Tilting Toward A Tipping Point: Deflationary Pressures in the Market

Everybody’s Talkin’ ‘Bout Inflation, Escalation, Detonation…

And all we are saying is give Great Stuff a chance.

It’s Reader Feedback day, Great Ones! Today is the day where we dive into the Great Stuff mailbag in search of your juiciest questions, your most unhinged rants, your most honest questions.

And then we throw them into the blender to make a nice Great Stuff smoothie?

No, silly. What kinda smoothie would that be, exactly? Eww.

No, we answer them. Right here. Right now! Today on this very show for your reading pleasure.

Now, clearly, you’re too late to get in on this week’s Reader Feedback, but why not join us for next week’s? Just drop us a line at GreatStuffToday@BanyanHill.com and everything will be … revealed!

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Exactly. Now, without further ado, let’s get to today’s featured presentation:

The Great Reckoning?

Greetings Mr. Great Stuff. Your statement in Tuesday’s missive (quoted below) certainly got my attention:

“I’m more worried about deflation when Wall Street realizes that current demand is superficial due to low employment.”

I am trying to reconcile your concern with pronouncements from other prognosticators that the next market meltdown will get underway by the end of this year. These two schools of thought seem to align with one another, if not in timing, at least in direction. Am I understanding you correctly? — The Weeshump

Thank you for writing in again, Mr. The Weeshump! How are ya’ now?

I knew that line would attract some attention when I wrote it, and I should’ve been a bit more clear. We saw a bit of deflation when the pandemic hit. Well, I should clarify again … consumers saw a bit of deflation when the pandemic hit.

Jarring things like the Great Toilet Paper Rush, consumer prices dipped or stagnated due to plunging demand — gasoline prices, in particular, cratered.

This was expected, and it’s why year-over-year comparisons right now — i.e., the base effect — look so inflationary.

Meanwhile, assets like stocks, gold and whatnot have seen inflation for the better part of the past five years. And you can thank the Federal Reserve and its low interest rates and easy money policy for that one. Bored retail investors flush with stimulus cash are also at least partly responsible as well.

What we have here is an interesting dichotomy: inflationary pressures on consumer goods and deflationary pressures on asset prices.

Wait, deflationary pressures?

Yes. Here’s the thing: Wall Street has operated under the presumption that the economy will come roaring back once the pandemic is gone. I’m sure I’m not the only one who’s seen financial ads or media headlines discussing the potential for a new “Roaring ‘20s.”

But every day, we see indications that this likely won’t happen. We’ll come roaring back all right, but back to about flatlining with where we were pre-pandemic. After that, the U.S. economy will have to deal with what everyone is calling the “New Normal.”

One aspect of that new normal is where workers start quitting their jobs in search of something more … meaningful? Rewarding? Whatever their reasons, this trend is already happening.

Time alone at home during the pandemic gave many U.S. workers time to rethink their career paths, and a splash of government cash gave them the safety net to pursue other opportunities.

In the long run, this will be very good for the U.S. economy. Over the short term, however, I fear it will slow U.S. economic growth as these new career paths take time to ramp up … thus delaying Wall Street’s “Roaring ‘20s” narrative.

And that, Mr. The Weeshump, is where my real deflationary concerns come in. Not on the economic side — that will normalize and take care of itself, I think.

No, we’ll see asset price deflation as Wall Street’s grand dreams of a soaring economy come back down to Earth with lower growth expectations. Furthermore, we all know the Federal Reserve must raise rates and end its easy money policy at some point. This, too, will be a drag on stocks and the market as a whole.

Now, whether or not this results in a “market meltdown” remains to be seen. Wall Street has chased yield like it’s going out of style for nearly five years now, and the best way to realize that yield remains in the stock market, even for conservative investors.

I see a period of market stagnation and contraction coming as a result of unwinding pandemic protection and easy money. But if Wall Street doesn’t panic — seems legit, right? — then I don’t see a meltdown, per se. I see a reshuffling similar to what we saw in January.

The rest depends on whether leaders at the Fed or in Washington panic and do something brash and stupid. And that surely won’t happen, right?

Riiight … and don’t call me Shirly.

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Great Stuff Reader Feedback

Welcome, Great Ones, to the one and only Reader Feedback day! Some might even call it the “Greatest Financial Show On Earth!” ™

Or they might not … whatever floats your boat. Ready for another heaping helping of Reader Feedback? Of course you are.

Toyota Talks

I bought two Toyota Tacomas for my two older kids in 1997 and 1999. Both base models with no extras. My son sold his when he left for medical school for 80% of what I paid for it. I was given the other back from my daughter (Her husband didn’t like it! He bought a POS Hummer). I still drive it for business. It only has 250,000 miles on it, so it’s practically brand new.

I never considered F, GM or Chrysler. They were totally non-competitive from a reliability point of view. So, I don’t care what F does. I won’t be buying their vehicles or stock. — Tim P.

A Tacoma for a … for a Hummer? And I thought Lordstown was the worst trade we’d see this week.

Tacomas are God-tier when it comes to reliability and, no coincidence, resale value — trucks, vans, compacts or otherwise, nothing beats them. Tacomas are a rare and perfect thing; their reign over the used truck market is ceaseless … immortal and unyielding like roaches or Nokia phones.

Some say that Toyota forged the Tacoma deep in the fires of Mount Doom and that only in those infernal caverns from whence it came shall a Tacoma be destroyed.

Anyway … what’d you ask again? Oh yeah, I guess you could say ‘Yotas hold up well and sell well even when beaten to the verge of existence. As you said, 250,000 miles is nothing. That’s where Toyotas are just getting started … and Fords start to beg for the sweet release of death by compactor.

At least that’s how it used to be. Here’s to hoping that GM and Ford address those issues with their race toward electric vehicles … or it’s going to be a quick race.

(Sorry, Wally M. out there, good luck getting rid of your old-school Ranger. Maybe turn it into an interpretive lawn ornament art piece? I dunno.)

Even Ford Forgets About Ford

First of all, thanks for fitting George Strait and The IT Crowd into the same newsletter.

Six years ago, I was shopping for a small pickup. Better towing capacity than an SUV, hauling capability, yet it might still fit in my garage. Of course, Ford didn’t have a play in that market.

One salesman admitted why that was. The F-150 has been the best-selling truck since the dinosaurs invented gasoline. If Ford brought back the Ranger, it would certainly steal market share from the 150 and (shudder!) possibly cause the 150 to lose its top spot.

So, might the Maverick do the same? Probably, but I’ll bet Ford is hoping it will steal market share from competitors. I’m still shaking my head at Ford’s decision to use the name from a severely disappointing car that was supposed to grab the customers that couldn’t afford a Mustang. But Ford probably assumes no one remembers the ‘70s. — Brent R.

George Strait, IT Crowd and Top Gun? Yeah, that’s about an average day in Great Stuff. (Our work outings are a bit different than Jen, Moss and Roy, though.)

Thanks for writing in, Brent! What else can I say? Welcome to Ford logic — even Ford’s trying to forget the ‘70s. Anyone have any fond memories in the Pinto? And if so … how? I bet they’re explosive.

Ford has neglected more than a few of you Great Ones looking for reasonably sized trucks for what, a decade plus? By this point, the used truck market is barren — especially after it was picked clean in last year’s supply-and-demand merry-go-round.

The last-surviving Rangers and Broncos are either rotting shells of their former selves (I mean, same here) or riddled with sassy Tweety bird stickers and urinating Calvins. At least in my neck of the woods. Your mileage may vary, so let me know!

Mr. Moneybags Over Here

Ha, you’re quite funny! Using put options to get into NVDA!

In fact, this technique is not new to me — I successfully used it last year, e.g., to buy ETFs which are normally out of reach for us Europeans — such as TAN.

But Nvidia? You are joking! Far too expensive! 60K for one position?

Even setting a low limit has its disadvantages. It would mean blocking money — perhaps for months in vain — which I could invest otherwise. — Stefan

Hey, there’s always a bigger fish, Stefan. I don’t judge what any of you Great Ones are working with in your accounts. You think my lil ol’ Robinhood account is seeing any $60,000 options trades? Lol. We’ll both keep wishing.

Thanks for writing in! I’m glad some of y’all are making the most of your trading options at hand. Every put-selling trade is just a balance between the opportunity cost you take … and the premium profits you make.

If you (yes, you out there) were wondering, not every trade has uber-expensive premiums like Nvidia (Nasdaq: NVDA). Some tech stocks just be like that, you know?

By the way, I want to give a heartfelt thanks to all of you who wrote in about my grandfather. This isn’t about to turn into some sappy $#*! though, don’t worry.

Happy early Father’s Day, y’all. Anyone down to binge the Indy movies?

Give a shout and holler at us sometime. If you’ve not written in for Reader Feedback day before, what’s stopping you? We’ve got a ton of catching up to do!

Why not share what’s on your mind with me right here in the ol’ inbox?

Whether you’re ready to rant at the market, rave about a recent trade or simply go off the rails, we want to hear it at GreatStuffToday@BanyanHill.com. Just remember you’re writing in the actual email box … not the subject line. Cool?

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