Weekly Economic and Stock Market Commentary: November 15, 2021
As for the stock market specifically:
The markets declined last week after a series of good weeks. I am not going to worry about a modest loss after the past six weeks of gains. The market is allowed to take a breather every now and then.
I will speak about inflation in detail in the economic news section, but I do want to throw out a few points.
First, for many years (which means I was wrong for a long time) I wrote at some point about the dropping of money out of helicopters eventually would lead to inflation (a famous quote from then-Treasury Secretary Ben Bernanke AKA Helicopter Ben). Our “friends in Washington” didn’t think that would occur. It is beyond question now that inflation eventually took hold. Perhaps the money allocated in the past 21 months was enough to fuel the inflation fire.
Second, I do not believe this is a result of the pandemic. I believe it is reasonable for price increases to the levels of February 2020 to be related to the pandemic. We are well beyond those levels.
Third, a number of people with credentials are saying publicly that the current spending plan under consideration in Congress (not the one passed 2 weeks ago), will control inflation. I admit that I may not have the same credentials as some of the public speakers, but I do not know of any school of economics that posits the notion that adding money to the economy controls inflation. Readers are free to supply me with more information by calling or emailing.
Fourth, Treasury Secretary Yellen stated over the weekend that inflation will slow to pre-pandemic levels. I agree that will occur at some point. What she declined to answer is at what level of price equilibrium will occur.
Finally, long-time readers may recall my idea of raising the minimum wage to $50,000/year to combat poverty. We may indeed be on our way to making that income level the poverty line.
The bullish percent indicators moved very little during the week. Of the three, only the NYSE number increased, but no movement was more than 1 percentage point. I recommend WEALTH ACCUMULATION in all market areas.
Remember, Xs mean OFFENSE or wealth accumulation, while Os mean DEFENSE, or wealth preservation.
Below is where our indicators stand as of November 12, 2021 (Courtesy Dorsey, Wright, and Associates).
On a general note:
The Department of Labor provided inflation news last week. Nothing regarding producer prices hit my inbox, but memory tells me the October Producer Price Index came in at 8.6%. That is the annual figure from October 2020. It was less for those who didn’t eat or use energy. I don’t remember the monthly increase I saw on the television report.
As for inflation at the consumer level, the Labor Department reported a gain of 0.9% in October from September in consumer prices and a gain of 6.2% over the past year. Again it was a little better if you didn’t eat or use energy. Core prices rose 4.6% compared to September 2020. The monthly gain was a 31 year high for inflation.
In a related report, the Labor Department announced that real average hourly earnings fell by 0.5% in October. Since January this year, real wages declined by 2.2%.
The Treasury Department noted that the October budget deficit was $165 billion dollars, and well below the deficit of October 2020. The better news was that spending in October 2021 was lower than in October 2020. Tax collections rose 19% to $284 billion, and spending declined 14% to $449 billion. Payroll taxes were the same from one year to the next, but corporate taxes rose significantly.
The National Association of Realtors gave us news regarding existing home sales. Once again, October’s existing-home sales prices were higher than September’s in 182 of the 183 jurisdictions they measure. The median sales price in the third quarter was $363,700, up 16% from the 3rd quarter of 2020. Two anecdotes from the report told us 68% of the jurisdictions had median sales prices more than 10% higher than 2020, while 93% of them were in that category in the 2nd quarter.