by Louis Navellier

January 25, 2022

The Biden Administration’s popularity is ultralow, despite strong GDP growth. This is because inflation is the #1 problem that most businesses and consumers share at the present time. Naturally, consumers are becoming increasingly frustrated every time they go to a gas station or grocery store. Furthermore, businesses are finding it harder to plan as prices of key components continue to rise. This uncertainty causes businesses to raise their prices, which creates even more inflation, especially as services costs rise.

To break the back of inflation, the Fed must engineer a “soft landing,” which is easier said than done. Furthermore, the Fed’s toolbox is compromised, due to the fact that if they raise interest rates too much, the interest burden on the almost $30 trillion in federal government debt will be unmanageable; so the regular inflation hedges, like residential real estate and growth stocks, should remain an investor oasis.

Treasury bond yields continue to meander higher, and this is beginning to lure investors out of money-losing stocks. The Wall Street Journal printed a great article last Tuesday, entitled, “With Rate Increases Looming, Investors Dump Shares of Money-Losing Companies.” It highlighted woes of stocks like Nikola (NKLA), Rivian (RIVN), and Robinhood (HOOD). Clearly, by the time the fourth-quarter announcement season is over, we will have a much clearer picture of which stocks are going to be left standing.

In the meantime, crude oil prices are now near a 7-year high after Yemen’s Houthi rebels (backed by Iran) attacked fuel trucks near a major oil depot in Abu Dhabi. Any possible disruption in supplies, combined with tense relations with Russia over the troop buildup on the Ukrainian border, will raise prices and exacerbate the tensions associated with Russian energy influence. Complicating matters further, the U.S. has excluded our European Union (EU) allies in recent negotiations with Russia over Ukraine, so right now, Russian has the upper hand as it wields its global energy influence.

China also surprised financial markets last Thursday when the People’s Bank of China (PBOC) cut its 5-year loan prime rate and its 1-year loan prime rate. This is the first time China has cut key lending rates since April 2020 when Covid-19 impacted world economies. China’s GDP officially rose 8.1% in 2021, but it decelerated to a 4% annual pace in the fourth quarter, which is the slowest pace since the second quarter of 2020, due to Covid-19 lockdowns. Although China has “locked down” some of its provinces to stop the spread of new variants of Covid-19 ahead of the Winter Olympics, China’s GDP growth has also been impacted by the real estate bust triggered by China Evergrande Group (EGRNF), and other troubled property developers.

I should add that during President Joe Biden’s marathon two-hour press conference last Wednesday, he shocked viewers by saying he expected Russia would invade Ukraine, but it could be a “minor” incursion. “It’s one thing if it’s a minor incursion and then we end up having a fight about what to do and not do.”

This fatalistic attitude that Russia would likely invade Ukraine left most viewers speechless, especially the implication from President Biden that a “minor incursion” might trigger less severe sanctions.

Ukraine’s foreign minister, Dmytro Kuleba, said President Biden’s comments about a “minor incursion” into his country by Russia could serve as an invitation for Moscow to attack. Kuleba also said, “Speaking of minor and full incursions or full invasion, you cannot be half-aggressive. You’re either aggressive or you’re not aggressive,” adding that “We should not give Putin the slightest chance to play with quasi-aggression or small incursion operations. This aggression was there since 2014. This is the fact.”

Housing, Labor, and GDP Statistics Deliver Mixed Results

On Wednesday, the Commerce Department announced that housing starts rose 1.4% in December to an annual pace of 1.702 million, which was substantially higher than the economists’ consensus estimate of 1.65 million. Even better, permits for future homebuilding surged 9.1% to an annual rate of 1.873 million.

On Thursday, however, the National Association of Home Builders announced that new home sales declined 4.6% in December to an annual pace of 6.18 million, which was below the consensus estimate of 6.42 million. There were only 918,000 new homes for sale in December, down 18% from November, so it looks like there is now a record low of only 1.5 months of new homes in inventory. In the past 12 months, median home prices have risen 15.8% to $358,000 due to tight inventory as well as higher building costs.

Another big surprise last week was that the Labor Department announced on Thursday that new weekly unemployment claims surged to 286,000 in the latest week, up sharply from a revised 231,000 in the previous week. Continuing unemployment claims also rose to 1.635 million compared to a revised 1.551 million in the previous week. Economists were expecting weekly and continuing unemployment claims to remain fairly stable at 225,000 and 1.563 million, respectively, so this was a big disappointment. The severe winter weather in the Midwest, South, and the Northeast seemed to contribute to this surge.

In the wake of the disappointing December retail sales report in the previous week, the Atlanta Fed is now estimating a 5.1% annual pace for fourth-quarter GDP growth, down substantially from their previous estimate of 6.8% annual GDP growth. However, that is still a fairly strong fourth-quarter growth rate.

Navellier & Associates does not own China Evergrande Group (EGRNF), Robinhood (HOOD), Nikola (NKLA), or Rivian Automototive (RIVN) in managed accounts. Louis Navellier does not personally own China Evergrande Group (EGRNF), Robinhood (HOOD), Nikola (NKLA), or Rivian Automototive (RIVN).

All content above represents the opinion of Louis Navellier of Navellier & Associates, Inc.

Please see important disclosures below.

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Louis Navellier

Louis Navellier is Founder, Chairman of the Board, Chief Investment Officer and Chief Compliance Officer of Navellier & Associates, Inc., located in Reno, Nevada. With decades of experience translating what had been purely academic techniques into real market applications, he believes that disciplined, quantitative analysis can select stocks that will significantly outperform the overall market. All content in this “A Look Ahead” section of Market Mail represents the opinion of Louis Navellier of Navellier & Associates, Inc.

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