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Peter Schiff: The Year Of Living Dangerously

Peter Schiff: The Year Of Living Dangerously

Via SchiffGold.com,

With 2021 now in the rear-view mirror, I believe that future financial historians may regard it as the year of peak speculation.

While the history of American markets is litte

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Peter Schiff: The Year Of Living Dangerously

Via SchiffGold.com,

With 2021 now in the rear-view mirror, I believe that future financial historians may regard it as the year of peak speculation.

While the history of American markets is littered with periods of irrational exuberance, none of those episodes can really match the current market for outright delusion and the blatant disregard for basic investment discipline. 

Where to begin?

It was the year that brought us “meme stocks,” companies whose share prices skyrocketed precisely because their business prospects were inarguably bleak. It was the year that launched thousands of new cryptocurrencies, more than quintupling the market capitalization of these new “assets,” (from $578 billion in November 2020 to more than $3 trillion a year later). Although few people can explain, or understand, the utility and features of these new currencies, the Bloomberg Galaxy Crypto Index nevertheless rose by more than 160% over the course of the year.   

It was the year that brought us non-fungible tokens, otherwise known as NFTs, virtual assets that don’t exist in the real world but are discussed as if they were precious artifacts brought back from the future. According to data from DappRadar, NFTs sales in the third quarter alone were $10.7 billion, eight times the pace in the second quarter of the year. In 2021, people frequently paid thousands of dollars for virtual sneakers, and someone paid $450,000 to acquire a virtual piece of property in the “Snoopverse,” a digital world created by rapper Snoop Dogg. 

It was a year that saw more than 1,000 companies (a record) offer initial public offerings (IPOs) on U.S. stock exchanges, more than four times the volume-averaged over the last decade.  These newly public companies raised a record $315 billion from investors. Never before has that total surpassed $200 billion. Even more unusual was that more than half of those IPOs were special purpose acquisition companies, or SPACs, black box investments that are simply stock ticker symbols in search of unproven businesses. Investors didn’t even know what they were buying, but they just bought anyway.  

It was the year of record share buybacks, in which US companies bought nearly one quarter trillion dollars of their own stock in just the third quarter. It was a year of record mergers and acquisition activity, with global deal flow topping $5 trillion for the first time.

But apart from gains made in these esoteric asset classes, the most important area of peak speculation may have been in the broader stock market. The S&P 500 added 26.9% in 2021, which is more than double the average return over the past 10 years. While excellent, the results were by no means a record (there have been 11 years since the Great Depression in which the S&P delivered better returns); it is very unusual for stocks to do so well when they are not rebounding from significant previous declines.    

The degree of the speculative mania can be seen in the ever-expanding price-to-earnings ratio that stocks currently enjoy. Most investors agree that the best way to judge relative stock valuations is to look at Cyclically Adjusted Price to Earnings (CAPE) ratio, which measures the average of adjusted earnings over a period of 10 years. This figure generally filters out short-term earnings and volatility to give a more reliable picture. The mean CAPE ratio for stocks (which goes back well over 100 years) is 16.9 (through 1/2021). The ratio currently stands at 38.87, as of 1/10/22. In the history of the market, there has only been one period, the eighteen months between December of 1998 and September of 2000 (a period now referred to as the dot-com bubble) when CAPE ratios were higher than they are now. We know how that ended.  But the extreme valuations of the dot-com bubble were achieved on top of a booming economy and historically high consumer confidence. That optimism is nowhere in view today.  

After the dot-com bubble burst, the S&P 500 lost nearly half of its value and CAPE ratios contracted by almost 50%, from 43.5 in April of 2000 to 21.9 in October of 2002. Those declines paved the way for above-trend gains from 2003-2007. When the Great Recession hit in 2007, stocks declined by 56% (between October 2007 and March 2009) and CAPE ratios declined by more than 50%, from 27.9 in May of 2007 to 13.3 in March 2009. These declines were also followed by a historic bounce back.  

But the great results in 2021 were different in nature.  In 2020, during one of the largest economic contractions in U.S. history, in many ways worse than the dot-com implosion and the Financial Crisis of 2008, stocks rose 16%. So, in 2021 there were no losses to recoup.  It was all gravy on top of gravy. By the end of 2021, stocks had risen more than 40% from pre-Covid levels. 

But peak speculation was not confined to Wall Street. The good times extended to Main Street, where, in November 2021, U.S. home prices had increased 18% annually, the largest increase since the end of WW II, and 4 percentage points faster than in any year during the real estate bubble of 2004-2007. 

So, it was a great year to own just about everything.

The question is, what is so extraordinarily good about an economy that justifies these broad increases? The answer, of course, is nothing. While GDP growth averaged more than 6% in the first half of 2021 (which is not particularly impressive given the 3.5% contraction in 2020), economists were surprised by the sharp deceleration to 2.2% annualized in the third quarter. They have also been surprised by the failure of workers to rejoin the labor force.  

A study published in Fortune magazine in October 2021 found that among Fortune 1000 companies, 73% of CEOs anticipate the work shortage will disrupt their businesses over the next 12 months. The exodus of workers has been dubbed “the great resignation.”  

Increases in asset prices in the current environment should be seen as strictly a monetary, not an economic, phenomenon. Since the beginning of the pandemic, the Federal Reserve has added more than $5 trillion in newly created dollars into the economy. And while the Fed has been engaging in this type of monetary magic for more than a century, its efforts of the past two years have dwarfed prior episodes. In 2020 alone, the Federal Reserve added more than $3 trillion to its balance sheet, almost double the record previously set during the Great Recession. And while the balance sheet expanded by “only” $1.7 trillion in 2021 (still more than any other year in history, besides 2020, and a record for a year not in recession)Keynesian theory holds that monetary expansions should happen only in a recession, and contraction should occur in periods of growth. Keynes warned that monetary expansion during periods of growth would be doubly distortive. And that’s exactly what happened.  

But unlike prior episodes of Fed activism, money creation in 2021 did not just push up asset prices. Last year, inflation (as measured by the CPI), came in at 7%, the biggest gain since 1982. (If we measured the price increases using the same methods used back in 1982, it’s likely inflation could be closer to 15%).  

In the last few months, the Fed has finally had to admit that the inflation it had been describing as “transient” for more than a year was, in fact, far more persistent. As a result, it has promised that it will act decisively to bring inflation under control. But few economists and investors appreciate just how difficult and destructive that process would be given how deeply dependent the economy, financial markets, and the Federal Government are on ultra-low interest rates.  

In order to slow, and ultimately reverse inflationary pressure, the economic textbooks say that the Fed should deliver interest rates ABOVE the rate of inflation. Such a rate would discourage borrowing and lending, encourage savings, reduce demand, and bring down inflation. That’s what Paul Volcker did in 1980, when he raised the Fed Funds rate to nearly 20%, when inflation was running at 13.5%. Could anyone imagine what our economy would look like with 7% interest rates, let alone 10% or higher? At 7% Fed Funds rate, corporate bond and home mortgage rates would be at least 8%, if not higher.  Clearly, rates like that would sharply impact stock and home prices. An overly inflated stock market would fall, perhaps steeply, and home prices would drop as financing costs increased from current low levels. Such asset price declines could push the economy into a depression that the Fed would have to fight with stimulative monetary policy.    

Even worse might be the impact on the Federal budget. Even if just half of the $30 trillion National Debt had to be refinanced at 7% over the course of a year, the costs would add $900 billion in extra annual interest every year to the Federal budget. That’s almost as large as the $1.2 trillion infrastructure bill that was passed in 2021, the cost of which will be spread over many years.  Financing just the extra interest might require sizable cuts to entitlements and large middle-class tax increases, even as the economy may be mired in deep recession. No one at the Fed will be willing to deliver that kind of tough love.

Instead, they are hoping that one percent interest rates, arrived at the end of this year, will do the trick. I would argue that that is wishful thinking in the extreme. In fact, a 1% Fed Funds rate, when inflation was much lower than it is now, was the highly accommodative rate the Fed used to stimulate the economy after the 2008 Financial Crisis.  How can that same rate now be considered tight enough to fight off the highest inflation in 30 years? Yet even the possibility of such a minimal reduction in stimulus is enough to spook Wall Street.  

On Wednesday, the release of the Fed minutes from its December meeting revealed to investors that the Central Bank is preparing fully to end its quantitative easing bond purchases, and possibly deliver its first quarter-point rate increase by March of this year. It also raised the possibility of raising rates as much as four times (for a total of 1% percent) this calendar year, and even possibly conducting active operations to reduce the size of its $8.8 trillion dollar balance sheet. This news helped push the Dow Jones average down 600 points.   

But such moves by the Fed, if it is even able to implement them, will be a fraction of what would be needed to bring inflation back down to the Fed’s 2% target. And what exactly will the Fed do if its loose policies start to take a bite out of the stock market or the economy as they did in late 2018? At that point, the Fed’s commitment to interest rate normalization and balance sheet reduction, which had pushed yields on 10-year Treasury notes above 2.5% for the first time since 2011, ran smack into the reality of a bear market in stocks and a slowing economy. After less than six weeks of a market sell-off, the Fed caved completely. As it always has over the past 40 years, the bankers at the Fed, who are really just politicians in disguise, chose short-term expediency over long-term health. By January 2019, all of the Fed’s carefully telegraphed plans of monetary discipline had been totally abandoned.  

Three years later, after the hollowing out of the Covid economy and the massive stimulus needed to keep it inflated, the Fed faces a far higher mountain, with far greater cliffs. My guess is it will fold like a lawn chair at the first sign of real trouble.  

At that point, investors should finally realize that the Fed is powerless to control inflation. If another recession comes along, the size of the stimulus needed to combat it will rise exponentially. The current $8.8 trillion dollar balance sheet may become $20 trillion, with no end in sight. If investors had any sense at that point, they might consider abandoning the dollar, and refuse to buy Treasury debt that pays 5% or more below the rate of inflation. If we are seeing 7% inflation with a rising dollar, imagine how high it could be if the dollar were falling, particularly as we continue down the road of record trade deficits. (The shrinking labor force means that we import an even larger percentage of the goods we consume, making us even more vulnerable to rising import costs).  

In other words, the Fed has painted itself into a corner, and the room for maneuver is getting smaller and smaller, even as the stakes are getting higher and higher. 

In the meantime, those lucky enough to own assets are enjoying one more spin on the merry-go-round.  Only about a week into 2022, shares of Gamestop, the poster child of the meme stock craze, soared when the company announced that it was jumping into the NFT business. Meme stocks and NFTs in one convenient ticker. All the pretty horses!

Tyler Durden Tue, 01/18/2022 - 10:58

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Economics

5 Top Consumer Stocks To Watch Right Now

Are these consumer stocks a buy amid the earnings season?
The post 5 Top Consumer Stocks To Watch Right Now appeared first on Stock Market News, Quotes,…

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5 Trending Consumer Stocks To Watch In The Stock Market Now         

As we tread through the earnings season, consumer stocks could be worth watching in the stock market this week. This would be the case since a number of big consumer names such as Costco (NASDAQ: COST) and Macy’s (NYSE: M) will be posting their financials for the quarter. As such, investors will be keeping an eye on these reports for clues on the strength of consumer spending amid this period of high inflation.

However, despite the soaring prices across the economy, it seems that consumers are surprisingly showing resilience. According to the Commerce Department, retail sales in April outpaced inflation for a fourth straight month. This could suggest that consumers as a whole were not only sustaining their spending, but spending more even after adjusting for inflation. Ultimately, it could be a reassuring sign that consumers are still supporting the economy and helping to diminish the narrative of an incoming recession. With that being said, here are five consumer stocks to check out in the stock market today.

Consumer Stocks To Buy [Or Sell] Right Now

Nordstrom

retail stocks (JWN stock)

Starting off our list of consumer stocks today is Nordstrom. For the most part, it is a fashion retailer of full-line luxury apparel, footwear, accessories, and cosmetics among others. The company operates through multiple retail channels, boutiques, and online as well. As it stands, Nordstrom operates around 100 stores in 32 states in the U.S. and three Canadian provinces.

Yesterday, the company reported its financials for the first quarter of 2022. Starting with revenue, Nordstrom pulled in net sales worth $3.47 million for the quarter. This marks an increase of 18.7% from the same quarter last year. Its Nordstrom banner saw net sales rise by 23.5% year-over-year, exceeding pre-pandemic levels. Next to that, its Nordstrom Rack banner saw a 10.3% increase in net sales from last year. Besides, net earnings were $20 million, with earnings per share of $0.13 for the quarter. Considering Nordstrom’s solid quarter, should you invest in JWN stock?

[Read More] Best Stocks To Invest In Right Now? 5 Value Stocks To Watch This Week

The Wendy’s Company

best consumer stocks (WEN stock)

Next up, we have The Wendy’s Company. For the most part, it is the holding company for the major fast-food chain, Wendy’s. Being one of the world’s largest hamburger fast-food chains, the company boasts over 6,500 restaurants in the U.S. and 29 other countries. The chain is known for its square hamburgers, sea salt fries, and the Frosty, a form of soft-serve ice cream mixed with starches. WEN stock is rising by over 8% on today’s opening bell.

According to an SEC filing, Wendy’s largest shareholder, Trian Partners, is looking into making a potential deal with the company. Trian said that it is considering a deal to “enhance shareholder value.” Also, the firm adds that this could lead to an acquisition or business combination. In response, Wendy’s stated that it is constantly reviewing strategic priorities and opportunities. It added that the company’s board will carefully review any proposal from Trian. Given this piece of news, will you be watching WEN stock?

[Read More] 4 Semiconductor Stocks To Watch In The Stock Market Today

Foot Locker

FL stock

Another stock investors could be watching is the shoes and apparel company, Foot Locker. In brief, the company uses its omnichannel capabilities to bridge the digital world and physical stores. As such, it provides buy online and pickup-in-store services, order-in-store, as well as the growing trend of e-commerce. Some of its most notable brands include Eastbay, Footaction, Foot Locker, Champs Sports, and Sidestep. Last week, the company reported its results for the first quarter of the year.

For starters, total sales came in at $2.175 billion, a slight uptick compared to sales of $2.153 billion in the year prior. Next to that, Foot Locker reported a net income of $133 million. Accordingly, adjusted earnings per share came in at $1.60, beating Wall Street’s expectations of $1.54. CEO Richard Johnson added, “Our progress in broadening and enriching our assortment continues to meet our customers’ demand for choice. These efforts helped drive our strong results in the first quarter, which will allow us to more fully participate in the robust growth of our category going forward.”  As such, is FL stock one to add to your watchlist? 

Tyson Foods 

TSN stock

Tyson Foods is a company that built its name on providing families with wholesome and great-tasting protein products. Its segments include Beef, Pork, Chicken, and Prepared Foods. With some of the fastest-growing portfolio of protein-centric brands, it should not be surprising that TSN stock often comes to mind when investors are looking for the best consumer stocks to buy. 

Earlier this month, Tyson Foods provided its fiscal second-quarter financial update. The company’s total sales for the quarter were $13.1 billion, representing an increase of 15.9% compared to the prior year’s quarter. Meanwhile, its GAAP earnings per share climbed to $2.28, up 75% year-over-year. According to Tyson, these financial figures are a reflection of the increasing consumer demand for its brands and products. To top it off, the company was also able to reduce its total debt by approximately $1 billion. Thus, does TSN stock have a spot on your watchlist?

[Read More] Stock Market Today: Dow Jones, S&P 500 Rise, Wendy’s Stock Gains On Potential Deal

DoorDash

food delivery stocks (DASH Stock)

DoorDash is a consumer company that operates an online food ordering and delivery platform. In fact, it is one of the largest delivery companies in the U.S. and enjoys a huge market share. The company connects hundreds of thousands of merchants to over 25 million consumers in the U.S., Canada, Australia, and Japan through its local logistics platform. Accordingly, its platform allows local businesses to thrive in today’s “convenience economy,” as the company puts it.

On May 5, the company reported its first-quarter financials for 2022. Diving in, it posted a revenue of $1.5 billion, growing by 35% year-over-year. This was driven by total orders that grew by 23% year-over-year to $404 million. Along with that, it reported a GAAP gross profit of $662 million, an increase of 34% year-over-year. The company said that it added more consumers than any quarter since Q1 2021, due in part to the growth of its DashPass members. The growth in Monthly Active Users and average order frequency has helped it gain share in the U.S. Food Delivery category this quarter as well. Given DoorDash’s performance for the quarter, should you watch DASH stock?

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The post 5 Top Consumer Stocks To Watch Right Now appeared first on Stock Market News, Quotes, Charts and Financial Information | StockMarket.com.

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Economics

Finding Shelter in an Inverse ETF

As the old saying goes, “What goes up must come down.” Indeed, up until the recent selling wave caused by Russia’s war against Ukraine and the continued…

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As the old saying goes, “What goes up must come down.”

Indeed, up until the recent selling wave caused by Russia’s war against Ukraine and the continued effects of supply chain disruptions amid the COVID-19 pandemic, tech stocks, including semiconductors, were the darlings of the investment world. That is, it seemed as if the sky-high valuations of some tech stocks were sustainable in an atmosphere of seemingly perpetual growth.

That, of course, was not the case, and the too-good-to-be-true valuations were quickly brought down to earth by the forces of inflation and tight monetary policy. As a result, the tech-heavy Nasdaq entered a free-fall that has not yet found a bottom.

At the same time, that does not mean that we should abandon the sector as a lost cause. One such way to play the sector during its downhill slide is the exchange-traded fund (ETF) Direxion Daily Semiconductor Bear 3X Shares (NYSEARCA: SOXS).

As its title suggests, this is an inverse ETF, meaning that it is built to go up in value when its parent index goes down. Specifically, SOXS provides three times leveraged inverse exposure to a modified market-cap-weighted index of semiconductor companies that trade in American markets by using swap agreements, futures contracts and short positions.

While the index’s holdings are weighted by market capitalization, the fund’s managers cap the weights of the top five securities in the portfolio at 8% each. The weight of the remaining securities is capped at 4% each.

As of May 24, SOXS has been up 0.37% over the past month and up 24.73% for the past three months. It is currently up 60.47% year to date.

Chart courtesy of www.stockcharts.com

The fund has amassed $258.15 million in assets under management and has an expense ratio of 1.01%.

In short, while SOXS does provide an investor with a way to invest in an inverse ETF, this kind of ETF may not be appropriate for all portfolios. Thus, interested investors always should conduct their due diligence and decide whether the fund is suitable for their investing goals.

As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You just may see your question answered in a future ETF Talk.

The post Finding Shelter in an Inverse ETF appeared first on Stock Investor.

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Will Albertsons outperform due to its high return on equity for low beta?

Albertsons Companies Inc. (NYSE:ACI) is trading at $29. The stock has risen 81.25% from the IPO in the last quarter of 2020. In the two years since going…

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Albertsons Companies Inc. (NYSE:ACI) is trading at $29. The stock has risen 81.25% from the IPO in the last quarter of 2020. In the two years since going public, Albertsons Companies paid dividends each quarter. The annual dividend currently stands at $0.48, with a yield of 1.64%.

Albertsons is rated high on both value and growth. The company’s heritage has been built over the years since its founding in 1939. Today, the company is the second-largest traditional grocer in the US.

The company went public during a pandemic to fund new growth opportunities. However, it faces the headwinds of inflation and bear markets. Despite pressures, Albertsons will be among the few stocks that will outperform the market.

The ROE stands at 74.48%. This is a fundamental strength that should make investors troop to Albertsons. The EPS is at $2.8 and growing at more than 6.13%. At the valuation of $29, the PE is just about 10. All this for a beta of only 0.3, indicating a low risk.

Albertsons has support at $26.80 and resistance at $36.75

Source – TradingView

Albertsons has support at $26.80. This week, the stock has been bullish, having gained 7.82%. It is among a handful of stocks that have been braving the bear markets. This analysis projects that the stock will face some resistance at $36.75. However, it would break out at the next earnings release on July 28. If an investor were to take a position today, there is the likelihood of enjoying significant gains by the next earnings call.

Summary

Albertsons is an attractive value and growth stock. The share is trading at $29 with a price target of $36 by the end of July. Albertsons is also emerging as an attractive dividend stock.

The post Will Albertsons outperform due to its high return on equity for low beta? appeared first on Invezz.

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