The Long Term Investor

I am off to San Antonio in about 30 minutes. So I will let Professor Emmett take over the markets for us today. He will do a good job. And....I have no doubt that he will.....SHOW ME THE MONEY.

 

WAY TO GO....Emmett. But of course he is a MASTER INVESTOR. When the chips are down he comes through. He makes it look effortless.

 

This is old news by now.....but for the historical record.

Fed hikes interest rates by 0.75 percentage point for second consecutive time to fight inflation

https://www.cnbc.com/2022/07/27/fed-decision-july-2022-.html

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

"Key Points

• The Federal Reserve on Wednesday enacted its second consecutive 0.75 percentage point interest rate increase, taking its benchmark rate to a range of 2.25%-2.5%.
• Chair Jerome Powell said there will be a point where the Fed starts to slow hikes to assess their impact.
• “We actually think we need a period of growth below potential in order to create some slack,” he said.

The Federal Reserve on Wednesday enacted its second consecutive 0.75 percentage point interest rate increase as it seeks to tamp down runaway inflation without creating a recession.

In taking the benchmark overnight borrowing rate up to a range of 2.25%-2.5%, the moves in June and July represent the most stringent consecutive action since the Fed began using the overnight funds rate as the principal tool of monetary policy in the early 1990s.

While the fed funds rate most directly impacts what banks charge each other for short-term loans, it feeds into a multitude of consumer products such as adjustable mortgages, auto loans and credit cards. The increase takes the funds rate to its highest level since December 2018.

Markets largely expected the move after Fed officials telegraphed the increase in a series of statements since the June meeting. Stocks hit their highs after Fed Chair Jerome Powell left the door open about its next move at the September meeting, saying it would depend on the data. Central bankers have emphasized the importance of bringing down inflation even if it means slowing the economy.

“As the stance of monetary policy tightens further, it likely will become appropriate to slow the pace of increases while we assess how our cumulative policy adjustments are affecting the economy and inflation,” Powell said.

In its post-meeting statement, the rate-setting Federal Open Market Committee cautioned that “recent indicators of spending and production have softened.”

“Nonetheless, job gains have been robust in recent months, and the unemployment rate has remained low,” the committee added, using language similar to the June statement. Officials again described inflation as “elevated” and ascribed the situation to supply chain issues and higher prices for food and energy along with “broader price pressures.”

Powell said he does not think the economy is in recession, though growth was negative in the first quarter and was expected to be barely positive in the second quarter.

“Think about what a recession is. It’s a broad-based decline across many industries that’s sustained more than a couple of months. This doesn’t seem like that now,” he said. “The real reason is the labor market has been such a strong signal of economic strength that it makes you question the GDP data.”

The rate hike was approved unanimously. In June, Kansas City Fed President Esther George dissented, advocating a slower course with a half percentage point increase.







The increases come in a year that began with rates floating around zero but which has seen a commonly cited inflation measure run at 9.1% annually. The Fed aims for inflation around 2%, though it adjusted that goal in 2020 to allow it to run a bit hotter in the interest of full and inclusive employment.

Powell said the Fed is “strongly committed” to reducing inflation and said that could come with a cost to general economic growth and the labor market in particular.

“We think it is necessary to have growth slow down. Growth is going to be slowing down this year for a couple of reasons,” he said. The economy, he added, probably will grow below its long-run trend for a period of time. “We actually think we need a period of growth below potential in order to create some slack.”

In June, the unemployment rate held at 3.6%, close to full employment. But inflation, even by the Fed’s standard of core personal consumption expenditures, which was at 4.7% in May, is well off target.

The efforts to bring down inflation are not without risks. The U.S. economy is teetering on the brink of a recession as inflation slows consumer purchases and dents business activity.

First-quarter GDP declined by 1.6% annualized, and markets were bracing for a reading on the second quarter to be released Thursday that could show consecutive declines, a widely used barometer for a recession. The Dow Jones estimate for Thursday’s reading is for growth of 0.3%.

Along with rate increases, the Fed is reducing the size of asset holdings on its nearly $9 trillion balance sheet. Beginning in June, the Fed began allowing some of the proceeds from maturing bonds to roll off.

The balance sheet has declined just $16 billion since the beginning of the roll-off, though the Fed set a cap of up to $47.5 billion that potentially could have been wound down. The cap will rise through the summer, eventually hitting $95 billion a month by September. The process is known in markets as “quantitative tightening” and is another mechanism the Fed uses to impact financial conditions.

Along with the accelerated balance sheet runoff, markets expect the Fed to raise rates at least another half percentage point in September. Traders Wednesday afternoon were assigning about a 53% chance the central bank would go even further, with a third straight 0.75 percentage point, or 75 basis points, increase in September, according to CME Group data.

The FOMC does not meet in August, but officials will gather in Jackson Hole, Wyoming, for the Fed’s annual retreat.

Markets expect the Fed to start cutting rates by next summer, even though committee projections released in June show no cuts until at least 2024.

Multiple officials have said they expect to hike aggressively through September then assess what impact the moves were having on inflation. Despite the increases — totaling 1.5 percentage points between March and June — the June consumer price index reading was the highest since November 1981, with the rent index at its highest level since April 1986 and dental care costs hitting a record in a data series going back to 1995.

The central bank has faced critics, both for being too slow to tighten when inflation first started to accelerate in 2021, and for possibly going too far and causing a more severe economic downturn.

Sen. Elizabeth Warren, D-Mass., told CNBC on Wednesday that she worried the Fed hikes would pose economic danger to those at the lowest end of the economic spectrum by raising unemployment."

MY COMMENT

Exactly as expected.....that is great news for the markets.

NOW we need the FED to go slow and in line with expectations. The markets CRAVE certainty. Just like plants CRAVE electrolytes. We need the FED to move with certainty and caution as they continue to raise rates into the teeth of a recession.

Thank God we get a break from them in August.

 

For any that care about META......I dont.....here you go.

Meta earnings miss expectations, net income plummets 36%

https://finance.yahoo.com/news/meta-q2-earnings-2022-132404138.html

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

"Facebook parent company Meta (META) reported its Q2 2022 earnings after the closing bell on Wednesday, falling shy of analysts' expectations, and missing by a wide margin on its Q3 revenue forecasts. The quarter also marked the first year-over-year revenue decline for the social media company. Net income also fell 36% year-over-year.

Here are the most important numbers from the report versus what analysts were expecting, as compiled by Bloomberg.

• Revenue: $28.8 billion versus $28.9 billion expected
  
• Earnings per share: $2.46 versus $2.54 expected
  
• Facebook daily active users: 1.97 billion versus 1.95 billion expected
  

Meta's Q3 revenue forecast fell short of analysts' expectations, coming in at between $26 billion and $28.5 billion. Wall Street was looking for $30.32 billion. And while daily active Facebook users increased by 8 million users quarter-over-quarter, monthly active users declined by 2 million users quarter-over-quarter. CEO Mark Zuckerberg blamed the drop on internet blocks related to the war in Ukraine.

The company's family of apps, which include the likes if Instagram and WhatsApp, saw quarter-over-quarter increases in both daily active and monthly active users.

Shares of the company were down more than 4% following the report.

Ahead of Meta's earnings, the Federal Trade Commission announced it is seeking an injunction to block the social media company's acquisition of Within, maker of the virtual reality fitness app Supernatural.

“Meta already owns a best-selling virtual reality fitness app, and it had the capabilities to compete even more closely with Within’s popular Supernatural app," FTC Bureau of Competition deputy director John Newman said in a statement.

"But Meta chose to buy market position instead of earning it on the merits. This is an illegal acquisition, and we will pursue all appropriate relief.”

The FTC is pursuing a separate antitrust suit seeking to break up Meta.

Meta’s earnings come as the broader digital advertising industry is experiencing a slowdown amid inflation, rising interest rates, and the war in Ukraine.

It’s not just inflation, interest rates, or the war and COVID that companies are dealing with, either. Apple’s App Tracking Transparency, a privacy feature that prevents apps like Facebook from tracking user activity across the web and apps, is hindering Meta’s ability to provide advertisers with accurate user behavior.

As proof of Meta's ad market troubles, the company reported that average price per ad fell 14% year-over-year.

Then there’s TikTok, which Meta, and its ilk, see as an existential threat. The bite-sized video app claimed it had 1 billion monthly active users as of Sept. 2021.

To combat the threat of TikTok, Meta has focused more on its Reels product, a TikTok-style short video feature. What’s more, the company introduced a new layout for its main Facebook app complete with a new Home feed that apes the feel of TikTok’s “For You” recommendation page.

All of this comes at a time when Meta is attempting to transition from a social networking company to a metaverse-first business focused on AR/VR experiences.

Internally, Meta employees are grappling with CEO Mark Zuckerberg’s stricter demands to perform or head for the door, and warnings that the company could be facing a damaging downturn, according to Reuters.

Chief product officer Chris Cox also told workers that the company needs to “prioritize more ruthlessly,” according to Reuters which cited an internal memo."

MY COMMENT

Not horrible earnings in terms of revenue and EPS. That net income fall is HUGE.

I am NOT the best person to comment on this company. I dont own the stock and I dont like the company. I believe their "meta stuff" is just crude cartoons and ridiculous. I will avoid any further comments since they would be very negative and not very well supported since I dont follow the company.

 

I finally got around to looking tonight about 9:45PM at my account......the luxury of being a long term investor and not having to plan anything for tomorrow. I had a clean sweep today.....ALL GREEN.....and....BIG GREEN. I would think today would drive the markets tomorrow. BUT......we do continue with a lot of earnings tomorrow.....especially APPLE.

I also managed to get in a 1.54% beat on the SP500 today. We are currently at (-15.58%) year to date on the SP500. That is pretty good considering what we have gone through over the last 7 months. I am now at (-20.90) year to date in my primary account. Another good day or two and I can get out of correction range.

I have no ILLUSIONS about the markets.....ALL of the same issues that have been impacting the markets and the economy will continue over the remaining 5 months this year. Is there some slight "POSSIBILITY" that we could get positive by year end.......I guess. I dont think that is a "PROBABILITY".........but I have seen crazier things happen in the markets in my lifetime. I am not going to hold my breath.

 

I see that AMAZON is also going to report tomorrow. I previously had them down to report next Thursday. That means that I will have reports from 5 of my 10 holdings in one week. That plus the FED and GDP makes this one of the biggest week I can remember in a very long time.

AND......yes......the GDP data will be released tomorrow at about 8:30.

 

The markets are mildly down today 15 minutes after the open. With GPD having been just released and showing that we are and have......in fact.....been in a RECESSION.....that is expected. I dont believe this is an indicator of how we will close.....could end UP could end DOWN. We have a long day ahead of us in the markets.

 

Here is GDP.

GDP fell 0.9% in the second quarter, the second straight decline and a strong recession signal

https://www.msn.com/en-us/money/mar...recession-signal/ar-AA103YYK?fromMaestro=true

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

• "Gross domestic product fell 0.9% at an annualized pace for the period, according to the advance estimate.
• That follows a 1.6% decline in the first quarter and was worse than the Dow Jones estimate for a gain of 0.3%.
• The decline came from a broad swath of factors, including decreases in inventories, residential and nonresidential investment, and government spending"

"The U.S. economy contracted for the second straight quarter from April to June, hitting a widely accepted rule of thumb for a recession, the Bureau of Economic Analysis reported Thursday.

Gross domestic product fell 0.9% at an annualized pace for the period, according to the advance estimate. That follows a 1.6% decline in the first quarter and was worse than the Dow Jones estimate for a gain of 0.3%.

Officially, the National Bureau of Economic Research declares recessions and expansions, and likely won't make a judgment on the period in question for months if not longer.

But a second straight negative GDP reading meets a long-held basic view of recession, despite the unusual circumstances of the decline and regardless of what the NBER decides. GDP is the broadest measure of the economy and encompasses the total level of goods and services produced during the period.

"We're not in recession, but it's clear the economy's growth is slowing," said Mark Zandi, chief economist at Moody's Analytics. "The economy is close to stall speed, moving forward but barely."

Markets reacted little to the news, with stocks slightly higher at the open. Government bond yields mostly declined, with the biggest drops at the shorter-duration end of the curve.

A separate report Thursday showed that layoffs remain elevated. Initial jobless claims totaled 256,000 for the week ended July 23, a decline of 5,000 from the upwardly revised level of the previous week but higher than the Dow Jones estimate of 249,000, according to the Labor Department.

Broad-based slowdown

The decline came from a broad swath of factors, including decreases in inventories, residential and nonresidential investment, and government spending at the federal, state and local levels. Gross private domestic investment tumbled 13.5% for the three-month period

Consumer spending, as measured through personal consumption expenditures, increased just 1% for the period as inflation accelerated. Spending on services accelerated during the period by 4.1%, but that was offset by declines in nondurable goods of 5.5% and durable goods of 2.6%.

Inventories, which helped boost GDP in 2021, were a drag on growth in the second quarter, subtracting 2 percentage points from the total.

Inflation was at the root of much of the economy's troubles. The consumer price index rose 8.6% in the quarter, the fastest pace since Q4 of 1981. That resulted in a decline of inflation-adjusted after-tax personal income of 0.5%, while the personal saving rate was 5.2%, down from 5.6% in the first quarter.

"It really was to script," Zandi said of the report. "The only encouraging thing was that inventories played such a large role. They won't play the same role in the coming quarter. Hopefully, consumers keep spending and businesses keep investing and if they do we'll avoid a recession."

The recession question

After posting its strongest gain since 1984 last year, the U.S. economy began to slow earlier this year due to a confluence of factors.

Supply chain issues, brought about initially by outsized demand for goods over services during the Covid pandemic, were at the core of the problem. That only intensified when Russia invaded Ukraine in February and, more recently, when China enacted strict shutdown measures to battle a burst of Covid cases.

The first-quarter numbers also were brought down by a swelling trade imbalance and a slowdown in inventories, which were responsible for much of the GDP gains in the second half of 2021.

Now, the economy faces more fundamental problems.

Inflation began its steep ascent a year ago and then exploded in 2022, hitting its highest 12-month increase since 1981 in June. A slow-footed response by policymakers initially has resulted in some of the biggest interest rate increases the U.S. has ever seen.

The Federal Reserve over the past four months has raised benchmark borrowing rates by 2.25 percentage points. Back-to-back 0.75 percentage point increases in June and July mark the most aggressive two-month hikes since the Fed began using overnight rates as the primary policy tool in the early 1990s.

"Recent economic data may not paint a consistent picture, but a second consecutive negative quarter for GDP provides further evidence that, at best, economic momentum continued its marked slowdown," said Jim Baird, chief investment officer at Plante Moran Financial Advisors. "The path for the Fed to raise interest rates without pushing the economy into recession has become exceptionally narrow. There's a growing possibility that it may have already closed."

Still, Fed Chairman Jerome Powell on Wednesday said he expects the increases to tamp down inflation but he does not see the economy in recession.

Indeed, most economists don't expect the NBER to declare an official recession, despite the consecutive quarters of negative growth. Rather, the feeling on Wall Street is that the economy could well hit recession later this year or in 2023 but is not in one now.

That may not be enough to change public perception, however. A Morning Consult/Politico poll earlier this month indicated that 65% of registered voters, including 78% of Republicans, think the economy already is in a recession."

MY COMMENT

OK.....so what.....we all know what has been happening over the past 7 months. The FACT that we have the RECESSION LABEL changes nothing. The financial environment is the same today as yesterday. This GDP number DOES seem much worse than was expected........and......I predict that the SEMI-GOVERNMENT agency that calls recessions.....will never do so.....for obvious reasons that I will NOT mention.

 

At the same time the above is happening the government is getting ready to pass a massive......SOCIAL and GREEN spending bill that includes a minimum 15% income tax on corporations. CLASSIC.....lets raise taxes into a recession on business.

 

Here is the short term market take today.

Stock market news live updates: Stocks open higher after GDP declines in second quarter

https://finance.yahoo.com/news/stock-market-news-live-updates-july-28-2022-113745757.html

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

"Stocks opened Thursday's trading session higher after new data showed the U.S. economy contracted for the second-straight quarter in Q2.

Shortly after the opening bell, the S&P 500 and Nasdaq were up about 0.3%, while the Dow was up closer to 0.2%.

Data from the Commerce Department out Thursday morning showed GDP growth fell at an annualized rate of 0.9% in Q2, marking the second-straight quarter we've seen a drop in economic activity.

Thursday's early move served as a continuation of sharp gains seen Wednesday after the Federal Reserve delivered an expected interest rate increase of 75 basis points and suggested it may slow the pace of its rate hiking cycle.

All three major indexes rallied following the U.S. central bank’s announcement. The S&P 500 jumped 2.6%, the Dow Jones Industrial Average gained 1.4%, and the tech-heavy Nasdaq Composite soared 4.1%.

Thursday's GDP report is sure to continue the debate among investors about whether the U.S. economy is in recession, with many market participants judging two-straight quarters of lower growth as meeting a definition of recession.

White House officials have in recent days, however, been eager to remind the public that recessions are officially called by the NBER, which defines recession as, "a significant decline in economic activity that is spread across the economy and that lasts more than a few months."

Treasury Secretary Janet Yellen is set to speak to reporters about today's GDP data at 1:30 p.m. ET.

Elsewhere on the economic data calendar, the weekly report on initial jobless claims showed a slight moderation in first-time filings for unemployment insurance, totaling 256,000 last week after 261,000 filings the prior week.

Still, jobless claims data have been on a modest upward trend over the last several weeks.

On the earnings side, shares of Meta (META) were down more than 5.5% in early trading after the Facebook parent company reported second-quarter earnings late Wednesday that fell short of analyst estimates. The quarter also marked the social media giant’s first year-over-year revenue decline.

The company also cut its expense forecast again, and on a call with analysts CEO Mark Zuckerberg said, "we seem to have entered an economic downturn that will have a broad impact on the digital advertising business. It's always hard to predict how deep or how long these cycles will be, but I'd say that the situation seems worse than it did a quarter ago."

Zuckerberg added: "In this environment, we're focused on making the long term investments that will position us to be stronger coming out of this downturn — including our work on our discovery engine and Reels, our new ads infrastructure, and the metaverse. We're also focused on being rigorous about measuring returns and sizing these investments correctly."

Earnings from more Big Tech heavyweights are due out Thursday, with Apple (AAPL) and Amazon (AMZN) on deck to report. Other big names among a busy earnings roster for the day include Pfizer (PFE), Comcast (CMCSA), Intel (INTC), and Roku (ROKU)."

MY COMMENT

NOW....we move on to the critical earnings this afternoon after the close.....Apple and Amazon. For me.....another one of my stocks reports today.....Honeywell.

We are just at the start of the jobs cuts. Major companies in droves are cutting hiring and jobs. My view is that the jobs data is HIDING the REAL state of employment....which is more negative than many think.

Of course ALL this "stuff" that is going on, that is reflected in the economic data......is caused by the SUPPLY CHAIN ISSUES,,,,,,,which continue with nothing being done to resolve the issue. This is the PRIMARY source of our inflation, GDP issues, jobs issues, ad EVERYTHING else going on in the economy at the moment.

 

If you want to see an interesting chart.....look at a chart of inflation. I am looking at such a chart....which will not copy. Here is our inflation history recently.

2012 1.7%
2013 1.08%
2014 .08%
2015 .07%
2016 2.1%
2017 2.1%
2018 1.9%
2019 2.3%
2020 1.4%
2021 7.0%
2022 9.1%

https://www.usinflationcalculator.com/inflation/current-inflation-rates/

 

I have not read the bill Smokie.....but what you may be thinking of is the closure of the Carried Interest Loophole......which is apparently in the bill.

 

HERE is a pretty good summary of the bill.....which WILL pass by reconciliation. This article even includes a link to the entire text of the 725 page bill. If anyone is CRAZY enough to read the entire bill......please.....report back to us.

Read the full text of the deal that Manchin and Schumer just struck to curb inflation, tax corporations, and fight climate change

https://news.yahoo.com/heres-whats-deal-manchin-just-011917790.html?fr=yhssrp_catchall