Rocked You Like An Inflation Hurricane
Great Ones, it starts with an earthquake … the Consumer Price Index and jobless claims.
Lenny Bruce is not afraid…
We’re in the eye of an inflation hurricane, but you really shouldn’t listen to yourself churn. The world serves its own needs. Don’t mis-serve your own needs. You need to speed it up a notch, speed, grunt, no, strength.
OK, he’s lost it. He’s finally lost it…
What?
The vibe I’m getting from y’all is that “It’s the End of the World as We Know It.”
I just figured the song was fitting.
In case you didn’t notice … and I’m sure you did … the major market indexes crashed roughly 2% across the board today before rebounding.
The spark that ignited the drop?
The Consumer Price Index (CPI).
Inflation So High. Why, CPI?
According to the Bureau of Labor Statistics, the September CPI rose 0.4% for the month and a whopping 8.2% year over year. By comparison, Wall Street economists expected a rise of 0.3% in September and 8.1% from 2021.
The so-called core CPI — which strips out all of life’s necessities, like food and energy — jumped 0.6% in September and 6.6% from 2021.
There were a couple of driving forces behind the continued rise in inflation. First up, food prices soared 11.2% from 2021, overshadowing a 2.1% decline in energy prices. Rents, or shelter costs, added 6.6%, with transportation services and medical care gaining 1.9% and 1%, respectively.
Adding to consumer woes, average hourly earnings dropped 0.1% in September and 3% from last year.
Comparing today’s CPI report and the Federal Open Market Committee’s (FOMC) meeting notes, it seems the only thing going right with the Fed’s plan is declining wages. Everything else continues to get more expensive.
This, Great Ones, is what we call stagflation. When consumer buying power evaporates, but things continue to rise in cost.
Oh, by the way … did you see what the FOMC said about inflation in its September meeting notes?
Now, where have I heard that before… Oh! Right here in Great Stuff!
Inflation? Nope. Stagflation!
The Fed has also stated that curbing growth in the labor market is among its highest priorities. You know, because wage growth is apparently the biggest driver for inflation, according to Fed Chairman Jerome Powell:
Holy run-on-sentence, Jerome!
Also, if there’s a “path to that,” the Fed certainly is not on it … as today’s CPI underscores.
Yes, wage growth is coming down, but everything else is still rising … even jobless claims.
The Fed may not want higher unemployment, but the Fed is going to get higher unemployment.
We’re already seeing the leading edge of the end of the “But! The labor market is strong!” narrative.
When that’s gone … when job growth reverses … what will the Fed be left with?
Still rising inflation, I’d say. And the Fed knows this too. Just check out this line from the FOMC notes’s summary:
Years. The coming years.
Great Ones, we’re a far cry from “transitory” at this point.
This really is the end of the world as we know it!
It is, but … as the song goes, I feel fine!
What? How? How can anyone feel fine right now?!
Because, as you Great Ones already know, I know how to get income during bear markets … during inflationary periods … and, yes, during the dreaded stagflation!
Just for a moment: Forget options, forget meme stocks, forget buy low/sell high, forget stocks going up and down … and remember that there are some stocks that pay you just for owning them.
Yes, that’s still a thing … and right now, in this market, it’s literally the best reason to own any stock.
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Can’t Win For Losing
The first high-flying airline guinea pig to enter the earnings confessional, Delta Air Lines (NYSE: DAL) just set the bar high for JetBlue, United, American, et al.
Wait, where are you getting flying guinea pigs?
Umm. I know a guy?
No flying guinea pigs were harmed in the making of Delta’s earnings report though: The company reported record revenue for last quarter, which includes the busy travel season that Delta hyped up all year long.
So let’s take a look at Delta’s beaming summer boom by the numbers, shall we?
- Earnings per share: $1.51 versus $1.53 expected.
- Revenue: $12.84 billion versus $12.87 billion expected.
This … this is a rebound?
I mean, I guess it’s better than the devastation the airline industry faced over the past two years, but still. Remember when all the airlines got in a tizzy, thinking this past spring/summer travel season was going to be a banger? That they’d finally wrangle their way back to pre-pandemic travel volumes and everything would be A-OK?
Yeah … that didn’t quite happen as planned. Delta’s only seeing capacity at 92% of 2019 levels at best, so … maybe next summer?
Mind you, Delta’s revenue is already 3% above 2019 levels, thanks to high airfare prices that don’t seem to be going away anytime soon. But it’s still … still … not good enough for Wall Street’s ever-higher expectations. So is record revenue really good enough?
Same as it ever was, Great Ones.
There’s An Impairment Charge In My Boots!
Which Toy Story was that from, sir?
Why, it’s from Walgreens Story. (That one never took off. No idea why…)
Anyway, Walgreens Boots (Nasdaq: WBA) was caught in its own inflationary web this quarter as operating costs sank earnings. Oh … and there’s that pesky little $783 million impairment charge that Walgreens took on its U.K. Boots business.
Despite lower demand for vaccines, dropping sales and worsening margins … Walgreens still reported a double beat, thanks in part to the $3.3 billion cost-saving goal laid out by company management. Though I reckon lowered expectations also had something to do with the beat…
Walgreens was rather nonplussed by the whole report: Rather than dishing out the usual corporate buzzwords and giving herself a pat on the back, Walgreens CEO Roz Brewer mainly focused building hype for the company’s health care pivot.
Walgreens plans to add more doctors’ offices and clinics to its stores, hoping for more alternative income streams. Hey, at least now after you balk at the inflated prices for literally everything, you can go get your blood pressure checked right next door.
Fats Domino’s
Say what you want about pineapple, but my vote for the worst pizza topping of all? Stagflation. Ew.
The rising cost of rising dough weighed on Domino’s Pizza (NYSE: DPZ) earnings in its latest report. Domino’s delivered earnings of $2.79 per share, widely missing expectations for $2.97 per share. Revenue reached $1.07 billion and still beat Wall Street’s estimates of $1.06 billion.
What DPZ investors wanted to see, however, was same-store sales growth. And they got it … well, a bit: Same-store sales ticked up 2% in the U.S. and dropped 1.8% overseas
More people are buying pizza now, after a brief stint of going out to eat post-pandemic, which has to count for … something. Domino’s says it delivered 1 out of every 3 pizzas in America this past quarter, and, briefly putting my lost faith in humanity aside, that’s pretty great news for DPZ investors.
The problem here is how well Domino’s can keep costs down amid heightened volumes.
The chain already raised its food inflation estimates from a range of 10% to 12% up to a range of 13% to 15% — I mean, have you seen the price of mozzarella lately? It’s enough to make any cow weep tears of salty whey.
I don’t think cheese works like that, Great Stuff.
Quiet, you. DPZ shares shot up 8% today. But other companies reporting mediocre earnings didn’t fare quite so well today…
Chips On My Shoulder
You know, for how much the Rolling Stones went on about not getting what you want but getting what you need … something tells me they weren’t semiconductor investors.
Taiwan Semiconductor Manufacturing (NYSE: TSM) just gave investors a double-beat report … but it was far from the assurance that chip investors need as demand wanes in the sector.
Everyone’s been so spooked by warnings from AMD and Nvidia about dropping PC demand that Wall Street looked right past Taiwan Semiconductor’s 48% year-over-year revenue growth … right past its 80% year-over-year income growth … and right to the heart of the meaty matter: guidance.
Flattish? Ohhh, boy, that’s as good as dead. No earnings rally for you!
TSM shares tumbled 2% on the report before recovering in today’s trading. Wall Street put on its best Shania Twain impression and said: So you’ve got a double-beat report? That don’t impress me much…
What do you think, Great Ones? Are any of you buying chips amid the dips? Or buying chips and dip? (Mmm … cheese dip.)
Oh, and what’s the deal with those handy dandy dividends? What are your favorite dividend-paying plays?
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Regards,
Joseph Hargett
Editor, Great Stuff