The Long Term Investor

WHOO-HOO......I actually made some money today. My account was this strange color......not sure what it is....but I am told it is GREEN. It has been so long I forgot what it was. Plus.....a MASSIVE BEAT on the SP500 by....0.04%. Well......perhaps not so massive.....but I will take it anyway.

We have FINALLY broken the RED streak. I think the BIG CAP stocks finally got so over-sold that the rubber band just had to snap back. With the gains today and the BIG bank stocks expected to have really good earnings on Friday we are starting to see a glimmer of the silver lining in the clouds.

 

The economy in china is a BIG MESS. As the....brutal communist Chinese dictatorship......clamps down on the economy and businesses in the country.....who has the slightest clue what the REAL situation is in that totally DARK country. Here is another indicator of the economic troubles facing China. One thing is sure.....you can NOT trust anything financial coming out of china.

Another big Chinese real estate developer might need to sell off property

https://www.cnn.com/2022/01/11/business/china-shimao-debt-downgrade-intl-hnk/index.html

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

"Hong Kong (CNN Business) China's real estate sector is having a rocky start in 2022, as some of the country's most high-profile developers struggle to shake off a crisis that has been growing for months.

This week, two major credit rating agencies downgraded Shanghai-based developer Shimao Group further into junk territory. The company has been grappling with mounting debt and is considering selling some properties to reduce its debt load.

"Shimao's liquidity has significantly deteriorated — the decline is worse than we previously anticipated," said S&P Global Ratings, which cut the company's credit rating to B-. Just two months ago, S&P was still rating Shimao as investment grade."We now assess the company's liquidity to be weak."

Moody's on Monday cut Shimao's rating to B2 citing "elevated" liquidity risks,a large amount of debt due in the near term, and weakening access to funding.

Over the weekend, the Chinese media outletCaixin reported that Shimao has put on sale all of its domestic real estate projects as the cash-strapped firm scrambles to dispose of assets. Shanghai Shimao International Plaza, one of the tallest skyscrapers located in the heart of Shanghai, could be sold to the city's government-owned firms for more than 10 billion yuan ($1.6 billion), the report said.

On Tuesday, Shimao denied in a Hong Kong stock exchange filing it had entered into any preliminary agreement about the disposal of Shanghai Shimao International Plaza.

But it acknowledged that it is in discussions with potential buyers about some assetsales.
The company "may consider disposing of certain properties if the terms and conditions are appropriate," it added.

The pressure on Shimao marks yet another snag for Chinese real estate, which has been in crisis for a while. The crunch began in 2020, when Beijing started cracking down on excessive borrowing by developers in a bid torein in their high leverage and curb runaway housing prices. But the problem escalated significantly last fall as Evergrande — China's most indebted developer with some $300 billion in liabilities — began warning more urgently of liquidity problems.

Evergrande has since been labeled a defaulter by Fitch Ratings after appearing to miss paying some financial obligations last month. Government officials are also now involved with the company's newly established risk management committee, a move widely perceived as guiding the company through a restructuring of its debt and sprawling business operations.
Shimao wasonce considered a healthier developer than its heavily indebted rivals. But in the last month it has suffered a bond and stock rout as debt woes spread in the property sector.

Shares of Shimao Group have tumbled more than 20% in the past month.

Shimao Group has a large number of debt maturities due in 2022, including $1.7 billion worth of offshore bonds, 8.9 billion yuan ($1.4 billion) worth of onshore bonds, and "sizable" offshore bank loans, according to Moody's.

But the company is making "slow progress" on fundraising and refinancing,increasing uncertainties over its ability to pay off debt, according to Moody's. The ratings agency also forecast Shimao's property sales to decline "notably" over the next six-to-12 months, impacted by weakening homebuyer confidence.

S&P analysts also expect Shimao's liquidity to further deteriorate.

"The company is facing heightened refinancing risks due to still-tight regulatory conditions, apart from the materially weakened capital markets access," they said.

Other developers — including Kaisa and Fantasia — are also struggling with the fallout from the real estate sector turmoil, as the deepening slowdown in the property market,coupled withrisk aversion among banks and investors, makes it harder for them to refinance.

On Tuesday, analysts from Morningstar said liquidity stress in China's property sector could become a "downward spiral" because of all the credit rating downgrades, which will cut off developersfrom accessingcapital markets even more.
"To restore confidence in the sector, the authorities should be supportive of financing efforts by better names like Shimao, which has complied with" financial regulatory guidelines, wrote Cheng-wee Tan, a senior equity analyst at Morningstar, in a researchnote.

The Chinese government has taken steps to contain the property slowdown, including the move by local authorities to work with Evergrande on risk management.

The People's Bank of China cut the amount of cash that banks must hold in reserve last month, unleashing 1.2 trillion yuan ($188 billion) for business and household loans. Days later, the central bank cut its main interest rate for the first time in 20 months, stepping up efforts to boost slower growth.

Tan said the authorities could also provide specific support to "better names" in the industry, such as directing state firms to purchase assets from those developers."

MY COMMENT

What a house of cards. No one has a clue what the real economic situation is in China. One thing is probably sure......it is way worse than anyone thinks. Of course.....our big companies CONTINUE to be mesmerized by the 1BILLION plus population market in China.....you hear about it all the time. Amazingly....you hardly ever hear anything about the market in India with about the same HUGE population. For some reason our companies just ROLL OVER for china. We are NOW paying the price for our RELIANCE on China for our supply chain and manufacturing. SHAME, SHAME, SHAME....on American business.

As a little investor.....you would have to be CRAZY to invest in anything to do with that country.

 

It was a WILD day in the markets today.....here is the primary reason....the FED.

Fed Chairman: 'If we have to raise interest rates more over time, we will'

https://finance.yahoo.com/news/fede...well-confirmation-hearing-2022-162243459.html

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

"Federal Reserve Chairman Jerome Powell told Congress Tuesday that if the pace of price increases do not come down, the central bank will get more aggressive with raising short-term borrowing costs.

“If we see inflation persisting at high levels, longer than expected, if we have to raise interest rates more over time, then we will,” Powell said in a Senate Banking Committee hearing.

Powell is facing the Senate for his renomination. President Joe Biden announced in November that he was tapping Powell for a second term at the helm of the central bank, with current Fed Governor Lael Brainard serving as vice chair (her confirmation hearing is scheduled for Thursday).

The stakes are high for the Fed this year, with inflationary prints showing prices rising at a clip of almost 7% on a year-over-year basis.

The Fed has spent the last year or so trying to figure out how much of those price increases are due to rising demand (which allows producers to raise prices) or constrained supply (in which COVID-disruptions increase the costs of production inputs).

Powell said both appear to be contributing to high inflation, but the Fed chief acknowledged that demand is “very strong” at the moment.

The Fed’s most potent tool remains interest rates, which the central bank has pinned to zero since the depths of the pandemic. Raising interest rates could address higher demand by making it more expensive to borrow. But higher borrowing costs likely would not do too much to address supply issues like shipping bottlenecks at the world’s ports.

“We can affect the demand side, we can’t affect the supply side. But this really is a combination of the two,” Powell said.

Time to pullback

Fed watchers say the central bank is moving quickly to pull forward its efforts to undo its pandemic-era easy money policies.

In addition to keeping zero interest rates, the central bank has absorbed trillions in U.S. Treasuries and agency mortgage-backed securities. The so-called quantitative easing program has served as a messaging device to markets on its intention to keep policies “accommodative.”

In the face of inflation, the Fed now plans on ending that program earlier than expected (with the current plan set to end all purchases by March). The Fed will then look to raising interest rates.

For the Fed, which also prioritizes the health of the labor market, a continued pace of monthly job increases has given policymakers confidence that they can tighten policies without disrupting hiring.

“It really is time for us to begin to move away from those emergency pandemic settings to a more normal level. It really should not have negative effects on the employment market,” Powell said.

Powell is expected to sail through confirmation, which will first involve vetting by the Senate Banking Committee followed by a full floor vote from the 100-member Senate.

Powell has had a record of securing bipartisan support through several administrations. A Republican by affiliation, Powell was confirmed to the Fed Board as governor during the Obama administration, securing a 74 to 21 vote in 2012. When Trump tapped Powell to replace Janet Yellen as the head of the Fed, Powell easily won confirmation in an 84 to 13 vote."

MY COMMENT

I cant really disagree with much of the above content. It is way past due to get rates and the economy back to normal. Continued government action is NOT going to help anyone.....just continue to DISTORT the economy. BUT....that does not mean that inflation will be impacted by the FED actions. In my view MOST of the inflation we are seeing is due to supply disruptions and resulting shortages and demand. I dont see raising the interest rates as having much impact on this sort of inflation.

 

I tend to agree with Cathy Wood on this issue when it comes to inflation. I continue to see the primary world economic issue as DEFLATION.

Cathie Wood rejects Fed’s inflation 'jawboning,' pivots back to deflation narrative

https://finance.yahoo.com/news/cath...ts-back-to-deflation-narrative-220631072.html

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

"Wall Street’s rate-hike jitters have wreaked havoc on high-growth tech stocks — and Cathie Wood’s Ark ETFs were front and center for the damage yet again.

Still, Wood dismissed concerns over inflationary pressures, reaffirming an earlier assertion that deflation remains the focus for her firm during a webcast on Tuesday. The Ark Invest CEO also said that price increases were likely to ease as supply chain issues resolve.

Wood’s remarks come amid Federal Reserve Chair Jerome Powell's confirmation testimony on Tuesday, in which he signaled that if the pace of price increases fails to slow, the central bank will get more aggressive with raising short-term borrowing costs.

Ark Invest’s beleaguered innovation fund (ARKK) has now lost half its value from its peak as worries of more aggressive monetary policy by the Federal Reserve sent technology stocks — namely the “disruptive” but often unprofitable picks that form her investment strategy — cratering to start the new year. Even as the fund rode a tech rebound on Tuesday to eke out a modest comeback, ARKK is down more than 50% from it's all-time high in February 2021. ARKK ended the session 2.46% higher to close at $86.98 per share.

In a separate webcast on Jan. 7 addressing the recent rate rout, Wood maintained her view that losses were temporary, even stating that Ark Invest anticipates “inflation is indeed transitory,” based on other economic measures such as velocity — the ratio of GDP to money supply — which has decelerated since its peak at the onset of the pandemic.

“What we believe has happened here is that the Fed, having suggested that inflation was transitory since the beginning of the coronavirus, was becoming concerned when it saw CPI inflation year-over-year at 6.8%, and it does not want to be blamed for inflation being sustained and certainly not moving out of control,” she said in the video.

“We think this is a bit of jaw-boning here,” she added. “The Fed wants to err on the side of hawkishness, certainly from a jaw-boning point of view because they don’t want inflation to continue to escalate.”

Wood’s peers on Wall Street don’t seem to share that confidence. Although some have predicted prices could level out by the end of the year, many are bracing for the possibility inflation could linger.

Goldman Sachs, Evercore ISI, and Deutsche Bank are among Fed watchers repricing the Federal Reserve’s pace on rate hikes, predicting short-term interest rates will be 100 basis points higher by the end of 2022 than where they are now.

JPMorgan CEO Jamie Dimon said in an interview with CNBC on Monday that he hoped for a “soft landing,” by the Fed, but acknowledged inflation could be worse than policymakers anticipate and rates could be increased more than currently executed.

By contrast, even as her fund bears the brunt of the Fed-spurred sell-off, Wood said her “conviction couldn’t be higher” that her favorite innovation companies “will continue to cause explosive growth — the likes of which we haven’t seen in our lifetimes.”"

MY COMMENT

I have been hammering on the DEFLATION view for a long time now. We have been in a world wide DEFLATIONARY environment ever since the 2008/2009 near economic collapse. At least I have.....one....person that agrees with this view. I know many more agree.....but....they are not mentioned or ever given space in the media.

 

Here is what happened in the....market neighborhood.....today....at least in hindsight.

Stock market news live updates: Stocks rebound as Nasdaq powers on for second straight day and Dow gains 180 points

https://finance.yahoo.com/news/stock-market-news-live-updates-january-11-2022-234301102.html

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

"Wall Street’s main indexes closed in the green on Tuesday after staging a comeback from earlier losses as investors weighed testimony from Federal Reserve Chair Jerome Powell.

The Nasdaq rallied for the second consecutive session to close 1.4% higher at 15,153.45, while the Dow jumped 180 points. The S&P 500 also clawed back from a morning drop to close in positive territory.

Federal Reserve Chairman Jerome Powell told Congress in his confirmation testimony on Tuesday that if the pace of price increases fails to slow, the central bank will get more aggressive with raising short-term borrowing costs.

“If we see inflation persisting at high levels, longer than expected, if we have to raise interest rates more over time, then we will,” Powell said at a hearing before the Senate Banking Committee.

"Investors in the equity markets are assuming that inflation comes down to at least a low enough level to not bother stocks that much," ProShares global investment strategist Simeon Hyman told Yahoo Finance Live. "But the Fed's activity you need to split into two pieces."

"Before you get to rate hikes, you have to talk about tapering and the new news of the last 10 days — an accelerated unwind of the balance sheet," he added, indicating this could determine longer-term rates to rise regardless of whether inflation comes down and independent of the Fed's speed on raising rates.

"Ultimately, those actions might mean there don't have to be too many rate hikes,"Hyman said.

The central bank’s monetary policy will remain in focus this week, with the Bureau of Labor Statistics' (BLS) latest Consumer Price Index (CPI) in the spotlight as investors continue to gauge inflationary pressures and the Fed’s potential response.

Another red-hot read on the latest number is expected, with economists forecasting a print of 7.1% in December based on Bloomberg consensus data, up even more from November's 6.8% year-over-year clip.

Worries over sooner-than-expected interest rate increases have tempered investors’ optimism heading into the new year, placing equity markets in a risk-off mood so far in 2022. Meanwhile, Treasury yields have climbed, with the benchmark 10-year yield near 1.8%, its highest level since January 2020.

“We’re seeing across the board a re-rating of what the Federal Reserve will do,” Steven Wieting, global chief investment strategist at Citi Private Bank told Yahoo Finance Live.

“The likelihood is very clear that the Fed will succeed in sinking inflation,” Wieting said. “That was going to happen one way or the other and we are just trying to gather how actively the Fed will be doing that.”"........

MY COMMENT

It will be nice to kick off the earnings season when the big banks report this Friday. We need something to get everyone's attention off the FED and rates. That is a USELESS OBSESSION. A financial media topic.....but....really a waste of time for investors.

 

I guess I got LUCKY on the timing of my buy of $5000 in the Schwab SP500 Index fund yesterday. It was NOT intentional. I want to put about $15,000 into my account this year and happened to have $5,000 available to put in now. The next "chunk" of money will come available in early February.

The primary reason for my timing of these investments is cash flow needs for taxes, bills, and expenses that come up in my budget over the first four months of the year. I need to make sure I dont cut into those needed funds. There is no doubt that I will put the remaining $10,000 into the markets......and.....in my usual fashion, I want to get it in there and working as soon as possible. Best case I will get it all in by early February......worst case I will get another $5,000 in by early February and the balance, $5,000 in by early March.

 

I REALLY like the basic concept in this little article. Right in line with how I ALWAYS invest.

Anchor Your Portfolio in Quality
What’s behind tech’s weakness … the right way to navigate it … a “quality” orientation is critical for all portfolios today

https://investorplace.com/2022/01/a...-quality/?utm_source=rcm&utm_medium=editorial

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

"As I write Monday morning, the pain in the tech sector continues.

Let’s do some quick MBA 101 to make sure we’re all on the same page about what’s driving it.

Theoretically, the value of a stock equals the net present value of a company’s future cash flows plus what the company’s balance sheet says its assets are worth.


To arrive at this “net present value of future cash flows” figure, we use a discount rate. This discount rate typically correlates with prevailing bond yields.

The higher that yields go, the higher the discount rate goes. Mathematically, a higher rate lowers the present value of future cash flows.

Technology growth stocks derive the vast majority of their value from those future cash flows (rather than tons of hard assets, like machinery, on their balance sheets).

So, the higher that yields go, and the higher the discount rate goes, the lower the “net present value” of growth stocks.

And that translates into lower stock prices for technology companies.

So, following these breadcrumbs, it leads us back to bond yields.

***Driving the latest spike in yields were the Fed’s minutes from its December policy meeting released last week

Those minutes sounded more hawkish than some investors anticipated. It has left many believing we’ll see a rate hike as soon as March.

This fear accelerated the rise in the 10-year Treasury yield that started in late summer. The yield has just topped 1.8%, which is a new, pandemic-era high.

As you can see below, the yield has surged 42% since August. Roughly 16% of that surge has happened so far in 2022.


Source: StockCharts.com

So, higher bond yields typically end up resulting in lower prices for interest-rate sensitive growth stocks. And that’s precisely what’s been happening with tech.

Below, you can see the tech-heavy Nasdaq index saw-toothing up and down beginning in late November. The swings in the circled area are roughly 6%.


Source: StockCharts.com
Not too easy on the nerves.

***But if similar past selloffs repeat themselves, we could be nearing the bottom

From Bloomberg:

The rate-induced selloff in hyper-expensive technology shares has almost run its course, if past shocks are any guide…

So reckons Morgan Stanley, which compared the carnage in tech that started in December to the five previous instances where rising Treasury yields sparked similar routs.

In those, a basket of loftily valued tech companies tumbled a median 18% from peak to trough — that’s at 15% now in the latest episode.

Morgan Stanley’s analysis was before today’s 2.5% selloff in the Nasdaq (as I write). So, it’s likely we’re very close to that median “tumble” level from the analysis.

Now, even if we’re nearing the bottom of the selling pressure, it’s critical to make sure you’re only holding the best of tech today. This means steer away from “profitless” tech. You want quality, profitable companies with great cash flow.

Our hypergrowth expert, Luke Lango, made this point last week in his Early Stage Investor Daily Notes:

Put extra emphasis on profitable companies.


This is the “show-me-the-money” year. In the face of tightening monetary conditions, investors aren’t willing to take big leaps of faith on companies that promise to make money tomorrow.


Rather, they are only buying stocks of companies that have profits today. We believe profitable stocks will outperform unprofitable stocks over the next few months.


Meanwhile, join the “flight to quality.”


The recent trading action can be characterized as a flight to low-risk, high-quality assets. We suspect this flight to quality will persist.


Focus on companies with strong balance sheets, great cash flows, and high gross profit margins.

***To see why this focus on profits and fundamental strength is important, look at what’s happened to speculative tech stocks

Below, we look at a chart from Morgan Stanley and Bloomberg that begins this past summer.

What you’re seeing is the percentage change in: 1) “expensive software” stocks, 2) “profitless tech” stocks 3) “hedge funds’ crowded stocks” and 4) the S&P 500.


While the S&P has climbed nearing 10% over this period, “profitless tech” has gotten crushed to the tune of a 30% loss.


Source: Morgan Stanley, Bloomberg

Back to Luke for how to navigate the risk of further tech weakness as we enter a rising-rate environment:

All in all, we think that in order to protect against near-term market volatility, an emphasis on high-margin, money-making, cash-rich tech companies with relatively low valuations is required over the next few months.

***Looking more broadly, a “flight to quality” is a wise decision for all sectors, not just tech

We all know that the broad market is trading at lofty valuations.

But I’d like to give you an added, simplistic perspective that might drive this home in a different way. This is not intended to create anxiety – it’s merely an angle on the market.

Below, we look at the S&P 500 beginning in 2009. This corresponds with the recovery out of the global financial crisis.

What I’ve done is try to fit a trend line onto the chart. This trend line attempts to trace the median of all the values in the chart so that half the readings are above the trend line, with the other half below.

I’ve circled what’s happened since 2021. In short, market prices have climbed much higher than usual above the long-term trend line.




Source: StockCharts.com
Now, here’s the punchline…

If the S&P drops from its level (as I write) of 4,586 to its approximate trendline level of 3,800, that would be a loss of roughly 17%.

And if you’re taking an issue with where I’ve drawn the trendline, I’d suggest that technical precision isn’t all that important. As legendary investor Benjamin Graham once said “you don’t have to know a man’s exact weight to know that he’s fat.”

In the same way, whether we’re talking a 17% decline, or 15%, or 12%, the point is the same…

The S&P’s value is far higher than usual above its long-term trendline.

And remember, a 17% mean reversion would only take the S&P’s value back to its long-term trendline level.

Now, look again at the chart…

The last time we saw a meaningful spread between the S&P’s price and its long-term trendline was 2013-2015. After that stretch of relative outperformance, the S&P’s value reverted toward its trendline.

Over roughly 7 months beginning in summer 2015, the S&P fell nearly 15%.

Keep in mind, that fall pushed the S&P’s price below its trendline. Our prospective 17% decline is what could happen if the S&P finds merely support at its trendline – without dipping below it, which would be entirely reasonable.

Bottom-line, the S&P could fall 17% tomorrow and the market’s multi-year growth story wouldn’t even suffer a scratch…though many portfolios would.

***Now, this does not mean panic and sell all your stocks – starting with your technology stocks

The market can keep climbing. That’s not at all unrealistic.

Plus, if you do sell now, how will you know when to get back in? There are countless studies highlighting the near-impossible challenge of correctly timing the market.

And even if we are in for a correction, it’s critical to see the bigger picture.

Returning to quality tech companies such as the ones Luke recommends, those companies are shaping tomorrow’s world. Yes, their stock prices could fall on tough times in the short-term, but over this decade, their dominance will return.


These seasons of weakness are normal, and patience is critical.

Back to Luke:

You can hardly make a move in America without coming into contact with Amazon, Apple, or Microsoft. They are among the most successful businesses in U.S. history. Their soaring stock market values have made many people very rich.


However, these incredible businesses didn’t take over the world in a day, a week, or even a year. It took them years and years to grow from small to dominant.


Only their patient shareholders made the really big money.


Even the greatest businesses need time to “gain weight” and let compound returns work their magic.


As investors, we’d be wise to keep this in mind… be patient with great businesses… think long term… maintain reasonable expectations with our holdings… and snowball our way to wealth.

I’ll add that every stock Luke just mentioned saw major double-digit declines in recent decades. That’s just the name of the game.

Bottom-line, in the short-term, your best defense against volatility is a portfolio containing companies with strong earnings and reliable, growing cash-flows. And especially today, it’s companies that can raise their prices to offset inflation, therein maintaining their margins and earnings.


But the bigger recommendation is to remember the long-term. If you have a lengthy investment timeline, and you’re invested in top-tier stocks such as those Luke recommends, then patience, not panic, is your prescription for today."

MY COMMENT

I have invested in the same way for my entire life....over 45 years.....through good markets and bad. I put my FOCUS on the greatest companies in the world. They are uniformly AMERICAN companies. Over the years the list will slowly evolve....but in any market I want to simply hold the best of the best.

I am NOT interested in shooting for the moon....I simply want to put my money into the best companies that give me the maximum "probability" for great long term returns. Compounding will do the rest of the heavy lifting.

 

After and hour or two.....we are STILL green across the board. Although.....we are seeing the gains moderate as we get into the usual mid morning weakness. This is in spite of .......GASP......the daily inflation data. Looks like the markets dont really care much about the hindsight inflation data. Why should they......we are going to see MUCH happening from the FED over the coming months that will.......supposedly......impact the economic situation in a good way.

YEP.....the averages have now gone RED. The power of media fear mongering.

 

HERE is that hindsight inflation data mentioned above.

Inflation reaches highest level since 1982 as consumer prices jump 7% in 2021

https://www.msn.com/en-us/money/mar...ces-jump-7-in-2021/ar-AASHIgN?ocid=uxbndlbing

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

"Another month, another record-setting leap in prices.

Inflation hit a fresh 39-year high in December as a drop in energy costs wasn’t enough to offset a steady march upward for staples such as food, rent and cars amid stubborn supply-chain bottlenecks and worker shortages.

The consumer price index jumped 7% last year, the fastest pace since 1982, the Labor Department said Wednesday. That's up from 6.8% annually in November, which was also a nearly four-decade high.

COVID’s fast-spreading omicron variant likely intensified the price increases by spawning more worker absences in global delivery networks and slowing shipments, says Wells Fargo economist Sam Bullard. That more than erased any easing of demand and prices in COVID-sensitive industries like travel, Bullard says.

Excluding volatile food and energy items, so-called core prices rose 5.5% in 2021, a new 30-year high. On a monthly basis, overall consumer prices increased 0.5% in December while core prices advanced 0.6%.

Overall inflation may ease soon

Economists expect overall inflation to ease in coming months as gasoline and other energy prices continue to pull back and crude oil prices fall. But core inflation is expected to drift higher before edging down as the supply snags are ironed out.

"Buckle up," says economist Leslie Preston of TD Economics. "After reaching new highs core inflation is likely to get even higher in the first quarter of 2022 on a year-on-year basis."

Gasoline prices down

Last month, energy prices declined for the first time in six months, dipping 0.4%, with gasoline prices falling 0.5%. That still left pump prices up 49.6% the past year.

But other costs continued to climb. Hotel rates leaped 23.9% annually. Used car and truck prices rose 3.5% monthly and 37.3% for the year. Prices increased 11.8% annually for new cars, 7.4% for household furnishings, 5.8% for apparel and 6.3% for groceries.

Chicken and fish prices jumped 10.4% and 8.4%, respectively, over the past year after further monthly advances. Beef was up 13% and pork, 15.1%, despite dips last month.

Food prices up, shelves empty

Additional food price increases may lie ahead with reports of empty store shelves in the Northeast as a result of omicron-related worker absences and winter storm disruptions, says economist Paul Ashworth of Capital Economics.

The pandemic has been behind the stomach-churning inflation.

Consumers who were already snapping up goods such as TVs and appliances while stuck at home during the health crisis began dining out and traveling more. Many were ready to splurge after they built up more than $2.5 trillion in additional savings from federal stimulus checks and enhanced unemployment benefit, as well as cutting back during the lockdowns.

Supply-chain problems impact CPI

But a supply network still hobbled by the pandemic wasn’t prepared for the buying binges. Many overseas factories are running at partial capacity. Shipping containers are in short supply. And many truck drivers and warehouse workers are still caring for kids at home or fearful of contracting COVID.


The rare collision of robust demand and skimpy supplies has triggered widespread product shortages and higher prices that are outpacing solid wage increases for low- and middle-income Americans.

Fed prepared to hike interest rates

At his confirmation hearing for a second term Wednesday, Federal Reserve Chair Jerome Powell told lawmakers the central bank is prepared to raise interest rates more rapidly than planned to contain inflation. The Fed already has accelerated the phaseout of its bond-buying stimulus, a move that would clear the way for interest rate hikes as early as March."

MY COMMENT

Actions have consequences. Close down an economy and........guess what......it is not so easy to get it opened up again. Reward NOT working and....guess what.....your disrupt and distort the employment and labor systems. You can not just flip a switch and everything goes back to the way it was. This applies to the economy......and....it also applies to culture and society. Our Social Constructs and economic constructs.......are NOT.......set in stone. They are NOT inherent to our society. They can disappear in an instant........and when they are gone or disrupted it is difficult to get them back.

I noticed at the start of this month when we went to the grocery store for our typical monthly shop that many shelves were very lightly stocked. We are not seeing rows of empty shelves here.....but....we are seeing OBVIOUSLY less items on shelves. The internal and external supply chains and commercial transportation systems are screwed up at the moment. THAT....is the obvious reason for much of the inflation data we are seeing.

BOTTOM LINE......we are STILL at least 12-18 months from what used to be NORMAL.

 

I FINALLY did my morning account look. I am strongly in the green for mid morning. EVERY position is positive and I am making some nice money. Of course it will not be locked in till the end of the day. A good beginning today and yesterday after the NEGATIVE start to the new year. Over time it all averages out to.........REALITY.

Even after the DISMAL start to the year.....and taking into account the recent $5,000 addition to my account.....I am DOWN for the year by 2.7% at this moment. I will take it....gladly. We had a nasty run in the markets for the open of the new year.....but.....the impact on my account appears to be relatively minimal.

We more forward from here.....it is a NEW BEGINNING.

 

I see.....having just looked......that my account stayed very consistent through the day. It ended just about where it was when I looked at it this morning. A nice SOLID gain. I had a single stock in the red today....Amazon. Besides being in the green and making some money....I got in a beat on the SP500 for the day of.....0.51%.

I needed that to catch up some on the little head start that the SP500 has on me so far this year. I am NOT worried about it.....I remember some time around May or June of last year being behind the SP500 by about 7%. So.....I have plenty of time for a big push this year.

 

YOU are racking up some nice short term gains.....gtrudeau88. Way to go.

 

I agree with this little article......the REAL story on inflation and everything else......will not be known for about 12-18 months down the road.

The big test for inflation is 12 months away

https://www.cnn.com/2022/01/12/investing/premarket-stocks-trading/index.html

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


"London (CNN Business) Annual consumer inflation in the United States has climbed to 7% as prices rise at the fastest clip in nearly four decades.

But the real test for prices is a year away.

What's happening: According to the most recent survey of consumer expectations by the Federal Reserve Bank of New York, which was published earlier this week, Americans expect inflation of 6% one year from now and 4% in three years' time.
That's much higher than forecasts from the Federal Reserve. The central bank projected at its December meeting that inflation would run at 2.6% in 2022.

Bond market investors, for their part, see inflation averaging 2.87% over the next five years.

Who's right? That will depend in large part on how effective the Fed is at tackling price increases through interest rate hikes. After pushing rates to near-zero at the beginning of the pandemic, the central bank is expected to hike borrowing costs soon in an attempt to cool off the economy.

Wall Street now sees a nearly 75% probability that the Fed will lift interest rates by 0.25% in March.

There are signs that consumers are increasingly confident that the Fed has matters under control. The New York Fed survey found that uncertainty about where inflation is headed decreased in December.

Fed Chair Jerome Powell also said Tuesday that he thinks a main contributor to inflation — pressure in global supply chains — will ease up this year, though some business leaders and industry analysts disagree. During his confirmation hearing before the Senate, he told lawmakers that his expectation is that supply chains "will loosen up."

But Powell conceded that if that doesn't happen, and inflation proves to be "even more persistent and higher," it would increase the risk of higher prices "becoming entrenched in the psychology" of businesses and households.

Why it matters: Inflation erodes consumers' spending power and forces them to make tough choices on what to buy, in turn hurting the economy. But a major concern now isn't whether serious inflation is going to hit — it has — but whether it's going to stick around, triggering a damaging feedback loop as businesses keep raising prices and workers demand higher wages to cover their costs. That's a much deeper problem.

Powell has said the Fed will respond more aggressively if that type of pattern emerges. Goldman Sachs now thinks the central bank will hike interest rates four times this year. JPMorgan Chase CEO Jamie Dimon said in an interview earlier this week that even that estimate may be conservative.

"It is possible inflation is worse than they think and they raise rates more than people think," Dimon told CNBC. "I'd personally be surprised if it is just four increases next year."

The takeaway: The December inflation data is an important snapshot in time. But lots of attention is now focused on what will happen once the Fed steps in more assertively in the coming months.

"The risk of a mistake goes up when you're rushing like this," economist Mohamed El-Erian told CNN Business."

MY COMMENT

I totally agree that a MAJOR RISK right now is to rush things. We need to move forward on rates but not get carried away and end up having to back off on the rates or end up with an economy in a recession. Go slow and go steady. I think that Powell knows this.....but executing on what you know is always the big problem.