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Inflation conflagration ! Update April 18 2022

Are you kidding me?

Hello Money Matters fans,

The government measures many versions of inflation. Some argue that the different versions exist so the administration of the day can then dig up whenever version propagates the desired political spin at the time. I am not picking on the current administration mind you, as they all do it, and seemingly, a new version is dug up every week to better fit the problems of the day.

The different types of inflation consist of various looks and adjustments, and I have covered many examples in the past here on Money Matters, both in print and on the radio show. The latest statistics on inflation that has made me more than concerned is the Producer Price Index (known as the PPI).

Whereas as the Consumer Price Index (CPI) measures major changes in price on a variety of goods and services as it pertains to the consumer, the PPI takes a look at prices further up the food chain, which are the price changes experienced by those producing the goods we use.

As such, inflationary increases at the producer level tells us not only what prices are increasing and at what rate, but what prices will do in the future as well. Since an increase in producer prices will have to be passed on to the consumer in the form of higher prices when goods hit store shelves, a persistent and severe PPI reading means things are getting worse not better, and will continue to worsen.

The latest configures measuring year over year, March 2021 to March 2022, reflect the worst increase on record, likely dating back some 250 years or more (records are spotty the further back we go).

The inflation rate at the PPI level came in an eye-popping 11.2%. Producer price index figures started accelerating about a year ago, and are getting worse with each subsequent month, with March 2022 being the worst yet.

The causes are many, including but not limited to egregious money printing by central banks everywhere to address the CoVid shutdowns, a reduction in oil drilling due to pressure from environmentalists, the war in Ukraine, and a shortage of available workers, all of which are affecting supply chains and commodity costs.

Since monetary inflation (government deficit spending) is the most potent contributor to rising prices, and with even more spending proposals working their way through Washington, this analyst once again warns inflation is about to get a whole lot worse.

No doubt, the American consumer is about to get a dose of inflation unparalleled in modern history, and the Feds (U.S. Federal Reserve) is going to have to take some pretty drastic steps to quell it.

Since the inflationary fires are already lit and the inflationary inferno I and many other analysts have been warning about is about to explode, unfortunately for us, the Feds, as usual, are already well behind the eight ball.

Since their track record has and continues to be woefully lacking in foresight, by the time they realize what is coming and how severe it will be, it will be a full-fledged inflationary conflagration, with dire circumstances for markets and our economy.

This article expresses the opinion of Marc Cuniberti and is not meant as investment advice, nor represents the opinion of any bank, investment firm or RIA, nor this media outlet, its staff, members or underwriters. Mr. Cuniberti holds a B.A. in Economics with honors, 1997, SDSU, and California Insurance License #0L34249. His website is moneymanagementradio.com, and was recently voted Best Financial Advisor in Nevada County. (530) 559-1214

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Update April 4 2022 Best financial advisor- Is the more pain or gain in the markets?

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More pain or gain ahead?

The obvious question for investors at this point in time is if the crash in stocks that took out the first 10 weeks of 2022 over, or are we just seeing a technical bounce in the indexes only to be followed by another painful round of more red sometime in the near future?

Analysts are split on what is to come and I have to admit, where this thing could go is a crap shoot. I hate using that term when it comes to the stock market, but there is much to fear that could move stocks down and other influences that might lead to a continuing recovery in equity prices.

On the negative side, currency events scare the hell out of me. Think the Greece default or other sovereign events (sovereign=national) that made the news in recent decades. When an entire country gets into trouble either domestically with its economy or globally with its currency, this kind of event can wreak havoc on world markets. And right now, the economies of the world are at an inflection point due to CoVid, inflationary pressures and global conflicts.

Interest rate manipulations by a G7 country, in which the biggest dog in the fight is the U.S.A, can also roil global financial systems. The U.S. Federal Reserve has started and will continue to raise interest rates in an attempt to harness inflation. The interest rates moves they will make as a result of their attempt to address rising prices have an historical tendency to slow markets and will likely put negative pressure on equities (stocks).

As a side note, the continued bite of inflation could also put a damper on consumer spending as a whole. And although energy prices are a big part of the pain of inflation, Washington is flip flopping on oil companies once again. Initially against more oil drilling, Biden’s pleas to these same companies during his press conference March 31^st to increase drilling to increase supply, was coupled the proposed fines if drill leases sit idle. Oil execs are probably rolling their eyes in distrust and may continue to play the middle ground in response to their inability to know where Washington will go next as it pertains to their businesses.

Always lurking to throw markets a curve ball, a “Black Swan” event (a random and unforeseen event like 9/11) is always a threat but when they happen, since they are random, we can do little to prepare for them.

On the plus side, the reopening of America is well under way, and the consumer is ready to travel, vacation, dine out and shop. From a year over year comparison, there is nowhere to go up. As people start to reengage, many industries that were previously hurt by the shutdowns will start to see their revenues climb and their stock prices should reflect that.

The monetary considerations are many, some positive and some negative. Federal spending has been and continues to be off the charts positive. It is said don’t fight the fed. What that means is as federal spending increases, much of that spending ends up in the stock markets. Although many federal CoVid spending programs are done, there is a lot of money still in the pipeline and it will continue to flow into the economy. Incredibly, there are still more programs working their way through Congress and if passed, even more funds will be showered down into consumers and into business pocketbooks.

All in all, there are many cross currents to consider and the final result of all these different events on the markets is yet to be seen. The sum of the negatives and positives will definitely jerk markets all over the place, and where it stops, nobody really knows.

One thing is certain however, many of the stay-at-home stocks have been hammered badly in the first part of 2022. If an investor is careful and does his or her research, a slow accumulation of beaten down but still good companies may bode well for the long-term investor.

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When the markets crashed hard in 2008/09 and then again in March of 2020, the rebounds that followed were nothing less than spectacular. Those that bought into the teeth of crash or right after either event, likely saw their balances soar.

Not a recommendation to buy stocks during crashes or anytime for that matter, investors can consider the absolute hammering certain stocks have had since the start of 2022. The technology-heavy Nasdaq stocks actually started eroding mid-November, with the more pronounced sell off starting around the first week of January.

Some of the popular stay-at-home stocks, as I called them, have been absolutely creamed, with some stocks off more than 80%.

Although no one can forecast market direction at any time, and markets can go a lot lower or higher than one might think and for longer than one might think, one has to consider some investors bought many of these stocks at much higher levels before the crash, and although many of these companies have seen their revenues drop as the country came out of the shutdowns, did these companies deserve the incredible haircuts they saw in their stock prices?

Much like after 2008/09 and the March 2020 sell off, it takes guts to start shopping in the garbage heap of obliterated stocks in the face of the negative sentiment surrounding such carnage.

But much like a clearance sale at your local retailer, one could make a case that if people loved these stocks at triple the price, why would one hesitate to buy these same companies at a fraction of the price they were such a short time ago?

After all, although earnings may have taken a hit for some of these past Wall Street darlings, are the companies’ still strong and viable entities with good products?

Many are.

Although some of these companies might indeed go four feet up in a bankruptcy sometime in the future, many of these companies are not going anywhere and will survive and even thrive in the months ahead, and some stocks might even surpass their previous highs.

As is common in massive sell off events, many a baby is thrown out with the bath water, as previous high flyers turn into the most hated stocks on Wall Street.

It is said to buy when there is blood in the streets, and certainly some sectors and individual stocks are gushing red.

Like super stock rally events, many stocks go much higher than thought possible, and during horrific crashes, many stocks get way oversold to the point of ridiculousness.

Although bottom fishing can be a dangerous business, I like to nibble on beaten up securities during severe market sells off, garnering the cash for such buys when stops are hit on some of my stocks on the way down.

Stops are predetermined sell orders I have installed during the rallies to try and protect my profitable positions. As the stocks I may have bought go up, I set the sell points higher and higher, known as a “trailing stop” in an attempt to retain any profits I may have.

Although stops and trailing stops don’t guarantee that gains or losses will be controlled, when executed properly, they can provide some comfort and react accordingly during market sell offs.

Then as the market continues down, I use cash from any sells to slowly add some stocks that were badly hammered when the obliteration levels reach, at least in my mind, the point of ridiculous.

Although prices may continue to drop, at least I know I am buying hopefully some good companies at much lower prices during the “blue- light-special fire sales” event that severe market crashes present.

This article is opinion only of Marc Cuniberti, and may not represent those of this news media and should not be construed as investment advice nor represents the opinion of any bank, investment or advisory firm. Neither Money Management Radio (“Money Matters”) nor Bay Area Process receive, control, access or monitor client funds, accounts, or portfolios. Contact: (530)559-1214 or marc@moneymanagementradio

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Update 3 11 2022 What is really the threat to our markets?

We cannot control nor know the whims and wills of madmen

War or interest rates?

What is driving the markets really?
The markets continue to remain volatile, with a current downward bias being prominent since the start of the year.

Investors are likely experiencing the rare but excruciating pain of seeing balances continuing to erode, seemingly in an endless daily parade of red numbers and dropping balances appearing on their investment screens.

Much of this many say is the fault of policy makers, both in addressing the CoVid crisis and the massive amount of money creation given out to consumers and businesses alike to address it.

I would say much of what we are seeing now in the markets is not the fault of any one person but the fault of many.

This analyst has always maintained the position that the CoVid virus could not be stopped, that shutdowns did nothing but destroy many businesses and livelihoods, and that shutdowns actually prolonged the crisis by allowing a longer virus survival time which in the end caused more mutations. So far, at least on the surface, that statement seems correct.

That said, others claim shutdowns helped limit the damage that would have been much worse had we not had them. They use science as their argument. Detractors claim the scientists have been wrong so many times during the crisis that they are not to be believed.

It’s impossible to go back in time and take the opposite route we took, and then compare the results side by side. What we can discern is that the current events certainly don’t confirm the decisions world governments made were the correct ones.

Fast forward to our markets, and the issues believed to be responsible for the markets current ills are Russian aggression on the Ukraine border and the worst inflation in decades.

Although the U.S. holds no blame for what Russia is doing, the inflation part is argued to be the result of the overly generous unemployment, bailout and stimulus programs instigated to address the CoVid slowdowns and shutdowns.

Whereas the Russia crisis is serious, and has taken the spotlight off of inflation and the Federal Reserves predicted actions to address it, in my opinion, inflation is the real threat. The Russian crisis may pass without culminating in a major event.

In my opinion, what the Fed does to address inflation is the real threat to market upward momentum. To address inflation, the Feds will raise interest rates. The Feds have indicated that they are very concerned about the rate of inflation and will start to raise interest rates as soon as this March. Uncharacteristically, they have indicated that at least a one percent increase will be accomplished by a quick succession of smaller increases. Following the markets for as long as I have, the fact that they have mentioned one percent as a minimum should be taken seriously.

Should investors be worried? Obviously the continued erosion since the start of the year has taken a big bite out of the markets.

The markets however, historically, can on occasion, act positively to a rate increase period, once the increases are underway.

From KENSHO STATS, and as mentioned on CNBC, looking at six periods of rate increases since 1988, the results from the start of the interest rate increases event until the increases stopped, information technology stocks gained 47%, consumer discretionary (luxury nonessential items) were up 31%, financials were up 30%, industrials were up 29% and materials went up 27%.

What this indicates is that although rate increases by the Fed are initially taken very seriously by investors (there have been many instances where rate increases have initially hammered stocks) there is some historical precedent that may give some hope to investors that are now running scared.

Rate increases can lead to a rising stock market once the stigma of a rate increase has passed.

As for the Russian crisis?

In my opinion, it’s likely a nonevent, although it is moving the markets at this time.

Investors should focus more on the interest rate event, which may eventually have a positive effect on the economy and therefore the markets.

“Watching the markets so you don’t have to”

Past performance is no guarantee of future results. No one can predict market movements at any time. This is not a recommendation to buy or sell any securities. This article expresses the opinion of Marc Cuniberti and may not reflect the opinions of this news media, its staff, members or underwriters, nor any bank, brokerage firm or RIA and is not meant as investment advice. Mr. Cuniberti holds a degree in Economics with honors, 1979, from SDSU. His phone number is (530)559 -1214.

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Capitulation Update March 6 2022

Is it over?

Keep reading

CAPITULATION

The continuing erosion of a stock markets is a painful event for investors. Like the latest 7 week period starting around the first of the year, the market seemingly fell almost nonstop until last Thursday, February 24^th.

Only interrupted by brief one day rallies, the Dow fell almost 10%, and that was the good news. The NASDAQ continued what it had started in Mid-November and crashed 18%. The other indexes fell in concert and by similar amounts.

Although no one can forecast market direction with 100 % certainty, prolonged, slow-motion types of crashes usually don’t just peter out and grind to a halt.

Simply put, when a market starts a descending type of pattern and continually erodes week after week, it can take what is known as a “capitulation” event to signal an all clear might be in the cards.

Capitulation is defined by Wikipedia as: “to surrender or give up. In financial circles, this term is used to indicate the point in time when investors have decided to give up on trying to recapture lost gains as a result of falling stock prices”.

Specifically, as markets begin to fall, many investors will step up and buy more of shares of stock they might already own, thinking they will average down their costs, buying more shares at lower prices.

For example, an investor buys 100 shares of ABC Company at a price of 4 10. His cost for the 100 shares is $1,000.00. Then, for whatever reason, the share price drops to $5. The investor buys 100 more shares at $5. Now he has 200 shares at an average cost of $7.50. as he bought 100 shares at $10, and 100 shares at $5.

This “averaging down” is a common occurrence among many investors (this analyst is against such practices, based on the belief a stock might be falling for a reason and one should not buy a stock just because it is cheaper in price).

In a prolonged market crash, the slow motion erosion continues to pressure stock prices, yet some investors start this averaging down process and buy more shares. This may prolong what may have been a brief market set back to a prolonged stair step down type of market, whereas the markets general direction is down, yet the downward bias is interrupted by bouts of stock buying, which causes brief rallies.

If the market continues down for whatever reason (in the case of our most recent 2022 crash, it was inflation concerns exasperated by the Russian/Ukraine event), those that averaged in and bought stocks see their losses accelerate, as they now own even more shares.

In cases like these where a prolong market erosion seemingly never ends, what is common is to see finally occur is a capitulation event.

This event takes the form of an all-out panic type of crash. They are usually brief, but horrific one or two day sell offs, which take the indexes down hard. Usually a multiple or many multiples of the previous one day sells offs witnessed as the crash progressed.

In the most recent event, after 7 weeks of brutal stock erosion, the evening Wednesday, February 23^rd, showed stock futures (a pre-indicator that estimates the following day’s stock moves) down a whopping 800 plus Dow points. After 7 weeks of erosion, the 800 point “hard down” indication was frightening to those that saw it.

Indeed, when the market opened up Thursday the 24th, it started hard down, in what seemed like capitulation. Buyers had all but evaporated, and it appeared an all-out panic had gripped market participants.

Within hours however, apparently finally realizing prices had fallen too far and for too long, buyers stepped in and stocks came off their lows.

What seemed like the start of a bleak day, may have actually signaled the capitulation event that the market needed to see before it could finally halt its prolonged descent.

Although only time will tell if we are indeed out of the woods as far as a continuing market crash occurring, last week’s event certainly fit the description of a classic capitulation occurrence.

No one can predict market movements at any time. This is not a recommendation to buy or sell any securities. This article expresses the opinion of Marc Cuniberti and may not reflect the opinions of this news media, its staff, members or underwriters, nor any bank, brokerage firm or RIA and is not meant as investment advice. Mr. Cuniberti holds a degree in Economics with honors, 1979, from SDSU. His phone number is (530)559-1214.

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