The Long Term Investor

A nice post by tomB16 above. He is our resident EV/TESLA expert. As well as a long time long term investor.

 

The markets are doing their typical open today.....at least as to lately. A slow lingering open with little direction........is it low volume? I dont know.....I am too lazy to look at the volume data......but that is my guess.

SO......I will put up this little article on Money Market Funds. They have been all over the news lately. I first became aware of them in the late 1970's. I was an early user of Money Market funds after doing some research and seeing the CRAZY rates they were paying. I used them to hold cash that was not stock market money. My favorite type of Money Market Fund was a US Treasury ONLY fund that I felt gave me more safety.

Money Market Funds: What Are They and How Do They Work?
Money market funds are exploding in popularity, but read the fine print before investing.

https://money.usnews.com/investing/articles/money-market-funds-what-are-they-how-do-they-work

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

According to the mutual fund industry trade group Investment Company Institute, continued upheavals in the banking industry and the unsettled economy have caused over $30.28 billion to flow into money market funds, or MMFs, in the week ending Wednesday, April 12. This has pushed total money market fund assets to $5.28 trillion, the largest number since the $4.8 trillion pandemic peak.

U.S. Treasury and government securities MMFs includes investments such as:

• U.S. Treasurys
• Repurchase agreements (short-term government securities)
• Certificates of deposit

Prime MMFs generally offer an advantage in yield due to their investments in:

• Bank acceptances (short-term debt guaranteed by commercial banks)
• Commercial paper (unsecured short-term corporate debt)

MMFs are designed to generate higher yields than bank savings accounts or money market savings accounts. They are most suitable for investors who are seeking to preserve capital, maintain liquidity and earn dividend income. Thus, if an individual wants to invest funds that they know they will need in a short time span, a money market fund could be a viable option.

MMFs generate income, but little to no capital appreciation. As a result, MMFs are not considered suitable for long-term investments, but rather as a short-term place to park cash.

The income generated can be taxable or tax-free depending on the underlying investments. A fund distributes excess earnings from interest as dividends. Investors like MMFs because the fund managers have to make regular payments to the investors, which allows for a steady stream of income.

History of Money Market Funds

MMFs have been around since the early 1970s. In 1970, Bruce Bent and Henry Brown established the first MMF called the Reserve Primary Fund. Considered a low-risk investment, MMFs gained traction because of their stated goal of maintaining a net asset value, or NAV, of $1 per share. This enabled smaller investors to have a safe place to park cash in the short term, while earning a higher return on their investments than they would with interest-bearing bank accounts.

Since the early success of the Reserve Primary Fund, MMFs have been considered safe havens in times of market volatility. Nearly every 401(k) plan in the nation includes money market funds in the cash category, sometimes as the only cash option available.

Breaking the Buck

MMFs were started with the premise that the NAV would remain constant at $1 per share. If the NAV went below $1, it was referred to as "breaking the buck."

Breaking the buck can occur when:

• Interest rates are too low for the fund to cover operating expenses or losses.
• Underlying investment values fall.
• Leverage is used, introducing new capital risk.
• Too many investors attempt to withdraw funds too quickly.

Since inception, the first incident of breaking the buck occurred in 1994 when the Community Bankers U.S. Government Money Market Fund was liquidated because of large losses in derivatives. The Investment Company Institute noted that, while this was the very first case of a fund breaking the buck, investors still received 96 cents of every dollar invested. This result generally appeased the public in terms of acceptable losses.

No additional incidents occurred until 2008, and the very first money market fund was gravely impacted. Investors in the Reserve Primary Fund were rattled to learn that the fund had $785 million in Lehman Brothers commercial paper. While this only represented about 1.5% of their total holdings, the intense media coverage of Lehman's corporate bankruptcy created conditions causing the fund's NAV to fall to 97 cents per share. As the financial markets melted down, fund managers announced that customers might lose money. This created a significant run on assets, which ultimately caused regulators to force the venerable fund to close its doors.

As MMFs have grown significantly in size and importance in retirement plans, institutional investors and corporations make up the bulk of investors. This is because the slightly higher rate offered, especially in prime MMF funds, can represent millions of dollars to large investors. Additionally, MMFs tend to have fewer restrictions on withdrawals, adding to their liquidity value.

In 2020, short-term interest rates were driven to nearly zero to combat the global COVID-19 pandemic. This caused many MMFs to change strategy in order to avoid closing down, which they accomplished through strategies like waiving fees in order to hold yields above zero. The most controversial action taken was to offer negative yields, where investors actually paid for the privilege of the fund holding their money. Unfortunately, some funds still had to close their doors.

Risks and Protections

It is important to understand that money market funds are generally considered to be safe investments, but safe does not mean that they are risk-free. Therefore, understanding the pros and cons of any investment takes on a special importance with MMFs.

Unlike money market savings accounts offered by banks, MMFs do not offer Federal Deposit Insurance Corp., or FDIC, protection. Thus investors, while they can typically expect a slightly higher return, are taking an additional risk, since funds are not insured against losses.

However, money market funds are no longer legally required to keep their NAV share prices at or above a dollar. They also do not have to immediately redeem investor shares. Prime MMFs may charge liquidity fees and redemption fees for withdrawals. Additionally, when a money market fund waives fees in order to keep yields high, they are entitled to recoup these losses at a future date.

Past incidents of breaking the buck prompted the Securities and Exchange Commission (SEC) to create new regulations to better protect potential investors:

• In 2010, the SEC issued a series of new rules to provide more stability and resilience to managing risks.
• In 2016, the SEC allowed the NAV to float, meaning that it was allowed to go both above and below $1 per share. This gave funds more latitude to deal with adverse conditions without generating a run on funds. However, retail and U.S. government MMFs are still required to maintain the $1 per share NAV standard.

The SEC continues to weigh additional provisions that would require, among many proposals, that stable NAV funds could convert to a floating NAV if future market conditions warranted it to avoid negative fund yields.

Future Growth

Money market funds will continue to be in the news, both due to their popularity in the current market environment, but also because the Biden administration is actively promoting environmental, social and governance, or ESG, factors in these accounts.

ESG is a framework of criteria that corporations can use to evaluate their sustainability. While most ESG efforts are focused on long-term measures such as climate change, executive compensation and diversity initiatives, ESG is finding additional space within the short-term horizons embraced by MMFs.

Advocates claim that companies with better ESG characteristics correspond to better credit ratings, which can mitigate risk in the underlying MMF investments. Additionally, ESG-linked commercial paper is becoming more available, which will create new opportunities for socially minded investors and fund managers.

Proper Understanding Is Key

Money market funds' chief competitive advantage is to offer what is historically considered a short-term haven for liquid assets to combat market volatility and generate steady income. It is possible to lose money in these investments and those losses are not backstopped by FDIC protections.

Thus, all investors should be sure to read the fine print. Additionally, many people would find the services of a professional financial planner invaluable to avoid emotional investment decisions, especially when the markets are moving quickly in response to global conditions."

MY COMMENT

I remember very well the late 1970's and early to mid 1980's when money market funds were often paying 12% or more. that was HUGE money compared to a CD or savings account. I am sure the advent of the Money Market Fund probably pretty much wiped out the traditional savings account.

I DO NOT currently use a Money Market Fund since I rarely have money in cash for any length of time because.......I remain fully invested for the long term as usual.

 

That is a HUGE earnings BEAT by PG.....it shows that the old school consumer giants are STILL able to perform.......in spite of the pandemic and all that has gone on over the past few years. It is a good indicator for the "consumer segment" stocks this earnings season.

 

Here is the open today.

Stocks waver amid corporate earnings: Stock market news today

https://finance.yahoo.com/news/stock-market-news-today-live-updates-april-21-2023-115130778.html

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

"Stocks teetered on both sides of the flatline in early trading Friday morning as investors digested a final slate of corporate earnings to close out the week.

The S&P 500 (^GSPC) rose 0.03%, while the Dow Jones Industrial Average (^DJI) dropped 17 points, or 0.05%. Technology-heavy Nasdaq Composite (^IXIC) were down 0.15%.

All three major averages are on pace to close the week lower.

The earnings onslaught slowed slightly on Friday morning, with consumer staple Procter & Gamble (PG) reporting. Shares of Procter & Gamble rose nearly 3% as the company raised its forecast for 2023 organic sales growth to 6%, up from a prior guidance of 4% to 5%.

P&G chairman and CEO Jon Moleller told Yahoo Finance his company isn't seeing any signs of a recession in their business.

"We're seeing if anything, more careful usage of the product that they have bought," Moeller said. "So they might use a half a sheet of Bounty paper towel as opposed to a whole sheet."

Amazon (AMZN) stock rose 2% following a report Thursday afternoon that Whole Foods plans to cut several hundred corporate jobs as part of a reorganization.

Oil futures popped slightly on Friday with West Texas Intermediate (CL=F) and Brent (BZ=F) rising more than 1% in early trading. Brent Crude prices sat just under $82 a barrel.

Stocks closed lower on Thursday amid weaker-than-expected quarterly profit at Tesla (TSLA), mixed earnings data from various sectors, and softer-than-expected housing and jobs data.

Cleveland Fed President Loretta Mester told Yahoo Finance on Thursday that interest rates need to raise above 5% given stubborn inflation. The comments came two days before Federal Reserve participants enter their blackout period prior to the next FOMC meeting on May 2.

Markets are currently pricing in a 84% chance of 25-basis-point rate hike at the next FOMC meeting, according to data from the CME group.

"While the odds of a hike have risen since Friday last week, we think the softness of data this week argue more for a dovish hike," Tom Lee Head of Research wrote in a note to clients on Friday.

The S&P Global U.S. Manufacturing Price Index came in hotter than economists surveyed by Bloomberg had expected. U.S. Services PMI hit a 12-month high at 53.7, while U.S. Manufacturing PMI hit a six-month high of 50.4. Economists had estimated U.S. Services PMI at. 51.5 and Manufacturing PMI at 49, per Bloomberg consenus data.

"Output rose at the sharpest pace for almost a year, as stronger demand conditions, improving supply and a steeper uptick in new orders supported the expansion," S&P Global wrote in the release. "Solid growth in activity was seen across both the manufacturing and service sectors.""

MY COMMENT

Obviously not much to say about the markets today in the article above. What I find interesting is that PG is NOT seeing any sign of recession.

Likewise the manufacturing data is ALSO not showing any sign of recession.

BUMMER for the FED. Yes....they are simply delusional.

 

The DOW has now turned slightly green. The other averages are basically FLAT.

One reason there is no news lately is that the...."experts"....seem to be suddenly MUTE as their fantasy dreams of dismal earnings seem to be quickly evaporating.

In four or five weeks as earnings end we will see them out in force talking about all the reason that earnings were really negative going forward.....even though in REALITY they were positive. The way you weasel out of blowing your earnings predictions is to harp on the.......next earnings......in other words kick the can down the road.

The BEST way to avoid all this short term drama......ONLY invest for the long term. That is what the MAJORITY of investors actually do. They do it quietly. They are the MAJORITY of investors......by a massive amount. They are also rarely recognized or talked about in the financial media. They are the GUTS of the American economy.

 

HERE is more detail on the Whole Foods lay-off plan.

Whole Foods plans to lay off several hundred corporate employees: Read the memo here

https://www.cnbc.com/2023/04/20/whole-foods-layoffs-planned-read-the-memo-here.html

 

I looked a little early today. GASP.......I am in the green.....but not by much. As has been typical lately I have five stocks UP and five stocks DOWN. The UP stocks at the moment.....AMZN, COST, HD, GOOGL, and TSLA.

I am surprised that TSLA is UP so far today. They were punished so much for their earnings report....I expected the RED to linger for a few days.

If I can maintain even a slight GREEN day today.....I should end the week with a positive week.....regardless of how the SP500 ends the week.

 

i was tied up with my plumber all through the middle of the day. I needed to have my three sinks reinstalled from doing my new bathroom countertops. We also had them flush the on demand hot water system and snake one of the sink drains that was slow.

So.....I was mostly out of touch with the markets today....although I did watch from about 1:00 on as they went green.

I had a nice day to end the week POSITIVE. A nice gain....with seven of ten stocks in the green today. I also got in a good beat on the SP500 by 0.20%.

It was a good week for me.

 

All the usual averages were in the red this week except for the RUSSELL. BUT....the losses were very mild.

DOW year to date +2.00%
DOW for the week (-0.23%)

SP500 year to date +7.66%
SP500 for the week (-0.10%)

NASDAQ 100 year to date +18.90%
NASDAQ 100 for the week (-0.62%)

NASDAQ year to date +15.34%
NASDAQ for the week (-0.42%)

RUSSELL year to date +1.72%
RUSSELL for the week +0.58%

I assume that many people were UP this week depending on what they own. A mixed week when you look at it from investor to investor. BUT.....I like it. Earnings are doing JUST FINE.

 

I like the general lessons here......and....the specific lesson for myself as a holder of just TEN STOCKS and my two funds.

More Lessons From the Do Nothing Portfolio
Success also comes to those who stand and wait.

https://www.morningstar.com/articles/1150913/more-lessons-from-the-do-nothing-portfolio

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

"An Investment Sloth

This Tuesday, Morningstar’s Jeff Ptak published an article that I wished that I had written. No worries. As James McNeill Whistler allegedly replied to Oscar Wilde after the latter expressed envy for not having uttered a quip of Whistler, “You will, Oscar, you will.” Today’s column will expand upon Ptak’s notion. Call it my Oscar Wilde moment.

Ptak had an idea. What if instead of owning a stock-market index that is periodically reconstituted, an investor simply bought and retained a basket of equities? No new position would be established. The portfolio would change only when its companies were acquired, but even that would not trigger a trade. The purchase price would remain as cash.

He conducted his experiment on the S&P 500 over three different 10-year periods. The first study ran from April 1993 through March 2003, the second over the ensuing decade, and the third for the following 10 years, which concluded on March 31 of this year.

A Remarkable Showing

The Do Nothing Portfolio beat the index in the first trial, then matched the benchmark during the next two. Below are the 30-year results from a growth-of-$10,000 exercise, reprinted from Ptak’s article.



The outcome was even better than it appears. (Now my contributions begin.) For one, the S&P 500 was no slouch itself, as it outgained 90% of large-blend funds during the 30-year period. For another, the Do Nothing Portfolio was considerably less risky than the index, posting a 13.02% annualized standard deviation, versus 15.04% for the S&P 500.

That combination of above-benchmark total returns and below-benchmark volatility was unbeatable. The next chart shows, from left to right, the number of U.S. diversified equity funds that: 1) existed in April 1993; 2) remained in existence for the next 30 years; 3) outgained the Do Nothing Portfolio, 4) were less risky than the Do Nothing Portfolio, and 5) accomplished both the third and fourth tasks.

null set. From April 1993 through March 2023, no U.S. equity fund of any flavor—I included funds that invest in small and midsized companies, as well as those that buy growth or value stocks—managed to make more money than the Do Nothing Portfolio, while also being less volatile.

Voya Corporate Leaders
Of course, a single test is a single test, even if achieved over a generation. A second example would be useful. Enter Voya Corporate Leaders Trust LEXCX. As with the Do Nothing Portfolio, this venerable (founded in 1935) and quirky mutual fund also avoids new positions. It diverges from the Do Nothing Portfolio by retaining the stocks of acquiring firms, rather than converting those transactions into cash, but it otherwise operates similarly. Its results have been similar as well.



Indeed, from the final values, one might think that the Do Nothing Portfolio and Voya’s fund operate identically. Over the 30-year period, they finished only $56 apart. Sheer coincidence. Because Voya Corporate Leaders was launched almost 90 years ago, it differs sharply from today’s technology-heavy benchmarks. Currently, the fund’s five largest positions are Union Pacific UNP, Berkshire Hathaway BRK.B, Exxon Mobil XOM, Marathon Petroleum MPC, and Linde LIN. (The latter is a German chemical company, headquartered in the United Kingdom.) FAAMG stocks they are not!

Investment Lessons: Part 1

What does not appear to be coincidental, given the success enjoyed by both the Do Nothing Portfolio and Voya Corporate Leaders, is that sit-tight investment strategies can be abundantly lucrative. In his article, Ptak drew four conclusions from the evidence.

1) Cash is not trash. The Do Nothing Portfolio was not penalized for its patience.

2) Avoid the rush. The fewer decisions investors make, the better.

3) Don’t be afraid to let winners run. Some will continue to prosper, and overall portfolio risk is unlikely to climb significantly.

4) Distrust intuition. It often counsels unnecessary action.

Investment Lessons: Part 2

To Ptak’s counsel I have three additions.

1) Don’t sweat an index’s details. Every index provider claims its methods are superior to those of the competition. Not only cannot they all be right, but it is also quite possible that none of them will be. Both the Do Nothing Portfolio and Voya Corporate Leaders outperformed the major benchmarks (Voya’s fund was also less risky than the S&P 500, although only modestly) while breaking the accepted index-construction rules.

The lesson: While investors certainly should understand what their index funds own, to monitor their risk exposures and avoid surprises, index creators cannot forecast the markets any more accurately than can active managers. When selecting among index funds, low costs are the key consideration. Their relative profits can always be pocketed.

2) Worry not about being fashionable. One would think that investment strategies that either delay admission to rising companies, as with the Do Nothing Portfolio, which did not buy Alphabet GOOGL stock until seven years after the company had joined the S&P 500, or bars them entirely, as with Voya Corporate Leaders, would struggle to keep pace with more-responsive indexes. But our test cases did not demonstrate that.

The lesson: While the newest companies tend to shine most brightly, being likeliest to post the highest gains and receive the greatest media attention, there’s plenty of money to be made with the rest of the U.S. stock market. Voya Corporate Leaders has grown its value 17-fold over the past three decades, despite owning businesses that elicit yawns.

3) A little diversification goes a long way. At times, the largest position in the Do Nothing Portfolio reached 11% of assets. The top March 2023 holding for Voya Corporate Leaders is far larger, at 35%! Once again, those figures confound expectations, as one would anticipate such concentrated portfolios to be riskier than the S&P 500, rather than being less volatile.

The lesson: Most investors have more stocks than they need. For adequate diversification, a single portfolio that holds a few dozen positions will suffice. There’s no harm in being more widely diversified, but neither is there meaningful benefit."

MY COMMENT

I agree with the general rules bolded above. I follow most of these with my ten stock portfolio. I also add in my two funds....SP500 INDEX and Fidelity Contra Fund......to counter my personal investing BIAS.

 

Here is the close today.

Stocks end Friday’s session little changed, Dow snaps 4-week win streak

https://www.cnbc.com/2023/04/20/stock-market-today-live-updates.html

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

The Dow Jones Industrial Average ended little changed Friday and finished lower for the week as investors evaluated the latest earnings results and concerns of disappointing profits.

The 30-stock index added 22.34 points, or 0.07%, to end at 33,808.96, while the S&P 500 eked out a 0.09% gain to settle at 4,133.52. The Nasdaq Composite rose 0.11% to close at 12,072.46.

All major indices finished the week in the red, with the Dow falling 0.23% to snap a four-week win streak. The tech-heavy Nasdaq saw the biggest decline, falling 0.42%, while the S&P slipped 0.1%.

“There’s the continued push-pull of the fact that the economy has been a lot more resilient than many people expected and corporate earnings have held up pretty well, all things considered,” said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance.

Even so, he noted that the Federal Reserve has raised rates substantially over the last year. Zaccarelli said that even if the central bank hikes as anticipated in May, it will likely hold rates at a higher level than the market expects.

“You can kind of see the the bull and bear case really right there in a nutshell as far as resilient economy with stronger-than-expected corporate earnings versus a very hot, very restrictive monetary policy coming from the Fed,” he said.

Earnings season continued Friday, with results from Procter & Gamble. The consumer products company gained 3.5% after beating expectations and lifting it sales forecast. As of Friday morning, 76% of S&P 500 companies reporting earnings so far have beaten analyst EPS estimates, according to FactSet.

Elsewhere, materials stocks were the worst performers, with Freeport-McMoRan falling 4.1% after posting a year-over-year decline in its quarterly results. Albemarle tumbled 10% as Chile said it would nationalize its lithium industry.

While companies broadly beat expectations this week, overall profit reports failed to boost stocks, with some investors fearing an earnings drop looms with a likely recession ahead.

“So far, earnings season is off to an uneventful start, with many companies meeting already reduced earnings expectations and that helps to explain the lack of movement in the major stock indices over the past few days,” said Carol Schleif, chief investment officer at BMO Family Office. She added that she expects stocks to trade in a tight range for some time.

Earnings continue next week with results on deck from Big Tech companies Amazon, Alphabet, Meta Platforms and Microsoft."

MY COMMENT

Here is the BIG TAKE from above:

“There’s the continued push-pull of the fact that the economy has been a lot more resilient than many people expected and corporate earnings have held up pretty well, all things considered,..."

"...stronger-than-expected corporate earnings..."

"As of Friday morning, 76% of S&P 500 companies reporting earnings so far have beaten analyst EPS estimates, according to FactSet...."

"While companies broadly beat expectations this week, overall profit reports failed to boost stocks, with some investors fearing an earnings drop looms with a likely recession ahead."

"“So far, earnings season is off to an uneventful start, with many companies meeting already reduced earnings expectations and that helps to explain the lack of movement in the major stock indices over the past few days..."

YES.....earnings are KICKING ASS. A 76% BEAT RATE is huge....compared to all the dire predictions. Also see how the earnings predictions are being weaseled above? The claim is now that companies are beating due to reduced expectations. YEAH RIGHT.

 

UNFORTUNATELY I believe this little article is SEVERELY UNDERESTIMATING the impact of AI on employment.

The Great AI Deflation Bomb

https://www.forbes.com/sites/richkarlgaard/2023/04/20/the-great-ai-deflation-bomb/?sh=6677745c3aae

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

"“This time it’s different” (TTID)are the most dangerous words in investing, warned the late Sir John Templeton. TTID is often heard during bubbles, as in the late 1990s and again from 2015 to 2020, when software stocks were valued at ten to 20 times revenue.

I never found Templeton’s famous warning to be of practical use. If you’re a savvy market timer, investing in bubbles can work just fine. Getting out before the bubble pops is the trick. Templeton’s famous warning, an ode to conservative value investing, is only true some of the time. It’s 100 percent true only in retrospect.

Let us now turn to a truism we think is more useful than Templeton’s. It is from Herbert Stein, an advisor to former U.S. President Richard Nixon. “If something can’t go on forever, it will stop,” said Stein. On the face of it, Stein’s advice is so simple and obvious, how could it have value at all? The word “stop” is where value lies. It makes us ask, when will the trend stop, why will it stop, and (if you’re a serious investor) what are signs that this trend is about to hit a ceiling and crash?

Remember Stein’s words as you think about the 2023 economy and the rest of this decade. Trends that look unstoppable today will stop. Take, for example, the trend of inflation and interest rates. Conventional wisdom, which ignored inflation for too long, now frets about nothing but inflation. It says the world faces a period of higher interest rates that will persist for as long as the low interest rate period of 2009 to 2021. It’s common to hear of 5% central bank rates as a “return to normal.” This new normal is presented as a good thing, a return to sensible capitalism, moderation, common sense, where all excess leverage is purged.

A comforting idea, but that’s not the future we face. Enter a wild new technology accelerant, generative AI. Only five months ago, most of us, even those who follow technology closely, had never heard of OpenAI, a private research organization founded by Elon Musk and others to make AI easier to use. Then on Nov. 30, OpenAI released to the public its AI app called ChatGPT. Within one week, a million people had signed up, and the AI era suddenly had shifted to warp speed.

ChatGPT’s version four took an American law school admissions test in March and scored in the top 10% of test takers, versus the bottom 10% scored by an earlier version. Among the believers in AI’s transformative power is Microsoft CEO Satya Nadella, who says AI is the new platform for the world’s enterprise software.

Question: What do you think ChatGPT-like technology (and similar AI apps from Google, Amazon and others) will do to the world’s educated, white-collar labor force? Answer: carnage. AI will be the great deflation bomb hitting professional services. The work of 20 corporate communications professionals or paralegals or mid-level programmers will now take only three or four people assisted by ChatGPT versions 5, 6, 20, 50, etc.

Yes, history says displaced workers find new, often better work. But they don’t right away. There is no precedent for the speed and scale of generative AI, which will hit all white-collar jobs—soon and everywhere. This includes Asia in places such as India and Philippines, which have built large industries around offering low-cost outsourced white collar jobs, such as software coding. But ChatGPT’s latest professional version costs just $20 a month—much less than most low-cost workers in call centers or other offshore centers, and its basic service app is free.

So those who think inflation and higher interest rates have been ratcheted up to a new normal have failed to account for Herb Stein’s law about trends. The catalyst of trend reversal will be AI, the great deflation bomb. Here’s a prediction. Interest rates will start heading down in the second half of 2023 as professional services inflation rapidly turns into deflation and drags most inflationary pressures with it. There’ll be no return to a new normal. There will be only continued AI acceleration and adaptation in the years ahead."

MY COMMENT

AI is going to decimate ALL professional and white collar employment. It is also going to decimate manufacturing employment. It is going to change the ENTIRE structure of society.

It WILL be a "new normal"..........and 'new' does not mean that is will be a good thing for society.

 

I agree with the little article below....except for the part about recession.

3 Big Reasons a Huge Rally Is Right Around the Corner
The Fed pivot has been long overdue, but three reasons suggest it is just a matter of time

https://investorplace.com/hypergrow...sons-a-huge-rally-is-right-around-the-corner/

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

• "The Fed pivot, which is the anticipated shift in the U.S. Federal Reserve’s monetary policy, from tightening to easing, has been long overdue, but three reasons suggest it is just around the corner.
• Firstly, leading indicators of inflation, such as commodity prices and price survey data, are crashing, with the Philly Fed Survey’s Price index at a decade low. Every leading indicator of inflation has reverted to pre-pandemic levels, meaning inflation is on a course to 2% or lower.
• Secondly, shelter CPI accounts for about 35% of headline CPI and hasn’t posted a single monthly decline, but home prices and rents are dropping about as fast as they could. Home price and rent changes tend to lead shelter CPI inflation by about six to 12 months.
• Lastly, the current economic cycle is poised to enter a recession, and the stock market typically bottoms three to six months before a recession begins, resulting in a massive rally.

It seems we’ve been talking about a “Fed Pivot” since last summer, and yet nearly a year later, the Fed is still hiking rates.

However, the data strongly suggests that the highly anticipated and long overdue Fed pivot is just around the corner..

You need to be prepared for this coming rally. But first, let’s look at three reasons why a Fed pause and huge stock market rally are right around the corner.

Reason #1: Inflation Is Crashing

For some odd reason, the Fed thinks inflation is still high.

News flash: It’s not (really).

Sure, the headline consumer price index inflation rate is still 5%. That’s 2.5X the Fed’s 2% target. But the headline inflation rate – like most major economic data points – is a lagging indicator.

It takes time for changes in economic activity, supply chains, borrowing capacity, and consumer spending to work their way into the final prices of goods. These things have lag effects.

Forget the lagging headline inflation rate for a moment. Instead, let’s look at the leading indicators of inflation;things like price survey data and commodity prices.

They’re all crashing! And they’ve all returned to pre-pandemic levels. Some are even hovering near all-time lows.

For example, let’s look at the price data from yesterday morning’s Philadelphia Fed Business Outlook Survey.

In that survey, the Philly Fed surveys a bunch of businesses in Pennsylvania, New Jersey, and Delaware areas to get a gauge of economic trends. One of the key questions is how prices paid for goods and services are trending. Another key question is how prices received for goods and services are trending.

The Fed conducts this survey once a month. The April survey results were released yesterday.

They showed that the Prices Paid index dropped from 23.5 to 8.2 in April. The Prices Received index dropped from 7.9 to negative 3.3. On a composite basis, the combined Price index dropped from 31.4 to 4.9 in April.

Of course, that’s a steep fall. But here’s the big thing: At 4.9, the Price index is near all-time lows.

You read that right. One of the most prominent leading indicators of inflation – the Philly Fed Survey’s Price index – hasn’t just returned back to pre-pandemic levels, but is now also plunging to a decade low.



Inflation, folks, is dead.

The Philly Fed survey data isn’t the only data point suggesting as much.

Pretty much every other price index in every other Fed district survey has plunged back to pre-pandemic levels, as well. The Bloomberg Commodity Price Index has plunged more than 20% since June 2022. Oil prices have lost about half their value over that same stretch. Natural gas prices are plunging to all-time lows right now.

Every leading indicator of inflation is pointing sharply downward at the current moment. More than that, every leading indicator of inflation has reverted to pre-pandemic levels. Many of them are at multi-year lows.

That means just one thing, folks. Inflation may still be at 5% today, but it is on a predetermined course to 2% (and maybe even lower) within a few months.

Reason #2: Inflation Will Keep Crashing

The most impressive thing about the current round of disinflation is that we’ve basically cut headline inflation rates in half – from over 9% to below 5% — without any help from the biggest component of inflation: shelter.

Shelter CPI accounts for about 35% of the headline CPI. It is the biggest weighting in the calculation. Yet, shelter CPI rates have kept climbing.

Since June 2022, headline CPI has dropped from 9.1% to 5%. Over that same time, shelter CPI has risen from 5.6% to 8.2%, and hasn’t posted a single monthly decline.

We’ve cut inflation almost in half without any help from the biggest weighting in the CPI calculation.

But that biggest weighting is about to collapse.

Like headline CPI itself, shelter CPI is a lagging indicator. It takes time for lower home prices and rents to show up in the shelter CPI.

But home prices and rents are dropping quickly. Last month, for example, the median sales price of an existing home in the U.S. was $375,000, down about 0.9% year-over-year.

That 0.9% drop is the biggest annual price decline for homes since 2012.

Zillow’s Observed Rent Index, meanwhile, has dis-inflated from about 17% a year ago, to less than 6% today.

Home prices and rents are dropping about as fast as they could.

Our analysis suggests these drops are about to show up in shelter CPI.

That is, home price and rent changes tend to lead shelter CPI inflation by about six to 12 months. Considering that historical relationship, it looks inevitable that the collapse we’ve seen in home price and rent inflation will start to show up in a big way in shelter CPI numbers next month.



We think the current 8.2% shelter CPI inflation rate will drop rapidly below 4% within the next three to four months.

Again, that’s the biggest weighting in the CPI calculation. We’ve already basically cut inflation in half without shelter CPI dropping one ounce. As it starts to plunge like a rock into summer, overall CPI inflation rates should crater.

We will likely see 2% inflation by late summer.

Reason #3: The Labor Market Is Cracking

While everyone is all caught up in the Fed’s fight with inflation, we must remember that the Fed has a dual mandate. They are mandated with fighting inflation and keeping people employed.

The Fed has been able to stay aggressive with its fight against inflation because, thus far, it hasn’t really hurt the labor market.

But that is changing right now. The labor market is showing signs of significant stress.

Sure, the unemployment rate remains historically low. Again, though, that’s a lagging indicator. The best leading indicator of unemployment is weekly jobless claims – and, more specifically, weekly jobless claims in economically sensitive states.

When a lot of people start to file jobless claims in economically sensitive states, that’s a sure-fire sign that the national labor market is on the edge – and a huge unemployment crisis could be at hand.

That’s exactly where we are today.

About one-third of states are currently reporting greater than 30% growth in continuing jobless claims.

In other words, nearly one out of every three states is seeing jobless claims spike right now. That’s exactly what happens every time before the labor market cracks.



The Fed has been able to duck for cover behind a super strong U.S. labor market for months now. That cover is disappearing.

As it does, so will these rate hikes.

The Final Word

The Fed has a dual mandate: stable prices and full employment.

From the perspective of that dual mandate, the Fed should wrap up its rate-hiking campaign very soon – likely by June.

Inflation is crashing back toward 2% very rapidly, and the labor market is starting to crack in a very worrisome manner. With inflation crashing and the labor market deteriorating, a Fed pause is on deck.

That’s bullish, because every single time the Fed has paused a traditional rate-hike campaign, the stock market rallied.

Every single time.



Which is more likely? That this is the first time in history the stock market doesn’t rally after the Fed pauses its rate-hike campaign, or that history repeats.

We’re banking on the latter.

We believe the stock market is prepping for a big rally into the summer. "

MY COMMENT

Even though no one seems to ever mention it.......the end of the FED hikes will be HUGE.

In addition most of the recent economic data is lined up for a BIG RALLY this year. We have been in a stealth BULL MARKET for 10 months now. We are going to seen see that rally expand.

As to the recession........we had it last year.

LET THE GOOD TIMES ROLL.

 

Another good indicator.

Money Is Pouring Into Stock ETFs at a Time When Bearish Warnings Soar

https://finance.yahoo.com/news/money-pouring-stock-etfs-time-202307019.html

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

"(Bloomberg) -- Investors are losing their ability to resist a stock rally that much of Wall Street is convinced is doomed.

More than $12.6 billion has been sent to equity exchange-traded funds in April, the largest influx since January and more than twice the rate of February and March. Money is pouring into stocks as fast as it’s being yanked out of cash: ultra-short duration ETFs are on track for their first monthly outflow since January, data compiled by Bloomberg show.

Spigots are turning back on at a time of fairly intense skepticism among the pundit class. To the ever-elongating list of potential obstacles, investors were treated in the last few days to dour tidings in both the Federal Reserve Beige Book report and the Philadelphia Fed’s manufacturing index.

While earnings have been broadly positive, results from Fastenal Co. to Ally Financial Inc. and even Tesla Inc. hinted the US consumer is beginning to buckle. Meanwhile, the S&P 500 is butting up against a level where previous attempts to break out of its sideways march have run out of steam.

Does a case for optimism exist? Yes, mainly in how widespread the bearishness remains — by some measures, it’s the most extreme since 2009. Despite the souring risk appetite after aggressive Fed tightening and banking system turmoil, the S&P 500 has still come nowhere near revisiting its worst levels of last year.

“We haven’t had a new low since October, people aren’t hearing artillery shells landing anymore, so they’re peeking heads out of foxholes,” said George Pearkes, global macro strategist at Bespoke Investment Group. “It may seem silly to attribute large flows of capital to something as simple as not seeing a drop in some time. But that’s how we see flows and sentiment operating in practice, even if it is simple and reductive.”

The S&P 500 finished the week a hair lower, leaving this year’s gain above 7.5%. Meanwhile, volatility continued to drain from the bond market — the 10-year Treasury yield added just four basis points in the week, the smallest swing since before Silicon Valley Bank’s sudden collapse last month.

A similar dynamic prevailed in credit, where few signs of surface-level stress exist despite some red flags. Both investment-grade and high-yield spreads remain well below the peaks of last summer, even as ratings agencies downgrade corporate bonds to junk status at the busiest pace since the pandemic’s outbreak in 2020.

“There’s a fear of missing out on an upside move,” said Charles Campbell, a managing director and trading desk specialist at Roth MKM. “People are also putting money in it because some believe we can have a no landing or soft economic landing scenario, which I don’t subscribe to.”

For the stock faithful, lines on charts may pose the nearest threat to hopes the rally can continue. Up four of the last six weeks to just over 4,130, the S&P 500 sits within about a hundred points of levels where rallies reversed themselves in February, November and September. At more than 18 times annual earnings, the index isn’t cheap, particularly with analysts expecting profits to fall in 2023.

While economic data remains mixed, concern over the prospect of a credit crunch spurred by March’s banking stress is proving hard to shake. The Fed’s Beige Book survey of regional business contacts found economic activity little changed and said several districts noted banks tightened lending standards amid increased uncertainty and concerns about liquidity. The Philly Fed factory index fell to minus 31.3, a level that has preceded past recessions.

“We still see a weakening environment for risk assets and would be playing defense,” Sameer Samana, Wells Fargo Investment Institute’s senior global market strategist, who expects the Fed to stick to its inflation-fighting stance. “Stocks have made their way close to the upper end of their trading range. We view that disconnect as an opportunity to pull further risk off the table.”

A handful of earnings reports also gave reason for pause, even as most companies managed — as always — to deliver results that beat analyst predictions. Construction materials supplier Fastenal said growth in March sales slowed to the lowest since June 2021. Ally Financial’s profit plummeted as it made fewer auto loans and put aside additional provisions to cover consumer defaults. Tesla slumped 11% on the week after Chief Executive Elon Musk indicated he’ll keep cutting prices to stoke demand.

Consistent with rising risk appetites among retail ETF buyers, a gauge of adviser sentiment kept by Investors Intelligence known as the bull/bear ratio climbed for a fourth week to its highest since the start of 2022 — the month that marked the beginning of the current bear market. The indicator hit 1.0 in October, near its financial-crisis low, just before stocks began their current rally.

“In late October, we concluded that sentiment was so bearish it had to be bullish,” wrote Ed Yardeni, founder of Yardeni Research Inc. Right now, “sentiment may not be bullish enough to work as a contrary indicator for the bears, nor bearish enough to work for the bulls,” he said. “A stalemate in their tug-of-war may be the result until the recession and debt-ceiling debates are resolved, probably in early June. Then, the current bull market is likely to resume, in our opinion.”"

MY COMMENT

A good indicator of the future.....investor behavior. We are very early in the current BULL MARKET. As we progress....more and more nervous investors will give up and come back into the markets. This is what ALWAYS happens.

Of course......as usual....they will have missed the early 15% to 25% of the BULL MARKET.

 

It is not just going to be white collar....it is going to be EVERYTHING.

How A.I.-powered robots are changing retail

https://www.cnbc.com/2023/04/22/how-ai-powered-robots-are-changing-retail.html

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

"Eager to boost sales, relieve workers from mundane tasks and respond to the ongoing labor shortage, retailers and supermarkets are adding robots to their store aisles.

Outfitted with cameras and sensors, autonomous inventory robots that can verify price signs and look for out-of-stock items are being deployed at big box stores like BJ’s Wholesaleand Walmart-owned Sam’s Club.

Inventory is one of the biggest challenges retailers face. Missed sales from empty shelves and out-of-stock items cost U.S. retailers $82 billion in 2021, according to NielsenIQ.

“Retailers are spending a lot of money to know what’s coming into their stores through their inventory systems and through their point of sale systems,” said Jarad Cannon, chief technology officer at inventory robot maker Brain Corp. “But in their stores on a daily basis, they don’t have a very good model of what’s actually happening on their shelves.”

Other companies in the space include Simbe Robotics and Bossa Nova Robotics.

So what impact will inventory robots have on U.S. retailers and the livelihood of its workers? CNBC got a behind-the-scenes look at Brain Corp. to find out."

Watch the video to learn more.

MY COMMENT

This AI "stuff" is going to be like a category 5 tornado ripping through the economy and society. It will change EVERYTHING.

YES....it will relieve workers from having to do mundane jobs.......by eliminating most jobs. Business will only need a small fraction of the workers that they need now. It will devastate entire countries.

Usually this sort of massive disruption leads to social and cultural disruption. This time will be no different. It will usher in an EXTREMELY DANGEROUS era for human society. For the majority of people....it will NOT be a positive time. Society, people, wealth, etc, etc,.....will become stratified like never before in history.

It is not going to be a pretty picture.

 

Last week of April starts tomorrow.

Amazon, Microsoft, Meta, Alphabet lead earnings rush: What to know this week

https://finance.yahoo.com/news/amaz...gs-rush-what-to-know-this-week-114436466.html

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

"The week ahead will provide investors more data on how some of the biggest players in corporate America started the year, with tech giants including Amazon (AMZN), Microsoft (MSFT), Alphabet (GOOGL), and Meta Platforms (META) all set to report quarterly results.

Investors will also closely watch Thursday's release of the first estimate of first quarter GDP, which is expected to show the US economy grew at an annualized rate of 2% in the year's first three months.

The major averages closed last week's trading slightly lower with earnings reactions proving mixed during the week. None of the major indexes logged a weekly move larger than the Nasdaq's 0.42% decline.

Investors expect this earnings season to bring a second straight quarter of decline in profits earned by US corporates.

Data from FactSet published Friday showed that through April 21, earnings for the S&P 500 are expected to decline 6.2% in the first quarter when combining results already reported with those expected by analysts. A week ago, expectations were for S&P 500 earnings to drop 6.7% during the quarter.

Should earnings decline 6.2% during the quarter, this would mark the largest earnings decline since the 31.6% drop in earnings reported in the second quarter of 2020.

Through last week, companies are reporting earnings that are 5.8% above estimates, below the 5-year average of an 8.4% beat and below the 10-year average of 6.4%.

"We're getting a lot of mixed indications form the various companies reporting, even ones within the same industry," Thomas Martin, portfolio manager at GLOBALT Investments told Yahoo Finance Live on Friday.

"I'm afraid we'll have to wait for another quarter or two before we really get definitive information one way or the other."

Results from Amazon, Microsoft, Alphabet, and Meta will highlight the coming week with investors looking for updates on these companies' artificial intelligence efforts as well as ongoing cost cuts.

"Expectations are low," Tom Forte, an analyst at D.A. Davidson, told Yahoo Finance Live on Friday.

Forte highlighted consistent layoffs across the sector during the quarter as a sign things are only weakening in the tech sector.

"If they are laying off people, especially late in the quarter, that suggests that the macroeconomic challenges are getting more difficult," Forte said. "I think when you couple in the mini financial crisis in banking and Roku and Pinterest layoffs, that suggests that digital advertising may have taken a step backwards in the march quarter."

A report from Bloomberg last week said managers at Meta have been told to prepare for additional layoffs across its Facebook, WhatsApp, and Instagram units.

On the economic data side, many economists believe the first quarter will be the year's high water mark for economic growth.

Thursday's GDP report comes amid conflicting data on whether the economy is growing or contracting.And though Thursday's report will likely show the economy grew in the year's first quarter, nearly all of that growth came in January, according to Oxford Economics.

"The mixed survey evidence for April released so far points to a further slowdown at the start of Q2," Oxford Economics lead US economist Michael Pearce wrote in a note last week. "Meanwhile, early signs are that tighter bank lending standards are beginning to bite, but the full hit to activity won't be evident until later this year."

Investors were initially disappointed with results from Goldman Sachs (GS) and Netflix (NFLX), as shares of both names traded off before recovering to the end week.

Reports from a number of regional banks out last week showed that while some of the market's deepest fears for the sector have not yet been realized, billions of dollars of deposits have left these institutions and the cost of keeping deposits has skyrocketed.

Investors weren't as lenient with Tesla (TSLA), however, as shares of the electric vehicle maker fell more than 10.5% on the week as analysts fear the automaker may need to keep lowering prices to spur demand.

"They're backed into a corner," Ronald Jewsikow, an analyst at Guggenheim told Yahoo Finance Live after Wednesday's report. "They put a lot of supply in place that needs to find a home. And the only tool they really have is cutting prices.""

MY COMMENT

A big week for earnings this week. I have zero interest in the META earnings since I dont own that company and never will.

As to the tech lay-offs as some sort of indicator. Yes they are an indicator......and indicator of management allowing companies to get extremely bloated with way too many workers that probably dont produce much value. It is time for the tech industry to grow up and clamp down and focus on pure business.