In his Daily Market Notes report to investors, while commenting on energy inflation Louis Navellier wrote:
Q3 2021 hedge fund letters, conferences and more
Sigh of Relief
The CPI number for November of 6.8% y-o-y and up 0.8% over October, was slightly ahead of average forecasts. Net, net, the market sighed in relief that the numbers weren't even higher, best reflected by the fact that interest rates, from the 2-year to the 30-year, all ticked lower, and we're ending the week with a minor relief rally in equities.
The VIX finally dropped below 20, setting the stage for further gains. The markets appear to be looking through this holiday Covid surge, and through the now almost assured accelerated tapering by the Fed, with consumer sentiment rising, expectations for strong Christmas sales, and rock bottom unemployment.
Inflation remains the most likely spoiler for stocks in the months ahead, assuming the pandmeic is in the final innings, but until interest rates rise and acknowledge the negative real yields they shouldn't restrain stock prices from further advances.
Risk On Fear Off
The stock market looks awfully good right now. The Friday after Thanksgiving, the market sold off on the Omicron fears and that it would derail our economy.
That fear is over. The other fear was the Fed tapering. They'll probably go from $105 billion a month to $90 billion a month. But they should have done that a couple of months ago. So that's old news.
We had a ten-year treasury auction this week. The bid to cover ratio was excellent and 69% of the bidders were foreign. We have a strong dollar. Foreign capital continues to pour into America, seeking not only our currency appreciation but our positive interest rates.
In Europe and Japan, you're going to get much lower rates, if not negative rates. So the foreign buying pressure alone is keeping interest rates in check despite the inflation.
Today’s inflation was fully anticipated. The bottom line is we do have the fastest inflation in 39 years, but we know where it is now: food and gasoline. Gasoline was up 6.1% in the past twelve months 58.1%. Ouch.
Energy Inflation
The biggest problem with energy inflation is it ripples through the economy because our goods are transported via truck, train or ships. I do expect that inflation will start to moderate next year, but it's still obviously going to be well above the Feds target rate. But in an inflationary environment, stocks are the best hedge, since they can raise prices.
Obviously, energy prices are going to spur more demand for crude, and they're already starting to reopen parts of North Dakota because that crude is very sweet but very expensive to get out. Meanwhile, the drilling ban on federal lands is one of the reasons natural gas prices are so high. Given the abandoned well problems, the Energy Department is very hostile right now to the independents.
So there's a lot of weird things going on right now that impact energy, but the bottom line is we have a very strong economy. We're looking at 5% to 8% GDP growth in the fourth quarter, depending on who you talk to.
We'll get a better feel for that when we get the November retail sales. But the ISM service report is at a record, consumers are taking out more credit card debt, we’ve gotten the lowest claims for unemployment in 52 years.
This is economic Nirvana. I'm expecting a very strong finish to the year and a strong opening to the new year. We could retest recent lows that made a week ago but the rally on Monday was so powerful and the follow-through was so good that a retest seems unlikely. Between Christmas and New Year's, the last week of the month is going to be great, followed by a strong start to the year making it a good time to add money to the market. Whatever fears the market had, they've dissipated now.
Coffee Beans
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