The Devil’s Left Hand
Great Ones, mamma might have said that the pistol is the devil’s right hand … but I’ll swear until the day I can no longer write that inflation is the devil’s left hand.
Today’s consumer price index (CPI) — and Wall Street’s reaction to it — is a prime example.
Are you finally cashing in, Mr. Great Stuff?
No. Far from it. Part of the latest CPI data actually supports what I’ve been saying for the past year: Inflation is transitory. Great One Larry B. … I’m looking at you, but you’ll have to wait for a full response in Friday Feedback.
This morning, the Bureau of Labor Statistics said that the CPI rose 8.5% in March, year over year — the fastest rise since Olivia Newton-John topped the charts with “Physical” in December 1981. It helps ease the pain a bit if you read that in Casey Kasem’s voice.
On a monthly basis, CPI rose 1.2% from February. Wall Street expected an 8.4% rise year over year and a 1.1% monthly rise.
Now, nowhere in that headline CPI number is there room for optimism. $#!% be expensive, yo. There’s no way around it.
So why is Wall Street optimistic that “peak inflation” is here? Why are stocks rallying?
The answer lies in the so-called “core” CPI figure.
The core CPI number rose 6.5% from March last year, only gaining 0.3% from February. What’s more, March’s core CPI growth was slower than February’s 0.5% pace. The consensus had its sights set on a 0.5% rise from February.
This is where Wall Street is getting its optimism. Despite inflation running at a 40-year high pace, core CPI numbers indicate that inflation is slowing — i.e., transitory, just like the Fed and I have said.
But, Great Ones, y’all probably already know that the core CPI doesn’t account for things like food, gas, heating, housing, electricity — you know, all the things we need to live?
While Wall Street is looking at that number thinking everything is gonna be fine, the rest of us are getting creative. And anyone who grew up with a money deficiency knows what that means. We’re not at ketchup sandwiches, adding water to milk or fried bologna levels yet … but we can see it from here.
I can already hear some of you digging around for unemployment numbers and consumer savings numbers to prove me wrong. Go ahead. I already know … it’s, like, my job.
Unemployment is near record lows and consumer savings is near record highs. So regular Joe consumers should be just fine, right?
Well, they will be for now. But wages aren’t rising at the same pace as inflation. And all that government stimulus money is either already gone to pay bills or will soon be gone … to pay bills.
I want you to keep an eye on two things really closely.
First, the back-to-school shopping in July and August. This will be the first test of consumer resilience. Second, watch for early indications on the holiday shopping season. We’ll know at that point how bad inflation has hit the regular Joe consumer.
Basically, disposable income is gonna go first … and quickly if inflation doesn’t start moderating faster. After that, it will be name-brand consumer staples that will suffer as consumers switch to lower-priced brands.
If they had time to stop and think about it, Main Street would realize they are already staring down the barrel of a recession. But ain’t nobody got time for that…
Wall Street already knows that a recession is likely. But it’s not too worried, as the Fed appears to be on the case, and any recession that might arise is still a year or two down the road. There’s still record savings and low unemployment to stave things off for now, after all.
And this, Great Ones, is why inflation is the devil’s left hand. It’s sly. It’s insidious. And it leaves Wall Street long before the impact on Main Street dies down.
I hear you. But what is a retail investor like me to do?
The first rule of market volatility is: Don’t Panic.
If you’re holding stock in a solid company, keep holding. It will come back. “Strong Hands,” as Paul likes to say.
Second, it’s time to start looking at safe-haven investments, if you haven’t already. Y’all know the routine … consumer staples, gold, bonds, energy companies, the usual “recession proof” or “lose less of your money” investments.
Third, if you have the means — and I know not all of us do — you need to start looking at strategies that revolve around taking advantage of market volatility. I’m not talking day trading volatile stocks. No sir!
It’s becoming increasingly difficult to protect the value of our savings. Fortunately, there’s a way to get an 8.9% yield on your money — that’s 540% higher than the yield on the S&P 500.
It’s all possible due to a special type of investment few Americans have heard of. But this is just one of the many income secrets Ted Bauman has filled his Endless Income book with.
And we have a way for you to get all of them.
The Good: Fake Tendies, Real Profits
After shifting the majority of its focus toward restaurants and fast-food partnerships to grow its business, Beyond Meat (Nasdaq: BYND) is preparing to plant its plant-based “chicken” tenders in a grocery store near you…
Well, so long as you live near an Albertsons, Sprouts, Whole Foods, CVS or Kroger, that is.
The tendy transfer comes after several disappointing revenue quarters that have left an unpleasant aftertaste in investors’ mouths … and Beyond’s U.S. grocery store sales down about 20% from their pandemic peak.
By letting customers shop for more of Beyond’s pea-protein products in stores, the alt-meat master hopes to stop the bleeding … erm, wilting of its stock, which is down more than 30% year to date:
You mean to tell me, Deanna, that the key to a company’s growth is … growth? Why, I had no idea!
“No $%*&” statements aside, Beyond’s new sales strategy couldn’t come at a better time, what with regular meat prices becoming just as expensive — if not more expensive, depending on where you live — than Beyond Meat’s products.
Much like with electric vehicles, regular consumers aren’t going to make the switch to faux meat until prices are the same or better than the products they’re already eating. And with inflation on the rise … Beyond Meat may yet surprise.
The Bad: Panic! At The Cisco
Citi slicker Jim Suva just downgraded software giant Cisco Systems (Nasdaq: CSCO) from neutral to sell and slashed his price target on the hardware wunderkind from $65 to $45.
Aside from the usual competition concerns that come along with investing in Big Tech companies, Suva says:
“Valuation multiple compression with inventory issues and share losses” may be my new favorite corporatism … but cutting through the mumbo-jumbo, Jim seems to be worried that plain old investor sentiment could kill The Cisco Kid.
And here I just thought Cisco’s software-as-a-service shortfalls were the real red ink in the company’s investor relations. Hmm…
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The Times of London called it “a once-in-a-generation advance.” And Inc. magazine claims it’s “the most important technology of the next decade.”
According to a top trader and former World Bank economist, one tiny American company holds the key to unleashing this breakthrough tech — and it just recently went public.
The Ugly: CarMaxed Out?
… Holding you, maybe isn’t the right thing to do. But how can I ever let go of this wheel?
… If I could, CarMax (NYSE: KMX), I’d give you the world. But how can I when inflation just won’t let you be?
Are we gonna do this whole song or what?
Longtime Great Stuff Portfolio pick CarMax just released fiscal fourth-quarter earnings that had investors reaching for their seatbelts. Wall Street expected the used-car company to make $1.27 per share on sales of $7.5 billion … but what they got was earnings of $0.98 per share on sales of $7.7 billion.
Now, before you Great Ones go pumping the breaks on KMX stock, I want to point out that CarMax’s quarterly net revenue increased 48.8% year over year, while full-year fiscal net revenue increased 68.3%. CarMax also sold an impressive 343,413 vehicles this past quarter, up roughly 11% year over year.
The problem isn’t that CarMax is having trouble selling cars. It’s that inflation is cutting into the company’s profitability as it struggles to keep costs down — a tale as old as time for literally anyone participating in the automotive market right now.
I mean, if we look at the CPI tracking used cars and trucks, prices are 35% higher than they were a year ago (despite recently falling 3.8% from February to March). That’s just insane.
Meanwhile, plenty of new-car companies have started hiking their prices to deal with rising inflation … *cough Tesla cough* … which could make the used-car market more attractive to potential buyers. Especially if material delays continue thanks to our old pal COVID-19. (More on that in a sec.)
What I’m getting at here, Great Ones, is that this should be a temporary bump in the road for CarMax. One way or another, inflation will soon hit its peak — and possibly already has, based on the used-car CPI. When that happens, profitability will go up, and CarMax will be back in Wall Street’s good graces.
For this reason, we’re keeping KMX stock on hold in the Great Stuff Portfolio. However, if the inflation situation has made you uncomfortable and you’d prefer to sell KMX … as always, you can go your own way.
Ahoy, Apple (Nasdaq: AAPL) investors!
Ahoy? Is the SpongeBob theme coming?
No, no, that’s reserved for Friday Feedback, aka The Greatest Show On Earth* (*or at least in finance).
That’s when we collect all y’all’s thoughts on the latest market happenings. You should write in right here if you can guess what specific risk factor is gonna plague Apple’s next quarterly report.
Alright? Did you send your best guess in?
Surprise: It’s COVID.
And it’s also China. Oh, plus some supply chain shenanigans too. Basically, everything that companies have hesitated to report on all pandemic long … might fill Apple’s next report. So what’s going on here?
You might remember that Apple supplier Foxconn suspended all operations in Shenzhen, China due to COVID on March 14, nearly a month ago. Well, maybe you might not remember it, as the news came off the heels of Apple’s newest product offerings, which includes a new, budget-oriented iPhone. Ooh, how shiny.
Foxconn’s Shenzhen site makes iPhones, iPads and Macs — rather important to Apple’s Chinese manufacturing might.
Seeing as the world shalt not be devoid of new iProducts, the company is reshuffling production to other cities to minimize production disruptions.
So Apple investors were hoping the COVID outbreak would remain, you know, contained.
And well, well, well. Speak of the biohazardous devil.
Today, fellow Apple supplier Pegatron announced it’s shutting down its operations in Shanghai and Kunshan due to heightened COVID prevention measures.
Pegatron assembles 20% to 30% of iPhones, while Apple’s biggest manufacturing hub remains in Henan province with about 50% of iPhone production.
With Pegatron now offline — nooo, not the Pegatrons!! — the threat of new COVID restrictions at Apple’s other facilities is a renewed fear for AAPL investors today, including none other than longtime Quote of the Week-er Dan Ives:
The Pegatron closures throws gasoline on the raging fire which is the supply chain for Apple and other parts of the iPhone ecosystem. This is not the news the bulls want to hear as this amplifies supply chain issues for iPhones just as Apple was seeing an improvement.
— Wedbush Analyst Dan Ives
So what does this mean for you, Great Ones?
Well … how much do you rely on Chinese supply chains? What about the companies you invest in? Now what about their suppliers? And their suppliers? Why, it’s supply chain turtles — er, hurdles all the way down!
Sir, these are some heavy questions on a nice Tuesday Afternoon.
Gee, I didn’t mean to give you the Moody Blues, but if y’all thought we were out of the “supply chain hiccup” forest so soon … not quite.
Much like Apple uber-fans themselves, Apple analysts are the first to get riled up should anything interfere with their hookup of precious slim, sleek digital devices. And I can bet you these analysts’ warnings are the first signs of the supply chain excuses coming next earnings season.
What do you think, Great Ones? Are the supply chain worries much ado about nothing … or is there an Apple-ocalypse coming?
GreatStuffToday@BanyanHill.com is where you can reach us to answer all these questions and more — or simply make up your own questions and rant away. Once you’ve shared your thoughts, here’s where else you can find us across the Greatness:
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Until next time, stay Great!
Editor, Great Stuff