In his Daily Market Notes report to investors, while commenting on stocks benefitting from inflation, Louis Navellier wrote:
Earlier this month, value investor Mohnish Pabrai took part in a Q&A session with William & Mary College students. Q3 2021 hedge fund letters, conferences and more Throughout the discussion, the hedge fund manager covered a range of topics, talking about his thoughts on valuation models, the key lessons every investor should know, and how Read More
Stocks Benefit From Inflation
Inflation is helping companies post record earnings. As an example, Procter & Gamble Co (NYSE:PG) announced better than expected third-quarter results on Tuesday, but the shocking news was that the company was raising prices on a variety of its goods. In other words, that 5.9% increase in social security benefits for 2022 may not be enough. There is no doubt that even when the supply shortages ease in late 2022 that inflation will be permanent. Inflation is very bullish for growth stocks, since companies, like Proctor & Gamble, will continue to raise prices to insure profitability. I should add that Proctor & Gamble will also likely repackage many of its goods in smaller packages, so consumers do not immediately realize that prices for its goods have increased.
As the prices for food, energy and household goods increase, it will continue to account for a larger percent of consumer pockets, so some economists are now grumbling about the possibility of a “recession.” My favorite economist, Ed Yardeni, likes to describe the current economic environment as a “Hypersonic Business Cycle.” Even though the U.S. economy appears to have achieved “escape velocity” relative to China and other struggling economies, it is hard to fight gravity. So as the rest of the world stumbles, it is inevitable that U.S. economic growth will also slow. The advantage the U.S. has relative to the rest of the world is that the food and energy inflation can be addressed more easily since the U.S. is so vast. However, the Biden Administration must also become less hostile to fossil fuels, since many green energy initiatives have lost momentum. Overall, if the Biden Administration fails to pass its green energy initiatives in its watered-down infrastructure bill that it wants to pass in the next several weeks, then that will be a clear sign that U.S. energy policy has to pivot back to traditional fossil fuels.
Worker Burnout And Fed Tapering
The Fed’s Beige Book survey was released on Wednesday and said that businesses were burdened with “significantly elevated prices” due to higher raw material and shipping costs. The Beige Book survey also said that businesses continue struggling to find qualified workers, which is also contributing to higher service and labor costs. Interestingly, the Beige Book survey said “Reports of burnout are rising among workers and owners alike” and noted that many restaurant and retail owners in the Philadelphia area have to pick up shifts behind the counter or in the kitchen. The Beige Book survey also said, “Some contacts also noted a rising number of belligerent customers.” The comments in the Beige Book survey clearly cited many of the Fed’s frustrations with the labor market and rising inflationary pressures. I think it is safe to conclude that the Fed’s job stimulating the labor market is over and the Fed’s number one priority is fighting inflation, so I suspect at its upcoming Federal Open Market Committee (FOMC) meeting that the Fed will announce that it will begin tapering and curtailing its quantitative easing.
On Thursday, the Labor Department announced that new claims for unemployment in the latest week declined to 290,000. Continuing unemployment claims also declined to 2.481 million. Economists were expecting weekly and continuing claims to come in at 297,000 and 2.548 million, respectively, so unemployment claims came in better than expected. I think it is safe to say that that the Fed's unemployment conundrum has been largely fixed, so the Fed can now shift its priorities to fighting inflation.
Heard & Notable:
Indian industrial magnate Mukesh Ambani has joined the extremely exclusive 100 Billion Dollar Club with a net worth of $102 billion. Ambani is the 11th current member, first Indian, and one of the two non-Americans on the list. Source: Statista