April 16, 2019

There were virtually no surprises from the European Central Bank (ECB) meeting and the release of the Federal Open Market Committee (FOMC) minutes on Wednesday. Both the ECB and the FOMC have reaffirmed that they will hold interest rates steady in 2019 and both acknowledged that growth has slowed. Interestingly, the ECB refuses to admit that negative GDP growth may be forthcoming, despite the fact that Italy has already slipped into a recession and mighty Germany is teetering on the brink.

There is no doubt that the negative interest rates in Europe are causing international capital flight. Thanks to the ongoing Brexit chaos, which is now delayed until October 31st, interest rates continue to fall around the world and the prevailing negative interest rates in Europe continue to spread. Last week, Germany’s Federal Statistical Office reported that exports declined by 1.3% in February and imports declined 1.6%.

China’s exports dropped 20.7% in February, but the Lunar New Year distorted the numbers that month. The General Administration of Customs announced last Friday that Chinese exports soared 14.2% in March. Still, in the past 12 months, China’s imports have declined 7.6% through March. There is no doubt that lackluster domestic spending continues to hinder China’s GDP growth. Overall, it appears that the Lunar New Year artificially inflated the March export report, so China will have to report both export and import growth in the upcoming few months to alleviate ongoing concerns about economic growth.

The U.S. Commerce Department also reported last week that factory orders declined 0.5% in February, the fourth decline in the past five months, so between the economic slowdown in China and Europe, orders for goods remain soft around the world, which will likely promote even lower interest rates!

When key interest rates approach 0% or become negative, like they are in the Eurozone and Japan, then quantitative easing is a sign of desperation by a central bank seeking to stimulate economic growth. The fact that the European Central Bank (ECB) is gearing up for more quantitative easing is very ominous.

President Trump’s recent call for the Fed to re-commence quantitative easing also seems like a desperate move, especially since the Fed is doing the opposite by continuing to reduce its balance sheet. There is no doubt that President Trump has been setting up the Fed and especially Chairman Jerome Powell to be a scapegoat for the current economic slowdown. In the meantime, all the quantitative easing in Europe and Japan just fuels more stock buy-backs, since interest rates remain so low around the globe.

The most significant development that I noticed last week was that the bid-to-cover ratio for the Treasury auctions last week rose to a healthy 2.55, so I am not anticipating a significant increase in Treasury yields.

Inflation Rates Seem High but are Skewed by an Energy Price Surge

The news on the inflation front last week was misleading on the headline numbers due to rising energy prices. On Wednesday, the Labor Department announced that its Consumer Price Index (CPI) rose 0.4% in March due largely to the fact that retail gasoline prices rose almost 10%. Food prices also rose 0.3% in March. However, excluding food and energy, the core CPI rose only 0.1% and has risen 2% in the past 12 months. The headline CPI rose a similar 1.9% in the past 12 months. The March CPI increase was the largest in 14 months, but since almost all the increase was due to volatile food and energy components, the Fed will likely continue to be “patient” on its inflation assessment.

On Thursday, the Labor Department announced that its Producer Price Index (PPI) surged 0.6% in March, which was substantially higher than the economists’ consensus estimate of a 0.3% increase. Wholesale gasoline prices surged 16% in March, which caused energy prices to rise 5.6%. Wholesale food prices rose 0.3% in March and the devastating floods in the Midwest put upward pressure on beef prices. The core PPI, excluding food, energy, and trade services, was unchanged and slowed to a 2% annual pace in the past 12 months. As long as the core rate of inflation is around 2%, the Fed will likely remain patient.

The rising cost of fossil fuels has made electric cars more attractive, but Tesla is now facing increasing competition from VW Group (Audi, Bentley, Lamborghini, Porsche & VW), which will be making more electric vehicles in 2020. The Audi e-tron arrives at U.S. dealers in May and the Porsche Taycan is expected to be a major success due to all the orders that have been placed. Although the Audi and Porsche electric vehicles are not cheap, they are competitively priced with equivalent Tesla models and are anticipated to systematically capture substantial market share from Tesla. Furthermore, with BMW, GM, Jaguar, Polestar (Volvo), and Mercedes all now making quality electric vehicles to compete with Tesla, the outlook for Tesla remains bleak in the upcoming years as these new competitors materialize.

(Navellier & Associates does not own Tesla or Volkswagen inmanaged accounts or our sub-advised mutual fund. Louis Navellier and his family do not own Tesla or Volkswagen in personal accounts.)

On top of this competitive landscape, there was disturbing news from Panasonic and Tesla last week that the expansion of the Gigafactory just outside of Reno, Nevada is now “on hold.”  The decision to stop expanding the Gigafactory in Reno is a clear signal of slumping sales of the Model 3 in the U.S., so Tesla’s new priority seems to be to focus on its second Gigafactory in China, in part to avoid tariffs on U.S.-made Tesla vehicles in China, so that Tesla can sell more vehicles in China without the high tariffs.

About The Author

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.*


Although information in these reports has been obtained from and is based upon sources that Navellier believes to be reliable, Navellier does not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute Navellier’s judgment as of the date the report was created and are subject to change without notice. These reports are for informational purposes only and are not intended as an offer or solicitation for the purchase or sale of a security. Any decision to purchase securities mentioned in these reports must take into account existing public information on such securities or any registered prospectus.

Past performance is no indication of future results. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. It should not be assumed that any securities recommendations made by Navellier. in the future will be profitable or equal the performance of securities made in this report.

Dividend payments are not guaranteed. The amount of a dividend payment, if any, can vary over time and issuers may reduce dividends paid on securities in the event of a recession or adverse event affecting a specific industry or issuer.

None of the stock information, data, and company information presented herein constitutes a recommendation by Navellier or a solicitation of any offer to buy or sell any securities. Any specific securities identified and described do not represent all of the securities purchased, sold, or recommended for advisory clients. The reader should not assume that investments in the securities identified and discussed were or will be profitable.

Information presented is general information that does not take into account your individual circumstances, financial situation, or needs, nor does it present a personalized recommendation to you. Individual stocks presented may not be suitable for you. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. Investment in fixed income securities has the potential for the investment return and principal value of an investment to fluctuate so that an investor’s holdings, when redeemed, may be worth less than their original cost.

One cannot invest directly in an index. Results presented include the reinvestment of all dividends and other earnings.

Past performance is no indication of future results.

FEDERAL TAX ADVICE DISCLAIMER: As required by U.S. Treasury Regulations, you are informed that, to the extent this presentation includes any federal tax advice, the presentation is not intended or written by Navellier to be used, and cannot be used, for the purpose of avoiding federal tax penalties. Navellier does not advise on any income tax requirements or issues. Use of any information presented by Navellier is for general information only and does not represent tax advice either express or implied. You are encouraged to seek professional tax advice for income tax questions and assistance.

IMPORTANT NEWSLETTER DISCLOSURE: The hypothetical performance results for investment newsletters that are authored or edited by Louis Navellier, including Louis Navellier’s Growth Investor, Louis Navellier’s Breakthrough Stocks, Louis Navellier’s Accelerated Profits, and Louis Navellier’s Platinum Club, are not based on any actual securities trading, portfolio, or accounts, and the newsletters’ reported hypothetical performances should be considered mere “paper” or proforma hypothetical performance results and are not actual performance of real world trades.  Navellier & Associates, Inc. does not have any relation to or affiliation with the owner of these newsletters. There are material differences between Navellier Investment Products’ portfolios and the InvestorPlace Media, LLC newsletter portfolios authored by Louis Navellier. The InvestorPlace Media, LLC newsletters contain hypothetical performance that do not include transaction costs, advisory fees, or other fees a client might incur if actual investments and trades were being made by an investor. As a result, newsletter performance should not be used to evaluate Navellier Investment services which are separate and different from the newsletters. The owner of the newsletters is InvestorPlace Media, LLC and any questions concerning the newsletters, including any newsletter advertising or hypothetical Newsletter performance claims, (which are calculated solely by Investor Place Media and not Navellier) should be referred to InvestorPlace Media, LLC at (800) 718-8289.

Please note that Navellier & Associates and the Navellier Private Client Group are managed completely independent of the newsletters owned and published by InvestorPlace Media, LLC and written and edited by Louis Navellier, and investment performance of the newsletters should in no way be considered indicative of potential future investment performance for any Navellier & Associates separately managed account portfolio. Potential investors should consult with their financial advisor before investing in any Navellier Investment Product.

Navellier claims compliance with Global Investment Performance Standards (GIPS). To receive a complete list and descriptions of Navellier’s composites and/or a presentation that adheres to the GIPS standards, please contact Navellier or click here. It should not be assumed that any securities recommendations made by Navellier & Associates, Inc. in the future will be profitable or equal the performance of securities made in this report. Request here a list of recommendations made by Navellier & Associates, Inc. for the preceding twelve months, please contact Tim Hope at (775) 785-9416.

Marketmail Archives