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Jack Dorsey Predicts “Hyperinflation”

Dorsey and Yellen offer conflicting views of inflation … what’s for sure is that earnings will be more important than ever … how a quant-approach…

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This article was originally published by Investor Place

Dorsey and Yellen offer conflicting views of inflation … what’s for sure is that earnings will be more important than ever … how a quant-approach zeroes in on earnings power

Last Friday, Jack Dorsey, the CEO of Twitter and Square, sent out a frightening tweet in keeping with Halloween this weekend:

Source: Twitter – @Jack

If you’re having trouble viewing the tweet, it reads “Hyperinflation is going to change everything. It’s happening.”

After receiving some questions/pushback online, Dorsey took it a step further, tweeting “It will happen in the US soon, and so the world.”

Meanwhile, on Sunday, U.S. Treasury Secretary, Janet Yellen, said the United States was not losing control of inflation:

I don’t think we’re about to lose control of inflation. It’s something that’s obviously a concern and worrying them, but we haven’t lost control.

***These are opposite sides of the same highly-exaggerated coin

On the hyperinflation side, yes, it appears we’re in for a period of high and persistent inflation. And the inflation rate could eventually settle at a higher baseline level than we want.

But the idea of hyperinflation ignores how the eventual end of our supply chain issues will be a major deflationary force. And what about the deflationary effects of technological advancement?

On the other end of the spectrum, “the Fed has got it under control” from Yellen is laughable on its face.

Does anyone remember the Fed’s attempts to increase inflation during the 2010s? They failed miserably, year-after-year, as inflation remained stubbornly low. Was the Fed in control then?

And now, does anyone remember the various Fed presidents’ comments from about a year ago, pointing toward how much inflation they’d be willing to tolerate?

Let me remind you.

There was Dallas Fed President Robert Kaplan saying he would be comfortable with inflation running a “little bit” above the 2% inflation target if the economy were to return to near full employment.

“And for me, a little bit means a little bit,” or about 2.25%, Kaplan said during an interview with Bloomberg TV. “I still think price stability is the overriding goal and this framework doesn’t change that.”

St. Louis Fed President James Bullard was open to slightly higher inflation.

From Bullard:

Inflation has run below target, certainly by half a percent, for quite a while, so it seems like you could run above for a half a percent for quite a while.

That would have meant a 2.5% inflation rate.

Then there was Philadelphia Fed President Patrick Harker, also pointing toward an acceptable overshoot of a 2.5% inflation rate, but suggesting that the speed at which we got there was the real issue.

Here was his take:

It’s not so much the number. … It’s really about the velocity.

Harker suggested that inflation “creeping up to 2.5%” is quite different than inflation “shooting past 2.5%.”

Umm…so, how about an inflation rate that doesn’t “creep” up to just 2.25% or 2.5%, but has now exploded to 5.4%?

By the way, news this morning is that former Federal Reserve Chairman, Alan Greenspan, sees sustained inflation well above the Fed’s 2% goal.

But Yellen assures us the Fed has everything under control. Phew, that’s a relief.

***We don’t need to know where inflation will ultimately land to know that it’s going to act as a huge sifting machine for the stock market

As our CEO, Brian Hunt, once wrote, “It’s not so much a stock market as it is a market of stocks.”

While it’s easy to think of “the market” as one big monolith that rises or falls in unison, the reality is that it’s made up of thousands of companies with widely-varying fortunes. And rising inflation will compound the differences in how these companies perform.

On one hand, you’ll have the businesses that adapt to an inflationary climate and continue operating well. Their products and services are so in-demand that consumers will pay for them, even at higher prices.

On the other hand, buyers will look at some products and services and say “nope, too expensive. Not buying it now.”

If this sounds familiar, it’s the concept of “price elasticity of demand” you read about back in Econ 101. And it’s going to have a major impact on corporate earnings.

Take Unilever. It owns a vast portfolio of famous brands including Dove, Lipton, and Ben & Jerry’s.

Last week, we learned that Unilever raised prices 4.1% in the third quarter to offset soaring production costs. Are you comfortable paying 4.1% more for your Ben & Jerry’s Chocolate Fudge Brownie? Probably.

But what if it rises to 6%? Or 7%? Or 9%? And what if it’s not just ice cream?

When the entire cost side of your budget is approaching a double-digit increase while your income hasn’t risen a dime, at some point you’ll be forced to pick and choose your purchases.

And what gets the axe? Your Chocolate Fudge Brownie indulgence? Or, say, your baby’s diapers?

I could wager a guess.

This “to buy or not to buy?” decision will mean one thing – it’s every stock for itself.

***If that sounds familiar, it’s because Louis Navellier recently suggested this is the type of market we’re moving into

For newer Digest readers, Louis is a legendary quantitative investor. “Quant” simply means he uses numbers and algorithmic-rules to guide his investment decisions. Forbes actually named him the “King of Quants.”

In essence, Louis uses powerful computers to scan the market for the quantitative fingerprints of high-performing stocks. And these fingerprints usually all point toward one underlying trait…

Earnings strength.

In the short-term, all sorts of factors can drive market prices – a CEO stepping down, a big new customer, perhaps even a rumor.

But in the long-term, what drives a stock price is the company’s earnings. Plain and simple. And today, given the various concerns weighing on the market, Wall Street is refocusing on earnings.

This “every stock for itself” environment means Wall Street is rewarding companies that are maintaining strong earnings, while punishing those with poor earnings.

We’ve already seen this. Last week, we noted how JPMorgan posted decent numbers, but the stock sold off because most of the $2.3 billion profit increase from last year to this year wasn’t driven by growth in JPM’s business segments; it was driven by an accounting maneuver.

Given this, as inflation continues dragging on our economy and shaping the investment markets, it’s more important than ever to make sure your portfolio is filled with stocks that can endure – even thrive – in such conditions.

***Last week, Louis held a special event that explains how he identifies stocks with significant earnings strength

In his Project Mastermind event, Louis detailed his quant-based market approach that targets quantifiably strong stocks.

It’s a system he’s refined over four decades of investing, based on one core takeaway: better investing comes through a computerized market analysis that focuses on fundamental strength.

Over the weekend, Louis provided an example of a company uncovered by his Project Mastermind system:

Daqo New Energy Corporation (DQ) is one of the lowest-cost producers of high-purity silicon in the world. So, it’s not too surprising that the company’s polysilicon and solar wafers are in top demand with the solar photovoltaic (PV) industry, which utilize Daqo’s products to develop solar power solutions.

Given the worldwide boom for solar power and strong demand from leading companies, Daqo New Energy has achieved stunning earnings.

After detailing some of Daqo’s huge earnings beats in recent quarters, Louis pointed toward the company’s third-quarter earnings report coming this Thursday…

Analysts expect Daqo to report earnings per share of $3.11, which would represent an incredible 1,051.9% year-over-year increase. Revenue is expected to be $517.5 million, up 312.3% from last year’s third quarter.

Earnings analysis is a big part of my Project Mastermind system… so you can see why Daqo New Energy made the cut!

Louis will be releasing a new Project Mastermind stock recommendation this Thursday. Here he is with a few more details:

The stock is well-positioned to post stunning earnings results in its coming earnings report. I look for its earnings report to dropkick this stock and drive it higher… so now is the time to get in before it starts firing on all cylinders.

For more on this stock as one of Louis’ Accelerated Profits subscribers, click here.

Bottom-line, let’s be realistic about the future. While hyperinflation is unlikely, the Fed most certainly doesn’t have inflation under control. That means it’s critical that your portfolio can handle inflation that’s here for longer – and higher for longer.

And for that, it’s all about earnings.

Have a good evening,

Jeff Remsburg

The post Jack Dorsey Predicts “Hyperinflation” appeared first on InvestorPlace.






Author: Jeff Remsburg

Economics

New Zealand cash rates – the canary in the coal mine?

My son, Angus, ventured into the Sydney residential market at the beginning of the year acquiring a small apartment, with what I considered to be an enormous…

My son, Angus, ventured into the Sydney residential market at the beginning of the year acquiring a small apartment, with what I considered to be an enormous loan from one of the Big Four. At the time the fixed four-year home loan rate was around 1.95 per cent per annum. Today, the advertised rate has jumped 1.0 per cent per annum to around 2.95 per cent. This reflects the Australian four-year Government Bond yield moving up from 0.20 per cent at the beginning of 2021 to the current 1.32 per cent.

The likely response to this change from property buyers today is that a much higher proportion of their mortgage will be attributed to a variable home loan. This rate typically reflects the Reserve Bank of Australia’s (RBA) cash rate, and at 0.10 per cent per annum it is currently at a record low, and well below the “emergency low” of 3.0 per cent per annum implemented during the Global Financial Crisis (6 months to September 2009).

Across the ditch, the Reserve Bank of New Zealand (RBNZ) has raised its official cash rate for the second time in two months by 0.25 per cent to 0.75 per cent per annum to counter growing inflation, which hit 4.9 per cent in the September 2021 quarter, and is expected increase to 5.7 percent in the March 2022 quarter.

RBA vs RBNZ cash rate

Markets are currently pricing in five more 0.25 per cent increases by the RBNZ over the next twelve months to a targeted 2.0 per cent per annum. Will New Zealand be seen as a canary of the coal mine moment given inflation has become a global problem? Only time will tell, however if cash rates happen to jump by 1.5 per cent and this filters through into the rate for variable home loans. The tailwinds currently being enjoyed by asset owners (with debt) – close to nil interest rates – could easily become headwinds.

The US inflation figure for October 2021 hit 6.2 per cent, a 30 year high.  Selected CPI subcategories saw the following 12 month changes: Beef +24 per cent, gasoline +51 per cent, natural gas +28 per cent and used cars and trucks +26 per cent. The UK was not far behind, with an inflation rate of 4.2 per cent for October.

ds-us-inflation-2021-2

Global supply chain bottlenecks and shifting consumer demand from services to goods could well be transitory, but as the Founder of Bridgewater Associates, Ray Dalio, warns, “raging inflation” is eroding people’s wealth today – particularly those who have their money in cash.




Author: David Buckland

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Economics

Dow Jones, the S&P 500, and Nasdaq price forecast after sell-off on Friday

Wall Street’s three main indexes ended sharply lower on Friday as news of a new COVID variant worried investors around the world. The World Health Organization…

Wall Street’s three main indexes ended sharply lower on Friday as news of a new COVID variant worried investors around the world.

The World Health Organization (WHO) on Friday designated a new COVID-19 variant detected in South Africa, and a lot of people didn’t want to hold risk assets on Monday morning or are afraid of what that could look like Monday morning.

Markets are reacting negatively because it is unknown at this point to what degree the vaccines will be effective against the new strain and would it initiate new lockdowns around the world. David Kotok, chairman and chief investment officer at Cumberland Advisors, added:

All policy issues, meaning monetary policy, business trajectories, GDP growth estimates, leisure, and hospitality recovery, the list goes on, are on hold. The new strain may complicate the outlook for how aggressively the Federal Reserve normalizes monetary policy to fight inflation.

The new Omicron coronavirus is detected in Britain, Italy, Netherlands, Germany, Israel, Belgium, Botswana, Denmark, Hong Kong, and Australia for now.

Britain has already imposed travel restrictions on southern Africa, while the European Commission is considering suspending travel from countries where the new variant has been identified.

The upcoming week will be busy, and investors will pay attention to Fed Chair Jerome Powell and U.S. Treasury Secretary Janet Yellen’s appearance before Congress to discuss the government’s COVID response on November 30.

S&P 500 down -2.3% on Friday

 S&P 500 (SPX ) weakened by -2.3% on Friday and closed the week at 4,594 points.

Data source: tradingview.com

If the price falls below 4,500 points, it would be a strong “sell” signal, and we have the open way to 4,300 or even 4,200 points.

The upside potential remains limited for the week ahead, but if the price jumps above 4,650 points, the next target could be around 4,700 points.

DJIA down -2.5% on Friday

The Dow Jones Industrial Average (DJIA) weakened -2.5% on Friday and closed the week below 35,000 points.

Data source: tradingview.com

The Dow Jones Industrial Average remains under pressure as news of a new COVID variant worried investors worldwide.

The current support level stands at 34,500 points, and if the price falls below this level, the next target could be around 34,000 points.

Nasdaq Composite down -2.2% on Friday

Nasdaq Composite (COMP) has lost -2.2% on Friday and closed the week at 15,491 points.

Data source: tradingview.com

The strong support level stands at 15,000 points, and if the price falls below this level, it could be a sign of a much larger drop.

Summary

Wall Street’s three main indexes ended sharply lower on Friday after the news that the World Health Organization designated a new COVID-19 variant detected in South Africa. All policy issues go on hold currently, and investors will pay attention to the government’s COVID response on November 30.

The post Dow Jones, the S&P 500, and Nasdaq price forecast after sell-off on Friday appeared first on Invezz.







Author: Stanko Iliev

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Economics

Wind Power Becoming too Cheap for Industry to Sustain Itself

The price of generating wind power has gotten so low, that companies may soon be unable to invest in additional
The post Wind Power Becoming too Cheap…

The price of generating wind power has gotten so low, that companies may soon be unable to invest in additional technologies for the sector.

According to major turbine-making company Siemens Gamesa, the cost of wind power has recently dropped to such a low level that it can finally challenge the fossil fuel industry, mostly due to an abundance of investments in renewable energy. “What we’ve clearly achieved is that wind power is now cheaper than anything else,” said the company’s CEO Andreas Nauen as quoted by Reuters.

However, Nauen warned that “we shouldn’t make it too cheap,” because it could hinder the influx of additional investments in the green space. Across Europe, both wind and solar are substantially cheaper that natural gas, coal, and even nuclear power. And, with governments’ strong ambitions to adopt a climate friendly agenda, the demand for wind turbines has reached a record-high; but, the relatively lower prices and increased competition have also eroded away at producers’ margins.

“We have probably driven it too far,” said Nauen, adding that if prices continue to decline, the sector won’t be able to invest in further innovations. To make matters worse, accelerating global inflation for raw materials, coupled with supply shortages, also threatens to squeeze turbine makers’ margins. Moreover, governments around the world have begun eliminating generous wind subsidies in favour of more competitive contracts submitted by the lowest bids.

“We need to change auction systems in the future,” said Nauen, suggesting that local job creation should be governments’ top priority, rather than just the lowest price.


Information for this briefing was found via Reuters. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

The post Wind Power Becoming too Cheap for Industry to Sustain Itself appeared first on the deep dive.

Author: Hermina Paull

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