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The Specter Of The Possibility Of Stagflation

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In his Daily Market Notes report to investors, while commenting the possibility of stagflation, Louis Navellier wrote:

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Fear/Greed Equilibrium

The specter of the possibility of stagflation is the current leading fear component of the fear/greed equilibrium in the market.  

It is being fed by lower beats of 4th quarter earnings estimates, as well as modest reductions of 1st Q ‘22 estimates, even ‘23 forecasts.  There‘s little doubt that monetary tightening by the Fed will raise interest rates, though the amount, speed, and changing shape of the yield curve remain very much in doubt.  

Willingness In Doubt

Also in doubt is the willingness of the Fed and other central banks to backpedal should stock markets and even economies slow meaningfully as interest rates rise. The world has lived in a falling interest rate environment for nearly 50 years, since the early 1970’s when then Fed chairman Paul Volker raised interest rates to all-time highs; an 18% 10 year US Treasury yield, to conquer runaway inflation, unimaginable to current investors. 

Rationality Evolving

Today, even the prospects of a 2% yield is causing indigestion, even though inflation is 2 or 3 times that high. The recent pullback from all-time highs in equities is a healthy correction, where quality earnings are still being rewarded, dividends are more attractive, and valuations of future earnings streams are being discounted more heavily.  

As these adjustments are made, investors will find that higher quality holdings in their portfolios have held up best, the more speculative holding not as well.  A more rational market is evolving, one with not only higher valuations for better companies, but more upside from better entry points for more speculative companies which do succeed in their growth plans. As the pandemic funding is pulled away, the market will be moving forward on more solid ground, albeit it may take a few more months for the road to smooth out.  Take advantage of volatility while it lasts along the way. 

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Hawaii Electric Company (HECO) shocked a couple with a bill for over $18,000. HECO said it recently learned that the couple "owns the street" and they are in talks with them to determine who actually does. Source: UPI. See the full story here.