Market Musings


Jerome Powell, the Fed and their IMPOSSIBLE position

The Fed remains in an extremely challenging position. While Jerome Powell raised the Fed Fund rates by 0.75% today, to 1.5-1.75%, it's still woefully below the underlying inflation of nearly 9%. 

So what is the Fed going to do?  

First, the Fed NEEDS to get inflation under control because "it's very painful for people."

This makes sense: As inflation has outpaced wage growth, real purchasing power has declined!

As consumers can afford less goods and services, sentiment drops and societal unrest increases. This also increases the odds that employees will increasingly need to ask for higher wages, creating an inflationary spiral effect. 

The second reason the Fed is in a very tough spot is because much of the current inflationary outlook is attributable to supply constraints (oil, food) that the Fed has very limited control over. 

This is the set up for STAGFLATION. 

The Fed raises rates to temper demand, which hurts the economy, but...

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Snap's Collapse & the incoming RECESSION?

$snap recession May 24, 2022

Advertising technology stocks are getting crushed. This includes Google (GOOG), Facebook (FB), The Trade Desk (TTD), Roku (ROKU) and SNAP (down 40% today!). 

Why are they falling? 

As I discussed last week with Walmart (HERE) and Target (HERE) the U.S. consumer is facing tough choices with higher inflation. As food and energy prices spiral higher there's less spending available on discretionary items.

This means ADVERTISING for discretionary goods takes a hit.

Yesterday SNAP filed the following disclosure announcing that they were cutting their 2Q 2022 guidance:

"Since we issued guidance on April 21, 2022, the macroeconomic environment has deteriorated further and faster than anticipated. As a result, we believe it is likely that we will report revenue and adjusted EBITDA below the low end of our Q2 2022 guidance range."

This was only 33 days ago!

This suggests the economic environment is worsening RIGHT NOW and that we're facing a broader...

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RECESSION NOW? Walmart & Target Stock

Walmart stock and Target stock are collapsing in response to higher inflationary pressures. 

Could this mean we're entering an imminent RECESSION? Why is HIGH INFLATION so bad for stocks?

While I just did a video on Walmart stock (HERE) and Target Stock (HERE), there's several reasons why these stocks are coming under pressure.

First, as food & oil prices sky-rocket, consumers are increasingly being forced to choose between what they NEED and what they WANT. This is putting pressure on HIGHER MARGIN, NON-ESSENTIAL goods. Target and Walmart won't be the only companies facing this challenge. 

But are we in a RECESSION?

So far Walmart & Target are NOT seeing a recession as store traffic and purchases are still growing. So why are their stocks dropping? 

Walmart and Target have seen their profit margins COLLAPSE as they haven't raised prices enough to keep up with rising labor, shipping costs, and materials costs. In the 1Q 2022 Target's...

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