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CPI Inflation in September

Headline slightly above Bloomberg consensus (0.4% vs. 0.3% m/m) and core at consensus (0.4%), but month-on-month inflation rates are down relative to peaks…

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Headline slightly above Bloomberg consensus (0.4% vs. 0.3% m/m) and core at consensus (0.4%), but month-on-month inflation rates are down relative to peaks earlier in the year. Re-opening inflation rates are decreasing in importance, as energy rises. The inflation is becoming more broad-based.

Headline m/m annualized:

Figure 1: Month-on-month annualized inflation from CPI-all urban (blue), from personal consumption expenditure (PCE) deflator (black), chained CPI seasonally adjusted  (brown), sticky price CPI (green), and 16% trimmed mean CPI (red). Chained CPI inflation seasonally adjusted by author. NBER defined recession dates shaded gray. Source: BLS, Atlanta Fed, Cleveland Fed, via FRED, NBER, and author’s calculations.

Note that the trimmed CPI inflation rates blipped upward signaling the inflation pressure was more broad based than in recent months.

The sticky price inflation rate also rose, indicating that less frequently changed prices are also moving.

Core inflation, also m/m:

Figure 2: Month-on-month annualized inflation from CPI-all urban (blue), from personal consumption expenditure (PCE) deflator (black), chained CPI seasonally adjusted (brown), and sticky price CPI (green). Chained CPI inflation seasonally adjusted by author. NBER defined recession dates shaded gray. Source: BLS, Atlanta Fed, Cleveland Fed, via FRED, NBER, and author’s calculations.

Similar patterns pertain for core prices. So, with energy prices likely to be elevated (especially natural gas) and for food, it’s notable that core inflation (m/m) is up.

The m/m inflation can’t be attributed to re-opening pressures cited for previous months, as shown in CEA’s figure below:

Source: CEA.

Inflation has persisted a bit more than anticipated earlier, as supply chain disruptions have pushed up prices. That being said, it’s important to remember when you hear that inflation has hit a 13 year high that characterization applies to the year-on-year comparison. Shorter horizons (like m/m) or 2 year horizon (to avoid base effects) yield different perspectives.

Figure 3: CPI inflation rate, month-on-month (blue), quarter-on-quarter (tan), year-on-year (green), and 12 month growth rate (red). NBER defined recession dates shaded gray. Source: BLS, NBER, and author’s calculations.

Finally, something that has been of concern is the housing component of the CPI. Inflation in owner occupied equivalent rent, and rent of primary residence has risen, and is likely to continue to rise, given how the indices are constructed (the CPI rent component has been lagging measures like Zillow’s rent index).

Figure 4: Rent of primary resident component of CPI (purple) and owner occupied equivalent rent (teal), both m/m annualized. NBER defined recession dates shaded gray. Source: BLS, NBER and author’s calculations.

OER and rent constitute about 30% of the total weights in the CPI.

Finally, it’s important to recall that the Fed targets average PCE inflation. PCE inflation is about 0.43 percentage points below CPI inflation from 2000 (both pre-pandemic and inclusive).


Author: Menzie Chinn

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Economics

Ripple Watches as Former Partner Switches Allegiances

It’s been more than three months since I last wrote about Ripple (CCC:XRP-USD) in July. At the time, I wondered how long it would take the cryptocurrency…

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It’s been more than three months since I last wrote about Ripple (CCC:XRP-USD) in July. At the time, I wondered how long it would take the cryptocurrency to hit $3.50, a price prediction made by FXStreet based on the assumption it held a key support level. 

A close-up shot of an XRP token with the logo and Ripple in raised text.Source: Shutterstock

Well, there was something to the prediction. Since my article, the price of XRP-USD has appreciated by 93% and trades for more than $1. So momentum is definitely on the coin’s side heading into 2022. 

However, the Oct. 6 announcement by MoneyGram International (NASDAQ:MGI) that it is partnering with the Stellar Development Foundation, the people behind Stellar Lumens (CCC:XLM-USD) and the Stellar blockchain network, as well as Circle, the group behind the USD Coin (CCC:USDC-USD), suggests investors ought to be at least a little concerned about the switch of allegiances. 

Here’s why.

Ripple Has Come a Long Way

In 2021, according to Coindesk.com, XRP-USD is up 392% through Oct. 19. By comparison, Bitcoin (CCC:BTC-USD) has appreciated by just 119%. Of course, I say just in jest. I’m sure long-time holders of the coin are very happy with their returns year-to-date. 

As for XLM-USD, it’s up 192% in 2021, but it doesn’t quite match Ripple’s year with less than three months to go. Nevertheless, there’s no question Ripple’s come a long way.

Price predictions are a mug’s game at the best of times, especially when dealing with cryptocurrencies. They’re incredibly volatile financial instruments. Anyone who says they can predict the near-term direction of Ripple or Stellar Lumens or any of the others has an inflated opinion of themselves. 

But, as is the norm in this business, readers love to read about price predictions. But, unfortunately, they can be car wrecks. My July article is an excellent example of how one can get things wrong. 

“If you’re a speculative investor, I would argue that Ripple’s odds of falling by another 36% are considerably higher than its odds of rising 75% to $1. I would hold off on buying XRP for a few weeks until it and other cryptos regain their footing,” I concluded in my July 21 article.  

“As for getting to $3.50, I don’t think that’s in the cards for Ripple in 2021.”

Well, at least I was one for two on the prediction front. 

As we head into 2022, I wonder if the MoneyGram announcement foreshadows bad times ahead for holders of XRP-USD, or am I making a mountain out of a molehill?

It’s a Little of Both

The collaboration between MoneyGram, Stellar and Circle will enable quick and inexpensive cross-border remittance between U.S. dollars and USDC-USD stablecoins to millions worldwide. That’s a victory for all involved. 

Ripple was MoneyGram’s partner for processing cross-border payments using digital assets from 2019 until March 2021. It even bought a 30% interest in MGI as part of its partnership. However, once Ripple got embroiled in its battle with the SEC over selling unregistered securities, the arrangement likely became too challenging to maintain.

Bloomberg reported on MoneyGram’s new partnership:

“The deal will give Stellar wallet holders access to physical locations to convert USD Coins to cash and vice versa, Stellar Development’s Chief Executive Officer Denelle Dixon said in an interview. That means it effectively brings the blockchain into the non-digital world. “This is huge for the Stellar network, and the wallets that are part of the Stellar network,” Bloomberg reported Dixon stated in her interview with the publisher.

As was the case with Ripple, there is speculation that Stellar Development could be interested in taking over MoneyGram, which has a current market capitalization of $642 million.

The Bottom Line for Ripple

The absence of Ripple’s partnership with MoneyGram has long since been forgotten. Instead, the more significant issue is the ongoing battle with the SEC. Until that’s resolved and cast aside, there’s no guarantee that XRP-USD won’t get a kick in the posterior by the securities regulator. 

It seems one thing that might keep XLM-USD out of the regulatory penalty box is the non-profit nature of the Stellar Development Foundation, whereas Ripple Labs is a for-profit organization. 

It might turn out that the switch is nothing more than a business decision by MoneyGram. Of course, that won’t save Ripple should it lose its case with the SEC, but at least it shouldn’t put an added burden on XRP-USD in the future. 

On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. 

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Economics

Production-Line Upgrade Sets the Stage for Nio’s Next Leg Up

Depending on when someone took a position in Chinese electric vehicle (EV) maker Nio (NYSE:NIO), they might be very happy or extremely frustrated. That’s…

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Depending on when someone took a position in Chinese electric vehicle (EV) maker Nio (NYSE:NIO), they might be very happy or extremely frustrated. That’s because, despite the huge long-term gains in NIO stock, it has lost value in 2021 so far.

NIO stock: A shot from the outside of a Nio display room at night.Source: Robert Way / Shutterstock.com

To me, this lackluster result is surprising. In August, Nio delivered 5,880 vehicles. That represents a 48.3% year-over-year increase. Then, in September alone, the automaker managed to deliver 10,628 vehicles, representing a mind-blowing 125.7% year-over-year improvement.

What more does the trading community want?

If you took a long position at an unfavorable price, I’ll encourage you today to just hold onto your shares. Nio’s story is still unfolding, and Wall Street can’t ignore the positive reports for much longer.

A Closer Look at NIO Stock

The outlook seemed quite positive at the beginning of 2021, when NIO stock was trading at $53 and change. By early February, buyers had pushed it past $60 and it felt like the sky was the limit.

Then came a painful correction, with the share price plunging towards $35 in March. The buyers attempted several rallies during the ensuing months, but with little success. It’s probably not much consolation to observe that NIO stock recovered the $40 level in mid-October. It should have at least been up to $50 by that time.

In general, the final three months of the year tend to be seasonally favorable to stocks. Plus, there’s an old saying: a rising tide lifts all boats.

So, maybe there will be enough holiday cheer to go around, to lift up the NIO stock price. On the other hand, if the buyers can’t even get it above $50 by the year’s end, that won’t be a good sign.

An Upgrade to Meet the Demand

I already address Nio’s outstanding delivery numbers. Clearly, there’s a demand for the company’s vehicles.

Therefore, it’s only logical that the company completed, in cooperation with state-owned Chinese automobile manufacturer JAC, a phased upgrade of its production line at Nio’s Hefei-based factory.

The upgrade’s purpose is to further prepare Nio for the introduction of new automobile models and a capacity increase.

Here are some facts associated with the production-line upgrade:

  • 101 new robots were added to the body shop
  • 408 robots were adjusted to software programs and rhythms
  • A high-strength steel and aluminum hybrid process body production line was added
  • Two new production lines were built in the final assembly plant
  • In-line tooling equipment was upgraded
  • A new paint shop is under construction
  • The entire upgrade will be completed in the first half of 2022

All of this, naturally, will lead to increased capacity for production. The plant’s current annual production capacity is 120,000 units per year. However, it’s expected to double to 240,000 units per year after the overall upgrade is completed.

Mark Your Calendar

Need more good news to look forward to? Fine: Mark Dec. 18 on your calendar. That’s when Nio is expected to hold its annual event, NIO Day 2021, at the Olympic Sports Center in Suzhou.

Granted, not all of us will be able to hop on a plane and make the trip. Nevertheless, the company’s stakeholders ought to be excited about this particular event.

That’s because Nio is expected to unveil multiple new automobile models at this year’s event.

Reportedly, these models are expected to include one called ET5, another unknown model and Nio’s new brand for the mass market.

CEO William Li has teased that Nio will enter the mass market through a new brand, preparations for which have been accelerated and a core team has been established. Li also provided an additional clue, saying, “The NIO brand has a similar relationship to this new brand as Lexus has to Toyota, and Audi has to Volkswagen.”

The Bottom Line on NIO Stock

What will the new automobile models look like? What will their specs and stats be?

It’s exciting to ponder these questions. Moreover, it’s good to know that Nio is ramping up its production capacity to meet the demand for the company’s vehicles.

All of this ought to give NIO stock holders some encouragement. There’s no need to dump your shares now, as 2021’s fourth quarter could be the best one yet.

On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

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Economics

Why Growth Stocks Could Double in 2022

Something very interesting happened in the stock market yesterday… something that most folks missed or didn’t pay much attention to… but that could…

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Something very interesting happened in the stock market yesterday… something that most folks missed or didn’t pay much attention to… but that could help you score 100% returns in 2022. Here’s what happened: Growth stocks and the 10-year Treasury yield both rose.

Wooded cube block on yellow background with word GROWTH.Source: Shutterstock

I bet a lot of you are saying: So what!? And I get that response. But understanding that this did happen – and understanding why it happened – could help you find the stocks best positioned to double next year.

Follow me here…

As you probably know, growth stocks and the 10-year Treasury yield have been strongly negatively correlated in 2021. Reasonably so.

Remember your Finance 101 class. As yields go up, discount rates go up, and the net present value of a company’s future cash flows goes down.

Growth stocks (unlike value stocks) rely heavily on those future cash flows to warrant their current valuations.

So, throughout 2021, when yields have gone up, growth stocks have tended to retreat, and vice versa.

But not yesterday. Yesterday, growth stocks rallied in a big way alongside the 10-year Treasury yield pushing higher toward 1.7%.

Of note, this is not a new phenomenon. In October, growth stocks and the 10-year Treasury yield have actually been positively correlated. Both have gone up.

Why?

Because, as I’ve stated before in these very issues, the negative correlation between yields and growth stocks was never going to last – it’s a temporary phenomenon.

Historically, there is no significant correlation between the two. In fact, during the last rate hike cycle from 2016 to 2019 when yields did move higher, growth stocks outperformed – but only after temporary underperformance in 2016.

Under the hood, what’s happening is that – since we’ve been in a multi-decade bond bull market where yields have trended lower since 1980 – every time we enter a period of rising yields or rate hikes due to escalating inflation, investors freak-out that this means the end of “lower-for-longer” with respect to yields, and they sell yield-sensitive growth stocks.

But they’re never right. 

As things play out, the secular deflationary forces of technology and globalization – digital technology platforms like Amazon, Netflix, and Facebook make everything faster, cheaper, and more convenient, while the outsourcing of labor across the globe lowers production costs – overwhelm any and all inflationary pressures, whether they be demand-driven or supply-driven (as is the case today).

The Fed hikes a few times. Then stops. Yields stabilize. And they never break out of their 40-year downtrend. They, indeed, remain lower for longer.

So… what do investors do? They rush back into growth stocks, and after a temporary “rough patch,” those stocks soar.

The last time this happened was in 2016-17.

In 2016, the Vanguard Growth Index Fund ETF (VUG) rose just 6% amid rising yields, rising inflation, and rate hike concerns. In 2017 – as those fears faded – the exchange-traded fund (ETF) rallied nearly 30%.

Of note, the more growth-focused and early-stage the stock, the bigger the rebound rally. Cathie Wood’s early-stage growth fund – ARK Innovation ETF (ARKK) – dropped 2% in 2016. It popped about 90% in 2017.

I believe that we are in the early innings of a similar reversal. That is, 2021 feels a lot like 2016, and I think 2022 could look a lot like 2017, implying a big growth stock breakout next year – and a huge breakout for early-stage growth stocks.

The last time this happened, early-stage growth stocks basically doubled in a year. Could the same happen this time around? I think so.

Are you interested in doubling your money in 2022?

I thought so. And that’s why I’d like to introduce you to our flagship investment research product, Innovation Investor, which is focused on investing in the very early-stage growth stocks that are set to soar next year.

More than that, we invest in the best-of-the-best in the early-stage growth world – disruptive tech companies that have game-changing technologies, are led by world-class teams, and which have the potential to reshape our professional and personal lives over the next few years.

These aren’t just stocks that could double next year. They are stocks that could soar 5X… 7X… even 10X or more in the long run.

Sound like the type of stocks you want to invest in?

Good. Then, if you’re ready to get rich over the next four or five years, let me tell you all about how to capitalize on the biggest wealth creating force the world has ever seen…

On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.

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Author: Luke Lango

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