In his podcast addressing the markets today, Louis Navellier offered the following commentary.
Will Hawks Kneel?
Of all the members of the Federal Open Market Committee (FOMC), I respect Minneapolis Fed President Neel Kashkari the most. Neel ran the TARP program under former Treasury Secretary Hank Paulson back in 2008, so he has been stress tested. Interestingly, Neel has been a dove in recent years but has now become a hawk in the past year.
At an event at the University of Pennsylvania’s Wharton School, Neel said “If the economy is fundamentally much stronger than we realized, on the margin that would tell me rates probably have to go a little bit higher and then be held higher for longer to cool things off.” Although it is being reported that Neel is in favor of another key interest rate hike, I am expecting that higher unemployment and slowing retail sales may make Neel and other FOMC members reconsider another rate hike.
Due to slowing worldwide economic growth, I expect inflation, excluding energy, to continue to ebb. Furthermore, due to the anticipation of 4% unemployment due to expanding UAW strikes, I am anticipating that the Fed will cut key interest rates at its December FOMC meeting. I am optimistic about the upcoming third-quarter earnings announcement that will commence in mid-October. Looking further out, easy year-over-year comparisons will propel our growth stocks higher through next summer.
Overall, higher Treasury bond yields have masked the fact that key inflation components are cooling off. Furthermore, most of the recent inflation is tied to higher energy prices that we are poised to profit from. The rest of the world is struggling with higher food and energy prices, so economic growth is slowing outside of North America. The bottom line is the U.S. is an oasis and despite an 11-month manufacturing recession, the American consumer continues to propel the U.S. economy, plus surging energy exports.
Amidst all this uncertainty, an investor’s best defense remains a strong offense of fundamentally superior stocks. The overall earnings environment is improving fast. We are also now in the strong time of year since October has been seasonally strong in the past three decades (post-October 1987). Furthermore, November is even seasonally stronger, since Americans tend to be in a good mood as the holiday season commences. I still think the Fed should cut key interest rates at its December FOMC meeting due to improving inflation components, so I am expecting a strong finish to the year.
China Dumping EVs
Meanwhile, there is a lot of labor unrest in the U.S. as the UAW strike has demonstrated. If I was a UAW worker, I would want as much money as possible now, since I may not have a job in the upcoming years if the Biden Administration continues with its EV mandate. It will be interesting to see how the UAW negotiations commence, but profit sharing from the Big 3 may be the only long-term solution.
However, as China and Mexico increasingly dominate battery and EV production in North America, the Big 3 may soon have to make a Chinese alliance to stay competitive in EVs, just like VW Group recently paid $700 million for a 5% stake in China’s XPeng Motors.
Speaking of unrest, Ford this week announced the suspension of construction of its $3.5 billion electric battery plant in Michigan in conjunction with its joint venture with China’s CATL. This plant was scheduled to open in three years and employ 2,500 workers. Ford said the suspension of this battery plant would remain in place until it was sure it could operate the plant competitively.
This is obviously a blow to the current UAW negotiations, which ironically, are proceeding better with Ford than GM or Stellantis. The other factor that is likely weighing on Ford is that CATL is building excess capacity in China, so its battery plant in Michigan may not be able to compete with CATL’s Chinese-made batteries.
Regarding China dumping EVs in Europe, which is attracting a European Union (EU) anti-subsidy probe, Tesla’s (NASDAQ:TSLA) Shanghai-made EVs are now being investigated along with BYD, SAIC Motor, and NIO. In the first seven months of this year, Tesla sold an estimated 93,700 Shanghai-made Model 3’s in the EU, which accounted for 47% of its EV deliveries in the EU.
The next biggest Chinese importer of EVs in the first seven months was SAIC’s MG EVs with approximately 57,500 EVs registered in the EU. The EU is soon expected to impose tariffs on Chinese-made EVs to protect its domestic auto industry.
Due to food and energy inflation, consumers are not happy. The war against fossil fuels is failing, especially against natural gas, since in America, we are blessed to have the cheapest natural gas in the world. More pipeline projects are now reemerging as natural gas prices meander higher. This is a good time to remind you that natural gas prices are very sensitive to the weather and ideally like hot miserable summers (for peaker power plants) and very cold winters (for heating).
Last November, natural gas prices plunged 50%, due to a disruption at a big LNG port as well as unusually warm weather in the Northeast. This winter is forecasted to be much colder for both Europe and North America due to an El Nino weather pattern, which bodes well for higher natural gas prices.
Coffee Beans: Getting Paper.
A $10,000 bill issued by the Federal Reserve in 1934 vastly exceeded its face value by being auctioned for $480,000. The $10,000 bills were only ever used to transfer money between Federal Reserve banks. Source: UPI. See the full story here.