Jerome Powell's TRANSITORY DIP in INFLATION, AI and High Risk Stocks Updated Buying Levels
Stock-Markets / Investing 2022 Oct 06, 2022 - 09:47 PM GMTBy: Nadeem_Walayat
INFLATION! INFLATION! INFLATION!
The big questions for the US and how our US tech stocks will fair over the coming year are -
1. Does the Federal Reserve finally understand just how dangerous inflation actually is ?
2. If it does then how is it going to subvert the inflationary policies of the White house, does not matter which clown is in office i.e. democrat or republican, BOTH have tendencies towards rampant money printing given the 4 year election cycle.
Most recent analysis includes -
- Can the Stock Market Hold June Lows Despite Spiking Yields and Dollar Panic Buying?
- September the Stock Markets WORST Month of the Year Could Deliver a Buying Opportunity
- Jerome Powell's TRANSITORY DIP in INFLATION, AI and High Risk Stocks Updated Buying Levels
Including access to my just published mega-analysis that concludes in a detailed 1 year trend forecast into December 2023.
Stock Market Analysis and Trend Forecast Oct 2022 to Dec 2023
So for immediate first access to to all of my analysis and trend forecasts then do consider becoming a Patron by supporting my work for just $4 per month. https://www.patreon.com/Nadeem_Walayat.
From what I have managed to glean I suspect that the Fed has finally read the inflation writing on the wall and concluded that they are forked if they do NOT at least try to bring Inflation under control, against this they will be fighting the White House all the way FOLLOWING THE Mid terms!
THOUGH Jerome Powell IS an TRANSITORY INFLATION CLOWN! Who during the whole of 2021 sat on his hands and did NOTHING to combat the raging inflation inferno that he let loose due to rampant money printing. So maybe I am giving him far too much credit to finally start to get the job done?.
Meanwhile in the UK the government is fully in charge and given that we have a Tory leadership contest to anoint the next British Prime Minister (Democracy is an illusion) which means Brit's are in in deep inflationary doo dah as the only answer the government has is to PRINT MORE MONEY! We are forked! That which I warned for years has fast become manifest during 2022, all we can do is to escape sterling into hard assets and see how the land lies once the Inflation storm finally calms. We are doomed! NO ones perfect, I still hold way too much sterling cash despite attempting to plow sterling into US stocks during the bear market, Yes US stocks WILL FAILL during a bear market, but the value of my portfolio still goes up in sterling terms, especially if one throws in a liberal sprinkling of trimming during opportune bear market rallies..
BRTS HAVE NO CHOICE, WE HAVE TO GET OUT OF STERLING! Either into domestic property or US tech stocks which has been my mantra since rampant money printing resumed in March 2020!
So sitting on the sidelines especially for Brit's is NOT an option because the value of money is now being burned at an epic rate! torched by the crooks at the Bank of England, UK Treasury and the next clown to take office in No 10.
DOOMED as the masses are finally waking up to reports that their annual energy bills are going to jump from about £800 per year not so long ago to soon approaching £6000! This is even going to hurt me as my energy bill tends to be DOUBLE the average! TWELVE THOUSAND POUNDS PER YEAR! THAT IS NUTS AND IS GOING TO BE PAINFUL! I'll be going around the house screaming to turn x,y,z off! The days of Computers GPU mining crypto in the background are long gone!
The next few years ARE GOING TO BE PAUNFUL! A case of damage limitation in the age of monetary bonfires for that is the default setting of politicians when faced with voter outrage which is to PRINT MORE MONEY!
So understand this the alternative to the bear market draw down is definite loss of purchasing power to the tune of 20% per annum!
A Fed funds rate of 2.5% to combat Inflation of 8.5% is NOT GOING TO WORK! 0.5% rate hikes are NOT GOING TO CUT IT! 0.75% all the way to 5% COULD diminish the inflation inferno to some degree that I suspect could rage well into 2023 and then there is the CLIMATE CHANGE CATASTROPHE! That this weeks Pakistan Floods act as the latest canary in the coal mine of, putting 1/3rd of the country under water,.in fact it was barely 2 weeks ago I posted a video on their Independence day that India and Pakistan need to work together else Climate change WILL KILL both nations!.The time for ***** footing about is over! Work together or die together!
What does all of this mean for stocks?
We'll whilst everyone is fixated in IS the BOTTOM IN, what it implies is that THE Bottom is likely to be followed by a volatile trading range probably well into 2023 with the risk that the Fed could further screw things up! Whilst on the flip side there is the fact that Good stocks are LEVERAGED to inflation and thus price volatility will deliver further DEEP discounts in valuation terms! which is What a long-term investor seeks! To be able to buy ones TARGET stocks when CHEAP! And I mean CHEAP in valuation terms not FAKE CHEAP as in Cathy Wood 90% NO EARNINGS COLLAPSE terms. Those stocks are not cheap, not even after a 90% price drop!
So it is going to be a bumpy ride! Especially when the latest clown in the white house answer to reducing inflation is print another $737bn and call it the Inflation Reduction act, hell lets print another $250 billion and call it the Student loan Forgiveness act so as to round it up to $1 trillion, I like round numbers, now what about next year? $1 trillion more? $2 trillion? Lets go for $2 trillion and call it the US Debt Reduction Action Plan.
Stock Market Trend Current State
It's amazing how fickle investor sentiment is, back at 4300 it was rocket ship to new all time highs. Now hovering at just above 4000 it's the End is Neigh, Crash and burn to under 3000!
The trend trajectory is in line with my expectations for the market to target a bear market low by Late August / Early September.
Which has been my expectation since January for the Dow to target 29,600 by late August (32,100). o be followed by a volatile trading range that post election should resolve in a rally likely to revisit the recent swing high of 34277 / 4317 before year end.
The current trend trajectory continues to at least target 3920, with the swing projecting to 3848 as per my last update when the S&P was flying high as a kite at 4280. The only thing I would add is a swing channel for a range of between 3848 to 3773, so the market so far has not done anything to suggest that the June low will break which my last analysis concluded had an 80% probability of being the bear market low and thus the current swing down targets a higher low in the 3920 to 3777 range, where if I had to guess where I would lean more towards the middle of the range i.e. at around 3860.
AI and High Risk Stocks Portfolio Updated Buying Ranges
The current state of my portfolio is 64.6% invested following trimming during the recent rally and addition of approx 5.2% of fresh funds in advance of what I had anticipated would be the probable last leg down for this bear market into early September.
The buying ranges have been updated including comments for all of the AI and high risk stocks. A reminder the Buying ranges are not price targets but are high probability ranges for where prices should trade into to allow one to accumulate at deep discounts to the highs, so as to prevent one FOMOing into a stock at a ridiculous price level as many were doing during 2021 in the likes of Nvidia north of $280. Thus my expectations are for the stock prices to TRADE into these ranges, where ones action depends on ones level of exposure to the stocks i.e. where I have high existing exposure such as for AMAT then further accumulation would be towards the lower end of the range.
The buying ranges were last updated for the main AI tech stocks portfolio on May 18th, pay attention to what i deem to still be expensive in valuation terms i.e. Apple, Microsoft, Nvidia, and Amazon hence why my exposure is light in these stocks as there is no point in chasing after the herd to be invested in expensive stocks as the risk of valuation resets is high i.e. that the herd realises they are invested in a stock that won't be able to grow earnings to match valuations, Of course I want to be fully invested in the likes of Nvidia but the metrics have not been good for some time so as I have often voiced I would not be surprised to see Nvidia trade to below $100 on a valuation reset. So I would consider myself to be a reluctant buyer of these expensive stocks to limited extent unless they actually do become fairly valued. Similarly I took the recent bear rally to lighten exposure significantly to ASML due to -18% EGF, 73 EC, and a 29.3 PE ratio.
Whilst AMD continues to get a pass as it has a positive EGF of 10%, and the PE ratio has moderated so whilst I have reduced exposure, I am still 90% invested in this good stock and will add more on any further dips into the target buying range.
Meanwhile there are a whole host of good cheap stocks, such as TSMC, Qualcom, Micron, AVGO, AMAT and Lam Research, also Samsung looks cheap, whilst in the healthcare section Pfizer stands out, hence my exposure has now increased to 33% invested and I would not be surprised if it doubles to 66% invested during current sell off.
Table Big Image - https://www.marketoracle.co.uk/images/2022/Aug/AI-stocks-portfolio-29th-Aug-2022-big.jpg
High Risk Portfolio Mid 2021
Most of the stocks are showing signs of bottoming or having already bottomed especially at the lower end of the risk spectrum. What stand out in terms of the long-term are Roblox, Autodesk, GPN, Takeda, and WDC. Whilst many of the pharma stocks are showing relative such as BPMC, NBIX and CARA.
High Risk Portfolio Feb 2022
All of the stocks except Logitech are in various stages of being in a BULL MARKET, which means not to ***** foot around waiting to accumulate as bottoming morphs into sideways trading ranges which morph into breakouts higher as illustrated by ON Semi and and ULH. Most stocks are no longer behaving like they are in a bear market which means whenever I see an opportunity to accumulate I take it without getting too obsessed with waiting for much lower prices regardless of what the indices do. My most recent buys were in Arrow and HPQ during the current sell off.
Overall whilst the indices may be falling most of the individual stocks are behaving like they are bottoming, have bottomed or entered into bull markets, there are not many weak stocks out there, which is reason not to get too carried away with fantasy expectations that ones target stock is going to deliver itself on a platter to buy at a fantastically cheap price, which seems highly unlikely for most stocks because they have ALREADY BOTTOMED! Hence why I am not going to waste any opportunities for second bites at any of the cherries that this sell off delivers..
PROOF Cathy Wood is insane!
According to the great sage of worthless stocks investing, Cathy Wood the real gauge for inflation is not CPI, PCE, or energy or food prices etc, but the GOLD price and thus because the Gold price has fallen we have deflation and NOT Inflation! How can any sane person invest a single penny with this lunatic? She is so detached from reality that she cannot face the fact that the inflation fires are burning out of control for if she did it would mean that her funds are DEAD! Because soaring Inflation means more rate hikes which means her no earnings garbage stocks re going to get further pummeled into the ground. And she is probably only the tip of the crap fund managers iceberg desperate for the Fed to start easing rates and resume QE in the so called Fed pivot so that their destroyed portfolios can start to recover! Everyone is asking when will the Fed Pivot? Yes they will eventually pivot but as I have been pointing out this will just spark the NEXT INFLATIONARY WAVE, like a heroin addicts going from one fix to the next all whilst their body is DYING!
My next analysis will be my mega piece concluding in detailed stock market trend forecast well into 2023.
To be followed by my even bigger mega piece on the US housing market that I already flagged trend range expectations of for over the next 3 years.
This analysis Jerome Powell's TRANSITORY DIP in INFLATION, AI and High Risk Stocks Updated Buying Levels was first made available to patrons who support my work.So for immediate first access to ALL of my analysis and trend forecasts then do consider becoming a Patron by supporting my work for just $4 per month. https://www.patreon.com/Nadeem_Walayat.
Most recent analysis includes -
- Can the Stock Market Hold June Lows Despite Spiking Yields and Dollar Panic Buying?
- September the Stock Markets WORST Month of the Year Could Deliver a Buying Opportunity
- Jerome Powell's TRANSITORY DIP in INFLATION, AI and High Risk Stocks Updated Buying Levels
Including access to my just published mega-analysis that concludes in a detailed 1 year trend forecast into December 2023.
Stock Market Analysis and Trend Forecast Oct 2022 to Dec 2023
So for immediate first access to to all of my analysis and trend forecasts then do consider becoming a Patron by supporting my work for just $4 per month. https://www.patreon.com/Nadeem_Walayat.
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By Nadeem Walayat
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Nadeem Walayat has over 30 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis focuses on UK inflation, economy, interest rates and housing market. He is the author of five ebook's in the The Inflation Mega-Trend and Stocks Stealth Bull Market series that can be downloaded for Free.
Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication that presents in-depth analysis from over 1000 experienced analysts on a range of views of the probable direction of the financial markets, thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk
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