The Long Term Investor

YOU......are so right Zukodany. The markets in general were ON FIRE. Probably everyone is hitting NEW milestones every day. I got lots of GREEN today. AND.......a REALLY NICE beat of the SP500 today by 1.11%.

I seems like lately I am tied up running around all day......every day. I get back about this time and check accounts and put up a quick post. The reading I would normally do in the morning......I end up doing in the evening. At least after today things slow back down to normal.

 

HERE.......is the danger to the markets.....tomorrow (Thursday). Powell......the Fed......will be doing a policy speech that is being anticipated by the markets. I have discussed in this thread.....MANY TIMES.....my view that we continue to be in a world wide deflationary event since 2008. For the past......12 years. Japan has been in such an event for at least the past 25-30 years.

The Fed is expected to use a new pandemic-era tool to fight a long-running battle against low inflation

https://www.cnbc.com/2020/08/26/the...-era-tool-to-fight-against-low-inflation.html

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

"Even before Covid-19 crushed the economy, the Fed was worried about low inflation and was working on ways to let it run slightly hotter temporarily in order avoid the trap of long-term sluggish growth and weak pricing power.

Chairman Jerome Powell, in a much-anticipated speech Thursday, is expected to discuss the Fed’s policy framework and specifically how it will alter its posture on inflation. The Fed has had a 2% inflation target, but in the decade since the financial crisis it has more often than not seen inflation fall below its target.

The way the Fed is expected to meet its goal is to say it will have an “average inflation” target, and Fed watchers said officials may provide a band for tolerable inflation levels above and below its current target of 2%. The Fed is expected to make that announcement at its September meeting, and Powell’s 9:10 a.m. ET comments at the annual Jackson Hole symposium Thursday could be a preview.

Treasury yields have been rising ahead of the Fed’s symposium, which will be held virtually this year instead of in the shadows of the Grand Tetons. The closely watched event has sometimes been used to foreshadow policy moves, and Fed watchers expect Powell to preview what should be a significant change in guidance on policy.

“The rates markets are anticipating the Fed is going to be dovish and willing to withstand inflation being higher for a longer period,” said Rick Rieder, BlackRock global chief investment officer of fixed income. The Fed is not looking for spiking inflation, but some inflation in the economy provides pricing power and drives both profits and wage gains. Currently, Powell has said the virus created bigger risks of disinflation due to high unemployment and other economic impairment.

The Fed has taken extraordinary actions to fight the impact of the coronavirus. It has vowed to keep rates at zero for a long time; it also has provided more liquidity, purchased assets and inserted itself in different markets to assure they run smoothly.

The Fed already had been reviewing its policy framework, and inflation was part of it. Even before the virus, Fed officials had said they would allow inflation to overshoot their 2% target but they didn’t formalize it.

“This is longer running than just Covid. If they had wrapped this up last year, Powell would have to signal this policy shift with rates above zero, ” said Jon Hill, senior fixed income strategist at BMO. “Since we’re already at zero, it means we’ll be at zero even longer and the central bank is going to be even more aggressive about trying to meet its inflation mandate. In the past they pre-emptively hiked to get ahead of inflation pressures. What they’ve shifted to is actually waiting until they get sustained inflation.”

Hill said the bond market was pricing in higher inflation, and the market-based metric for 5-year inflation expectations showed a 1.6% annual pace over the next five years.

In the 12 months through June, the core PCE price index increased 0.9% after rising 1.0% in May. The core PCE index is the preferred inflation measure for the Federal Reserve’s 2% target.

“This is the prelude to September, and you have a whole lot of Fed speakers next week who are going to explain how having an objective that they’re going to overshoot on inflation is important and what it means,” said Diane Swonk, chief economist at Grant Thornton.

Swonk said there are those who would argue that inflation is already evident in the price of goods that were caught in supply shocks, like some food and meat, but she said those increases could be fleeting because of high unemployment and the weakened economy.

Fed watchers said Powell may acknowledge that the traditional path of inflation has changed. Powell’s speech is about the Fed’s policy framework and navigating the next decade.

What didn’t work
“In navigating the next 10 years of monetary policy, I think it will be important to focus on what happened in the last 10 years. I think he’s going to touch on that traditional metrics don’t work,” said Rieder. “You keep rates low and inflation builds. When deficits grow, debt grows and rates stay low. It doesn’t mean inflation follows. When you talk about inflation, it’s not what the Fed does, it’s what technology does.”

Rieder said technological changes have had a dramatic impact on inflation. He noted goods inflation has been slightly negative over the past couple of years. The pandemic is speeding some trends, including some that could prove to be disinflationary, he said.

He pointed to the example of the stock market rewarding Salesforce.com, a cloud-based software company that has been added to the Dow. It’s one of the technology companies that helps people work remotely, which could have an impact on many things including the price of commercial real estate. Tesla and the electric car industry are driving another longer-term trend to reduce dependence on oil , which has been a traditional source of price inflation.

“I think what Chair Powell is going to emphasize is that this is a different era. You don’t get that same academic analysis that was built off of 20-year-old data,” Rieder said.

But the longer Fed policy remains easy, the more financial conditions get easier and ultimately that could become a problem if it creates a bubble in markets. Rieder said that for now, however, this is going to be a Fed that is “taking it easy” for a long time.

“We have so many more questions about inflation. We are so much more unsure about it than we once were,” said Swonk.

“That means everything is an experiment. We know low inflation has been a symptom and a cause of low wage growth. And that’s a different view than we once had,” she added. “I think it’s important to acknowledge the technological aspect of this is important. The role of technology is an accelerant in the wake of the pandemic as well.”

She said the impact of the coronavirus has accelerated the digitalization of the work force and that could negatively impact jobs.

“What’s important about this is it’s not revolutionary,” Swonk said. “They’ve been talking about this for a long time. I think it’s more they’re willing to finally commit, and to say we want to overshoot on inflation, it’s to include more people in the recovery by doing that. It is different from the way the Fed has done things in the past, but it doesn’t really change the view in the financial markets that this will keep rates low forever and a day.”

Swonk said that if the Fed is able to encourage some inflation, it could have a bigger impact on the labor market and result in higher wages.

“I think if the Fed actually achieves this goal, it’s something that financial markets should be worried about because literally it’s about shifting power from the profit share to the wage share,” she said.

MY COMMENT

Powell will need to give a very carefully worded speech to avoid the mess that he usually seems to create with poorly worded comments. I DO WELCOME this policy change if it in fact happens.

ALTHOUGH.......it will INCREASE the potential for out of control inflation. I remember......very well.......the STAGFLATION ERA of the late 1970's and early 1980's. In the early 1980's inflation got WAY out of control with a HUGE spike in interest rates. I ALSO remember.......very well......that a HUGE FACTOR in that inflation was wages........with outrageous wage increases negotiated by the auto workers union and large, fast, wage increases sweeping through the economy.

BUT.......in my opinion.....I do NOT see a PROBABILITY of that happening now. Wages will be held down by the pandemic and the destruction of small businesses. Wages will......more importantly......be held down by the foreign contract worker system that has become the norm in the country and ALSO by the MASSIVE productivity gains throughout the economic system that is due to technology. Technology based productivity will TOTALLY balance out and SQUELCH any wage based inflation. The BIG DANGER......in my opinion...... will continue to be DEFLATION for a very long time into the future.

BUT......for now, lets just concentrate on getting past the speech tomorrow without Powell TANKING the markets.

 

Welcome Ottawa. Please post and participate as much as you can. This thread belongs to EVERYONE.

Looks like Powell and the FED made the change that was anticipated. Any time Powell.......opens his mouth........the economy and markets are in danger.

Fed tweaks strategy, will allow inflation to run above 2% target

https://www.foxbusiness.com/markets/federal-reserve-jerome-powell-jackson-hole-policy-change

And......another piece of positive news.......another step forward:

https://www.cnbc.com/2020/08/27/weekly-jobless-claims.html

The report listed 1,006,000 new claims for the week ending Aug. 22, an decrease of 98,000 from the previous week. It listed the unemployment rate at 9.9%.

"Continuing claims — which account for those receiving unemployment benefits for at least two straight weeks — fell by 223,000 to 14.535 million for the week ending Aug. 15. Data on continuing claims is delayed by one week."

"Thursday’s report follows a mixed batch of economic data. Durable goods orders for July surged by 11.2% last month while sales of new homes were up by 36% last month. However, consumer confidence fell in August for the second straight month. . "

MY COMMENT

BIT by bit.......step by step......the positive news is slowly piling up. We STILL have a ways to go to get back to normal.....but.....we are doing it. The fact that we have a ways to go MEANS that stocks STILL have a ott of headroom to run. The BULL MARKET is far from over. AND......we are on track to an approved vaccine in October......PROBABLY by multiple companies. BUT.......any discussion about sticks and momentum is WORTH NOTHING until we get past the election.

 

Virus........what virus? THAT is about what you would say if you had been living in a cave and just saw the most recent market average numbers. FOR the first time in months.......ALL AVERAGES ARE POSITIVE........year to date:

SP500 year to date +7.98%
DOW year to date +0.09%

OK.......barely......but at least it is a start.

 

Thanks Emmett. YES...most musicians and performers that I know and have contact with are doing absolutely nothing and have been for months. I will be playing this Saturday for the first time since February 14. After that, who knows when. The music, performance, theater, and bar, industries have been TOTALLY GUTTED. There is a lot of depression. I know a lot of professional musicians that are on unemployment.

 

Thanks Emmett.....as an ACTOR I am sure you have seen the impact of this virus on your fellow actors and everyone else that has anything to do with the live performance business. Very sad to see........many people suffering. A lot of VERY SUCCESSFUL people in the entertainment business DO NOT make big bucks.

You might be interested in the post below...

 

TODAY.......I ENDED MY APPLE TRADE.

At 9:33AM......I sold the 150 shares that I bought on margin on August 3, 2020. I STILL have all the long term Apple shares in my account and have absolutely NO plans to sell my long term Apple holdings.

HERE is the info on the results of the trade.

August 3, 2020 purchased 150 shares of APPLE for $433 per share......$64,950.

August 27, 2020 sold 150 shares of APPLE for $505.5172 per share.......$75,825.90.

Gross profit on the trade......$10,875.90.

Net profit on the trade after margin interest of approximately $347..........$10,528.90.

Length of trade.......25 days.

Why did I sell today? Well I achieved a great profit......over $10,000. I follow the rule......DO NOT GET GREEDY. You never know when some outside event will tank a trade and the markets. The PRIMARY reason I ended the trade today was because the steam seemed to have come out of the momentum of the stock over the past few days. I felt like I had gotten about all I was going to get out of this trade WITHOUT taking increased risk. Am I happy with the results.....ABSOLUTELY......over $10,000 in FREE MONEY. Did I leave money on the table? Perhaps.....but I dont care......when it is time to get out and move, I act decisively........whether it is a long term holding or a rare trade like this one. AND....I do not trust the post split environment for any stock.

How are you doing Emmett on your trade? Still holding? What is your plan going forward?

 

Emmett....so you act in, write, direct, and produce short films? Do you distribute them or do film festivals?

You got a very nice gain on those Tesla and Apple trades........that is equal to a......"nice, one year gain".......in a long term brokerage account........achieved in just a few weeks time.

Yes........I remain fully invested for the LONG TERM as usual.

 

Well, that's pretty cool.