The Fed wants everyone to believe that it will deliver a soft landing.
Yet even with six fingers on each hand…
People know the truth. The data are right in front of them.
And despite wide smiles from financial pundits Thursday morning, that 3.2% inflation number wasn’t something to celebrate…
… It’s a reminder of the new reality…
… a reality that we’ll show you how to navigate with precision and profits.
You see, beneath the headline numbers, shelter prices (AKA housing) made up 100% of inflation.
Take out shelter, and the headline Consumer Price Index (CPI) would have actually been -0.36%.
Our political elites want you to believe things are heading in the right direction.
However, we’ll show you why that 3% number isn’t going away anytime soon, and quite likely, is the best we’ll see.
Housing’s Perilous Position
Jerome Powell hopes that by driving up interest rates he can make housing so unaffordable that people stop buying them.
There’s just one problem with that… we don’t have enough homes.
The latest data from the National Association of Realtors puts housing inventory of existing homes at 2.8 months — where it’s been since February.
In fact, from November through January, it was actually higher, around 3.4-3.5 months of inventory.
That’s despite volume being down around 15% from last year.
On the demand side, we have more folks working from home, shifting demand away from commercial real estate in favor of home offices.
And yes, some companies are looking at converting office buildings into condos.
But the bigger issues are total construction and concentration.
We all know the economy ground to a halt in 2020. To this day, we have yet to reach pre-pandemic construction levels, let alone make up for the inventory we didn’t build.
What’s stopping us?
Initially, it was product supply. That’s been alleviated for the most part.
But the bigger issues are on the supply side: not enough construction and too much population concentration. Now we can’t find enough workers to fill the jobs. Unfortunately, rather than reform and regulate our immigration system, any crackdown on illegal labor pulls out workers we need.
But don’t let folks fool you. Construction labor isn’t about letting everyone through the front door. These are skilled labor jobs that require training and teaching.
The other problem is the concentration of movement out of blue states in the North and into red Southern states.
We can’t imagine why someone might want to leave New York for Florida or Texas… do you [sarcasm]?
Investing in The New Normal
Suffice to say, the Fed can either take rates up high enough to choke off demand, which would tank the economy, or deal with 3% inflation.
Yet, if things like energy pulled down inflation last month, and commodity prices are now rising, do you really think 3.2% will be the low?
The way we see it, the Fed is going to have to raise interest rates unless the demand for everything else falls off a cliff, which seems unlikely.
Short-term treasuries, yielding close to 5.5%, do offer real-rates of return compared to checking accounts. However, money market funds can be a little easier to access for those seeking liquidity.
There are also healthy dividend payers like Verizon (VZ) and Altria (MO), which spew cash at nearly 10% every year between dividends and share buybacks.
Plus, the data underlying the options market suggests that big money managers aren’t hedging for any downside price action.
That exposes them to “CYA” selling if and when the market drops, creating a vacuum of buying pressure.
In a nutshell, folks aren’t prepared for a market drop. If we get one, you can bet there will be some serious panic selling.
That’s where the best opportunities lie… if you’re prepared for them.
Now, we know that many of you aren’t interested in taking tons of risks.
But what if all you needed were a few strategically placed bets to cash in on the coming volatility?
Better yet, what if all it took to outperform the market was a portfolio of just three stocks?
That might sound like a load of poppycock.
But seeing is believing. And we’ve got the goods to back it up.