Hi this is Ed Butowsky with Making Sense, every week we take three of the top headlines or headlines that were missed and explain what you should do with your money as a result of them so here we go.
Big news President Biden announced this week that he’s going to renominate Jerome Powell for a second term as Fed chair. Leading into the week there was some uncertainty as to whether President Biden would re-nominate Powell or nominate Lael Brainard for the position, however the president said that we are pleased with how Powell handled the Coronavirus and gave him the nod. With Powell getting re-nominated one can expect a continuation of the status quo. Powell has served as Fed chair for a while now and the markets appear to be responding favorably to the news. With that said, Powell getting renominated could spell trouble going forward. Powell has been incredibly dovish and expressed a desire not to raise rates until the Fed’s bond tapering winds down. The problem with this is that interest rates will remain low and will allow inflation to persist for the foreseeable future. With inflation at a 30-year high it’s more important than ever for investors to protect themselves against inflation. Although it might not seem obvious at first, inflation needs to be taken very seriously. To put in perspective if you had $100,000 sitting in a bank account right now you can expect $10,000 worth of purchasing power to be destroyed over the next 12 months. Given this I would highly recommend that an investor minimize their cash position and invest in real assets that will hold their value. Investors could also look to buy stock in cash flow generating businesses that have pricing power.
Walmart and other large retailers just posted another quarter of higher sales. Walmart’s U.S stores and digital channels increased their sales by an impressive 9.2% this quarter. Additionally U.S ecommerce sales rose 8% from a year ago and foot traffic is up 5.7%. All of this indicates that shopping habits are beginning to normalize as we exit the pandemic. The improved performance of large retailers also highlights the uneven impact of supply chain disruptions. Although most small retailers have seen their businesses decline as a result of supply chain issues, large retailers like Walmart, Home Depot, Costco and Target have been able to charter their own cargo ships in order to step aside the congestion at U.S ports. Despite the increased cost related to the supply chain disruptions and increased inflation, large retailers look primed to take advantage of Black Friday and the holiday season.
Electric vehicles have had an incredible year and there’s no question that electric vehicles are the future of transportation, however it is becoming very difficult to justify their current valuations. To put this in perspective, Tesla’s market cap recently surpassed $1 trillion. That means that Tesla is valued at more than Volkswagen, GM, Daimler, Toyota and Ford combined. And it’s not just Tesla, Rivian, Lucid and Fisker all have sky-high valuations. Now that is not to say that these businesses couldn’t grow into their valuations, however if the businesses fail to meet Wall Street’s expectations at any point in the future they are primed for massive declines. Because of this I would recommend that investors be wary about investing in electric vehicle stocks. Now although investors should be cautious about buying electric vehicles, they should be equally cautious about betting against them. Although these businesses appear to be overvalued it is impossible to say when the trend will reverse. As the famed economist John Maynard Keynes once said “the market can stay irrational longer than short sellers can remain solvent.”
This has been Ed Butowsky with Making Sense. If you want a complimentary portfolio evaluation please visit www.edbutowsky.com or www.chapwoodinvestments.com, We do a very good job analyzing existing holdings and telling you if what you have is what you need.