In his podcast addressing the markets today, Louis Navellier offered the following commentary.
If you wish to listen to this commentary, please click here.
The Fed still thinks they have to raise rates a little bit more, but that is not a given.
FOMC Dissent
The FOMC statement did not change much from its previous statement in November. However, the Fed lowered its economic growth outlook, which is dovish, but then raised its famous “dot pot” is for the federal funds rate to rise to 5.1%, up from 4.6% back in September, which is hawkish.
Q3 2022 hedge fund letters, conferences and more
The Fed also plans on continuing to reduce its balance sheet. However, the “dot plot” is not unanimous on the FOMC and dissension among members has finally materialized with 70 basis points of deviation.
During Fed Chairman Jerome Powell’s press conference on Wednesday, he refused to acknowledge that the fight against inflation is improving, even though core inflation, excluding food and energy, is steadily improving.
As a result, Chairman Powell appears to be at odds with market rates and the dramatic decline in Treasury yields in the past several weeks. In defense of the Fed Chairman, he is citing points from the Beige Book survey that was prepared a few weeks ago.
It is clear that Chairman Powell wants to fight service inflation, especially owners equivalent rent, but if Treasury yields continue to meander lower, the Fed has to hit the “pause” button.
In the meantime, the Bank of England, the European Central Bank and the Swiss National Bank all raised their key interest rates 0.5% on Thursday to be in sync with the Fed, although their key interest rates remain well below the federal funds rate.
The 10-year Treasury bond yield has declined 80 basis points since late October, while the 2-year Treasury note declined 55 basis points since early November. As I have said many times, the Fed never fights market rates, so I remain confident that the Federal Open Market Committee (FOMC) will pause after Wednesday’s 0.5% key interest rate hike since the Fed will finally be in sync with market rates.
Energy Oasis
The Commerce Department on Thursday announced that November retail sales plunged 0.6%, which was significantly below economists’ consensus estimate of a 0.3% decline. This was the largest monthly decline in 11 months. In the past 12 months, retail sales rose 6.5%.
Vehicle sales declined 2.3% in November and other big-ticket items, like furniture, building materials and electronics also declined. Excluding gasoline and vehicle sales, November retail sales declined by 0.2%. Nine of the 13 industries surveyed reported sales declines in November.
Interestingly, sales at bars and restaurants rose 0.87% in November, so that is a good sign that at least consumers were “out and about.” However, this was a very disappointing report, so many economists are expected to revise their fourth-quarter GDP estimates lower.
I should add that the Atlanta Fed revised their fourth-quarter GDP estimate down to a 2.8% annual pace, from its previous estimate of 3.2% annual GDP growth.
So where do we invest? Energy remains the oasis. I know a lot of you are still worried about crude oil prices, but this is the time of the year when demand is low. It will pick up in the spring.
Stopping SPR
The Energy Information Administration (EIA) on Wednesday announced that U.S. crude oil inventory in the latest week soared by 10.2 million barrels. This was a big surprise since analysts were expecting a drop of 3.6 million barrels.
A shutdown of the Keystone pipeline, which transports 620,000 barrels per day of crude oil is expected to reduce crude oil inventories in Cushing, Oklahoma and the Gulf Coast. So most of the surge in crude oil inventories appears to be attributable to releases from the Strategic Petroleum Reserve (SPR).
Gasoline inventories rose by 4.5 million barrels in the latest week to 223.6 million barrels, while distillate (e.g., diesel, heating oil, jet fuel, etc.) inventories rose by 1.4. million barrels to 120.2 million barrels, so the prices at the pump may continue to decline for a few more weeks.
The Strategic Petroleum Reserve (SPR) release will not be allowed by the new Congress. So this is going to wind down and remove almost a million barrels a day off the crude oil market. And then demand goes up in the spring. Additionally, it is now cold in much of Europe and the U.S., so natural gas prices are rising.
Coffee Beans
In the United States, mainland China, the United Kingdom, and Japan, dogs have a fairly comfortable lead over their greatest furry rivals, cats. In the U.S., 74 percent of pet owners said they have a dog, compared to just 47 percent with a cat. In Germany though, the fight is far tighter, with dogs just edging out cats on 51 percent compared to 50 percent. Source: Statista. See the full story here.
