by Louis Navellier
August 16, 2022
On Wednesday, the Labor Department announced that the Consumer Price Index (CPI) was unchanged at 0% in July (over June), a great indication that inflation has peaked! In the past 12 months, the CPI slowed from a 9.1% gain in June to 8.5% in July. The core rate of inflation, excluding food and energy, rose 5.9% in the last 12 months and +0.3% in July. The biggest reason for no net gains in July was that energy prices declined 4.6%, led by an 11% decline in fuel oil and a 7.7% decrease in gasoline prices.
The news got even better on Thursday, as the Labor Department reported that the Producer Price Index (PPI) declined 0.5% in July, the first monthly PPI decline since April 2020. Wholesale energy inflation plunged 9% in July and was the key reason for the net decline. Excluding food, energy, and trade margins, the core PPI rose 0.2% in July. In the last year, the PPI and core PPI are up 9.8% and 5.8%, respectively.
Despite this improving inflation news, the (so-called) Inflation Reduction Act could revive inflation by imposing more taxes on coal, crude oil, and natural gas, pushing up utility bills. A tax increase on methane emissions is another controversial energy tax, as the Inflation Reduction Act is essentially re-regulating carbon dioxide emissions in the wake of the Supreme Court’s landmark decision against the EPA. The U.S. is also following Canada and the European Union (EU) by trying to switch to organic fertilizers from chemical fertilizers, which is why farmers’ protests in the Netherlands may soon spread to Canada.
In the end, the Inflation Reduction Act is going to increase our electric bills and keep food prices high.
The Inflation Reduction Act also empowers China, since it includes $30 billion for solar panels, wind turbines, and batteries, mostly made in China, as well as incentives for geothermal and nuclear plants. There are also generous tax credits for buying electric vehicles (EVs). J. Kent Masters, chief executive of Albemarle Corp., said that lithium supply will remain tight for years. (Albemarle is the largest publicly traded lithium producer.) The result of the lithium-ion battery shortage is that more EV manufacturers are expected to follow Ford, Rivian, Tesla, and VW Group into less efficient and heavier iron phosphate batteries – dominated by China’s CATL. I must add that Ford increased the price of its F-150 Lightning last Tuesday by $6,000 to $8,500 due to “significant material costs increases and other factors.” Ford is merely following several other automakers, which have all raised their prices due to higher battery costs.
The technology sector so far has survived all of China’s threats of World War III (“Those who play with fire will perish by it” – Xi Jinping) as China’s extensive military exercises in the wake of House Speaker Nancy Pelosi’s visit to Taiwan did not provoke a military strike from either Taiwan or the U.S. Navy.
So, despite China launching missiles in the Taiwan Straits and generally acting badly in the wake of Nancy Pelosi’s Taiwan visit, China will gain the most in the Inflation Reduction Act by not starting any hot war, since China still dominates markets for batteries, solar panels, and processing rare earth metals.
However, China is hurting its economy in other areas, as many U.S. companies are expected to continue diverting their manufacturing to other Southeastern Asian countries, such as Vietnam or Thailand, or “onshoring” more of their manufacturing back to the U.S., at higher wages but safer supply chains.
During this election season, Congressional incumbents will likely brag about all the jobs they created via this Inflation Reduction Act, but there is no way that American workers can compete with slave labor by the Uyghurs in forced labor camps, which dominate solar panel manufacturing! As a result, the drive toward making “green” electric automobiles by Congress is making China more economically powerful.
In addition, one other fallout of Ford signing a deal with CATL to provide the batteries it needs to ramp up EV production is that Ford had to lay off 8,000 workers at the same time, so the indirect outsourcing of American jobs for EVs and batteries will only be accelerated by the Inflation Reduction Act.
There is one more thing that I really hate about the Inflation Reduction Act, and that is the 1% tax on stock buy-backs. I cannot tell you how devastating this is, as I expect many companies may elect to stop buy-backs and use their stock buy-back money to boost dividend payments instead. Buy-backs help boost earnings per share, a better long-term use of capital than dividends, in my view, so it will be fascinating to see how Boards of Directors decide what to do with their excess cash moving forward.
Finally, I should also add that a 15% minimum corporate income tax was also included in the Inflation Reduction Act, so it will be interesting to see how companies that pay no U.S. taxes, like Tesla, react. It is possible that some companies may follow Tesla and move more of their operations overseas.
A Split Verdict on the Other Economic News Released Last Week
Outside of the positive jobs report, the other indicators released last week were mixed. On the positive side, GDP growth seems to be returning, as the Atlanta Fed revised its third-quarter GDP estimate up to a +2.5% annual pace from its previous estimate of a 1.4% annual pace. The primary reason for this upward GDP revision is that consumer spending so far in the third quarter is running at a +2.7% annual pace.
On the downside, the Labor Department announced last Tuesday that productivity declined at a 4.6% annual pace in the second quarter, following a 7.4% productivity decline in the first quarter. Negative productivity is a drag on GDP growth. The Labor Department also announced that unit labor costs rose at a 10.8% rate last quarter. Since output did not rise as much, productivity fell for a second straight quarter.
In other news, the Labor Department said that weekly unemployment claims rose to 262,000 in the latest week, up from a revised 248,000. Continuing unemployment claims rose to 1.428 million compared to a revised 1.42 million. Although the four-week moving average for weekly claims was revised lower, continuing unemployment claims continue to rise. Overall, the labor market remains healthy.
Navellier & Associates owns Ford Motor Co. (F), and Volkswagen Ag. (VWAGY) in managed accounts and a few accounts own Tesla (TSLA), per client request in managed accounts. We do not own Albemarle Corp., or Rivian Automotive (RIVN). Louis Navellier and his family own Ford Motor Co. (F), and Volkswagen Ag. (VWAGY) via a Navellier managed account. He does not own Tesla (TSLA), Rivian Automotive (RIVN), or Albemarle Corp. personally.
All content above represents the opinion of Louis Navellier of Navellier & Associates, Inc.
Also In This Issue
A Look Ahead by Louis Navellier
The Inflationary Fallout of the Inflation Reduction Act
Income Mail by Bryan Perry
The European Market is a “Big Short” in the Making
Growth Mail by Gary Alexander
Growth Was Born 200 Years Ago… Did it Just Die?
Global Mail by Ivan Martchev
Here Comes the S&P 500 Line in the Sand
Sector Spotlight by Jason Bodner
Which is More Powerful – Big Buying or Big Selling?
View Full Archive
Read Past Issues Here
CHIEF INVESTMENT OFFICER
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 a 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.To the extent permitted by law, neither Navellier & Associates, Inc., nor any of its affiliates, agents, or service providers assumes any liability or responsibility nor owes any duty of care for any consequences of any person acting or refraining to act in reliance on the information contained in this communication or for any decision based on it.
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 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 holdings identified do not represent all of the securities purchased, sold, or recommended for advisory clients and 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 every investor. 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. Index is unmanaged and index performance does not reflect deduction of fees, expenses, or taxes. Presentation of Index data does not reflect a belief by Navellier that any stock index constitutes an investment alternative to any Navellier equity strategy or is necessarily comparable to such strategies. Among the most important differences between the Indices and Navellier strategies are that the Navellier equity strategies may (1) incur material management fees, (2) concentrate its investments in relatively few stocks, industries, or sectors, (3) have significantly greater trading activity and related costs, and (4) be significantly more or less volatile than the Indices.
ETF Risk: We may invest in exchange traded funds (“ETFs”) and some of our investment strategies are generally fully invested in ETFs. Like traditional mutual funds, ETFs charge asset-based fees, but they generally do not charge initial sales charges or redemption fees and investors typically pay only customary brokerage fees to buy and sell ETF shares. The fees and costs charged by ETFs held in client accounts will not be deducted from the compensation the client pays Navellier. ETF prices can fluctuate up or down, and a client account could lose money investing in an ETF if the prices of the securities owned by the ETF go down. ETFs are subject to additional risks:
- ETF shares may trade above or below their net asset value;
- An active trading market for an ETF’s shares may not develop or be maintained;
- The value of an ETF may be more volatile than the underlying portfolio of securities the ETF is designed to track;
- The cost of owning shares of the ETF may exceed those a client would incur by directly investing in the underlying securities; and
- Trading of an ETF’s shares may be halted if the listing exchange’s officials deem it appropriate, the shares are delisted from the exchange, or the activation of market-wide “circuit breakers” (which are tied to large decreases in stock prices) halts stock trading generally.
Grader Disclosures: Investment in equity strategies involves substantial risk and has the potential for partial or complete loss of funds invested. The sample portfolio and any accompanying charts are for informational purposes only and are not to be construed as a solicitation to buy or sell any financial instrument and should not be relied upon as the sole factor in an investment making decision. As a matter of normal and important disclosures to you, as a potential investor, please consider the following: The performance presented is not based on any actual securities trading, portfolio, or accounts, and the reported performance of the A, B, C, D, and F portfolios (collectively the “model portfolios”) should be considered mere “paper” or pro forma performance results based on Navellier’s research.
Investors evaluating any of Navellier & Associates, Inc.’s, (or its affiliates’) Investment Products must not use any information presented here, including the performance figures of the model portfolios, in their evaluation of any Navellier Investment Products. Navellier Investment Products include the firm’s mutual funds and managed accounts. The model portfolios, charts, and other information presented do not represent actual funded trades and are not actual funded portfolios. There are material differences between Navellier Investment Products’ portfolios and the model portfolios, research, and performance figures presented here. The model portfolios and the research results (1) may contain stocks or ETFs that are illiquid and difficult to trade; (2) may contain stock or ETF holdings materially different from actual funded Navellier Investment Product portfolios; (3) include the reinvestment of all dividends and other earnings, estimated trading costs, commissions, or management fees; and, (4) may not reflect prices obtained in an actual funded Navellier Investment Product portfolio. For these and other reasons, the reported performances of model portfolios do not reflect the performance results of Navellier’s actually funded and traded Investment Products. In most cases, Navellier’s Investment Products have materially lower performance results than the performances of the model portfolios presented.
This report contains statements that are, or may be considered to be, forward-looking statements. All statements that are not historical facts, including statements about our beliefs or expectations, are “forward-looking statements” within the meaning of The U.S. Private Securities Litigation Reform Act of 1995. These statements may be identified by such forward-looking terminology as “expect,” “estimate,” “plan,” “intend,” “believe,” “anticipate,” “may,” “will,” “should,” “could,” “continue,” “project,” or similar statements or variations of such terms. Our forward-looking statements are based on a series of expectations, assumptions, and projections, are not guarantees of future results or performance, and involve substantial risks and uncertainty as described in Form ADV Part 2A of our filing with the Securities and Exchange Commission (SEC), which is available at www.adviserinfo.sec.gov or by requesting a copy by emailing email@example.com. All of our forward-looking statements are as of the date of this report only. We can give no assurance that such expectations or forward-looking statements will prove to be correct. Actual results may differ materially. You are urged to carefully consider all such factors.
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 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.
FactSet Disclosure: Navellier does not independently calculate the statistical information included in the attached report. The calculation and the information are provided by FactSet, a company not related to Navellier. Although information contained in the report has been obtained from FactSet and is based on sources Navellier believes to be reliable, Navellier does not guarantee its accuracy, and it may be incomplete or condensed. The report and the related FactSet sourced information are provided on an “as is” basis. The user assumes the entire risk of any use made of this information. Investors should consider the report as only a single factor in making their investment decision. The report is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of a security. FactSet sourced information is the exclusive property of FactSet. Without prior written permission of FactSet, this information may not be reproduced, disseminated or used to create any financial products. All indices are unmanaged and performance of the indices include reinvestment of dividends and interest income, unless otherwise noted, are not illustrative of any particular investment and an investment cannot be made in any index. Past performance is no guarantee of future results.