by Louis Navellier
August 17, 2021
Senator Joe Manchin (D-WV) is “deeply concerned” about the Fed’s easy money policy and urged the Fed to curtail its aggressive intervention in the bond market. In a letter to Fed Chair Jerome Powell, Senator Manchin said, “With the recession over and our strong economic recovery well underway, I am increasingly alarmed that the Fed continues to inject record amounts of stimulus into our economy.”
This raises questions about whether or not the Fed might taper sooner than expected.
There are two confirmed hawks at the Fed, namely the Dallas and Kansas City district bank presidents, Robert Kaplan and Esther George. Although some Fed members want the Fed to address tapering at its September Open Market Committee (FOMC) meeting, the hawks are still in the minority. The doves, like Chicago Fed president Charles Evans, still want to continue with quantitative easing and easy monetary policy for the foreseeable future, since key economic targets (like employment) have not been achieved.
I am still in the camp that the Fed will not address tapering until its December FOMC meeting, since Fed Chairman Powell is up for renewal in early 2022 and the Biden Administration is still proposing spending trillions more dollars in the wake of its $1 trillion bipartisan infrastructure bill. Due to all of this proposed new spending, which carries much less bipartisan support, it could complicate future Treasury auctions if the Fed started tapering while the 2021 federal budget deficit was soaring. As a result, I expect that the Fed will remain accommodative, citing the Covid-19 Delta variant as a “new risk” to the economy, and continue to kick any tapering decision down the road until its December FOMC meeting.
As for inflation, the Labor Department announced last Wednesday that its Consumer Price Index (CPI) rose 0.5% in July and has now risen 5.4% in the past 12 months, reaching the highest annual rate in 13 years. Food prices rose 0.7% in July, while gasoline prices surged 2.4%. The core CPI, excluding food and energy, rose 0.3%, which was just below the economists’ consensus expectation of a 0.4% increase.
That number may seem manageable, but the next day, the Labor Department announced that its Producer Price Index (PPI) surged by a full 1% in July (vs. June). The core PPI, excluding food, energy, and trade margins, rose 0.9%. In the past 12 months, the PPI and core PPI have risen 7.8% and 6.1%, respectively.
The Biden Administration and the Fed are finally feeling the inflation heat, especially prices at the pump. Specifically, on Wednesday, National Security Advisor Jake Sullivan said, “While OPEC+ recently agreed to production increases, these increases will not fully offset previous production cuts that OPEC+ imposed during the pandemic until well into 2022. At a critical moment in the global recovery, this is simply not enough.” Naturally, cynics (like myself) are wondering why the Biden Administration is calling for OPEC to boost production while President Biden imposed a drilling ban on federal land.
Although several states sued to overturn this drilling ban and a federal judge subsequently ruled the ban was illegal, domestic crude oil production remains approximately two million barrels a day below where it was under President Trump. The Wall Street Journal editorialized last Wednesday that, “Someone should ask Mr. Biden, on his next stop for ice cream why the President thinks oil produced by foreign dictators in Russia, Iran or Saudi Arabia is more desirable than oil drilled by American entrepreneurs.”
I should add that the Atlanta Fed is now estimating just 6% annual third-quarter GDP growth, so it seems that the Fed is trying to engineer a gradual slowdown in overall economic growth to squelch inflation.
Commodity price inflation is a worldwide problem. China’s Natural Bureau of Statistics reported that producer prices rose 0.5% in July, up from 0.3% in June. In the 12 months through July, producer prices surged 9%. Wholesale inflation in China is now running at its fastest annual pace since September 2008. Interestingly, China’s consumer prices rose only 1% in the past 12 months through July, due largely to a 3.7% decline in food prices, but excluding food, China’s consumer inflation rose at a 2.1% annual pace.
Meanwhile, port bottlenecks have the potential to worsen, since China shut down all inbound and outbound services at its Meishan terminal at its Zhoushan port last Thursday, due to a Covid-19 outbreak. Zhoushan is the third busiest port in the world. It specializes in shipping containers that go mostly to Europe and the U.S. This is the second time this year that Zhoushan had to be closed under China’s zero tolerance policy.
In other news, the Labor Department reported last Tuesday that non-farm productivity slowed to a 2.3% annual pace in the second quarter after labor costs were revised lower. First quarter productivity was also revised down to a 4.3% annual pace from 5.4%. Productivity gains can curtail job growth. Although there are 10.1 million jobs still being offered by employers, many of these jobs are for skilled positions, so businesses will likely continue to try to boost productivity to make up for this skilled worker shortage.
Finally, there appears to be gradual progress on the unemployment front, since it was announced that new claims for unemployment declined to 375,000 in the latest week, down from a revised 387,000 the previous week. Continuing unemployment claims declined to 2.886 million, down from a revised 2.98 million in the previous week. This is the third straight week that unemployment claims have been below 400,000, so despite the Covid-19 Delta variant, it appears there is steady improvement on the labor front.
EVs Won’t Solve Global Warming – or the Polar Shift!
There are some big developments brewing on the EV front. Interestingly, the high price of nickel and cobalt has apparently convinced Apple to go with iron-phosphate batteries, which are currently made by CATL in China. The patent on these iron-phosphate batteries expires in 2022, so big Korean battery makers like LG Chem and SK Innovation could then start making iron-phosphate batteries.
Apple sent a big team to South Korea recently and is lining up suppliers for its EV, which appears will initially be made by Canada’s Magna (MGA), which also makes the Jaguar iPace SUV in Austria.
At the Pebble Beach car show last weekend, Audi showed off its next super EV, the Skysphere Concept, which might utilize solid-state batteries from QuantumScape. Audi will also soon announce its Grandsphere flagship and versatile Urbansphere concept EV vehicles. So essentially, there will soon be three types of batteries used in EVs, namely (1) iron-phosphate for lower range city cars, (2) the nickel cobalt batteries that are in wide use today, and (3) solid-state batteries in the more expensive, luxury EVs.
If anything bothered me about the Biden Administration’s executive order mandating 50% EVs by 2030, it was that Ford, GM, and Stellantis (Fiat Chrysler + PSA Group), which attended the White House ceremony, are currently only planning to use nickel cobalt batteries; so they are impeded by the acute battery shortage, largely due to a lack of battery factories as well as the high prices for nickel and cobalt.
In other words, unless new battery technologies are found and utilized, the Biden Administration’s 50% goal by 2030 is just a pipe dream, so I want to commend Apple for its foresight in utilizing iron-phosphate batteries that are safer (less fire prone) and can better accommodate fast charging.
Navellier & Associates does own Apple Computer (AAPL) in managed accounts. We do not own Stellantis (STLA), Ford (F), Magna (MGA), Quantumscape Kensington Capital Acquisition Corp (QS), or General Motors (GM). Louis Navellier and his family do not own Stellantis (STLA), Ford (F), Magna (MGA), Quantumscape Kensington Capital Acquisition Corp (QS), or General Motors (GM) personally but does however own Apple Computer (AAPL) via a Navellier managed account and in a personal account.
Last week, the United Nations also issued a big “Code Red” report, implying that we cannot reverse climate trends and will be in big trouble by 2040. I’m from Berkeley, California and I have been exposed and indoctrinated into this kind of rhetoric for over 45 years, and I can assure you that making a 9,000-pound Hummer EV is not going to save the planet – but it might be useful during a Zombie Apocalypse!
The truth of the matter is that the primary reason that we are having extreme weather – like the big freeze in Texas a few months ago, and now the massive fires in California, Greece, Turkey, and Siberia – is that the jet stream has been “oscillating.” And, it is expected to continue gyrating, since the magnetic North Pole in the past several years left the Artic, then went under Greenland, and is now in the Atlantic Ocean!
How do I know all this? Well, I did earn a geology degree in addition to my finance degrees.
Essentially, the magnetic poles “shift” every 60,000 years or so, which is how geologists date rocks – by how many times their magnetic bits have shifted. I am not certain if another magnetic pole shift is imminent, but the fact that the magnetic North Pole got up and left the Artic, means that jet stream oscillations are here for the foreseeable future, so extreme weather events are expected to continue.
Essentially, there is nothing we can do about this extreme weather, since buying a lot of Hummer EVs will not budge the weather or the magnetic North Pole. I think we need to be less hysterical about the seasonal weather and the overall climate changes. In my opinion, the latest U.N. report is just recycling old ideas and is a big fear-mongering exercise designed to raise money for various special interest groups.