the labor market recovery is a higher level of job openings for any given unemployment rate than compared to prior history. As a result, the short-run inflation neutral unemployment rate (NAIRU) may be higher than longer-run estimates, implying more sustained wage and price pressures in the near-term, according to the bank.

Earlier this week, the Labor Department's JOLTs (Job Openings and Labor Turnover Summary) showed vacancies totaled 11.266 million, retreating modestly from a record high but still far outpacing new hires.

“The pandemic labor market has seen an extraordinary outward shift in the Beveridge curve (the relationship between unemployment and the job vacancy rate), suggesting difficulty in matching workers to jobs,” BofA economists said in a recent note. “This mismatch may reflect surging goods spending and hence a shortage of workers in the hottest part of the economy.”

Friday’s unemployment figures come as policymakers appear to embrace the possibility that more aggressive interest rate hikes will be necessary, with multiple Fed officials in recent weeks — including Powell — suggesting a 50-basis point hike is on the table.

"Beyond the positive March snapshot, the outlook for the next year is for further moderation in jobs creation," Hamrick said in a note. "Emboldened by exorbitantly high inflation, a hawkish Federal Reserve feels compelled to slam on the brakes. It is hard to imagine how tightening doesn’t ultimately affect the job market."

Rupkey echoed similar sentiment.

“Federal Reserve officials are already chomping at the bit for bigger 50 bps rate hikes at upcoming meetings, and the tightest labor market since the 1960s is like pouring gasoline on the fire where any policy official worth his or her salt is burning with desire to get interest rates up to 2% neutral levels now," he said in a recent note."

MY COMMENT

The disruption continues and will for a long time. The key in the above is the labor participation rate which is STILL not back to normal.

The second item above is the FACT that.....now.....increasing wages are becoming a primary driver of inflation. That is not a good thing for the economy if we end up in a wage/price spiral.