@theMarket: Markets Snap Out of Their Downtrend
It appears that we have established a range in the stock market over the last few weeks. The bears have not seen their worst predictions come true. My hope is that we leave this month where we entered it.
September 2021 was treacherous. Bears were calling for a 10 percent correction at a minimum. Bulls, already on the back foot after witnessing a 5 percent pullback in the indexes, insisted we had seen the lows. Since then, we had been bouncing back and forth in a range. This week, however, appears to be a game changer.
We have not re-tested the lows on the S&P 500 Index, which we hit on Oct. 1, 2021, at 4,288 (intraday), nor have we come close to the highs made on September 24, 2021, at 4,555. But we did regain the 50-day moving average (DMA), which is a good sign for the bulls.
Stocks daily have been opening higher in the mornings but giving back their gains and closing lower by the end of the day. Bulls argue that the markets are simply consolidating after more than a year of fantastic gains with few corrections. The bulls could be right.
On the other hand, the bears point to the imminent removal of the Fed's punch bowl in November 2021 (the beginning of asset purchases tapering) as a reason to remain cautious into that event. If we then throw in all the other worries that are creating angst among investors — supply chain issues, inflation, political chaos in Washington — the October volatility we have been experiencing thus far should come as no surprise.
If I could, I would call off this present stalemate and declare both sides a winner. Afterall, we did suffer a 5-plus percent selloff, which should satisfy the bears' need to see some "blood in the streets." The bulls should be thankful that the downside has been contained.
Readers who follow my columns regularly know that I highlighted the seriousness of the supply chain shortages months ago. Today, that's all you read about in most media outlets. I am not crowing about my forecasts, rather, I am reminding investors that this is old news and has already been discounted in the price of stocks, in my opinion, so ignore the headlines.
The only question to ask is how long this global condition will persist, and what that may do to the inflation rate. My own belief is that it won't be resolved until well into next year. Even then, some shortages will persist, but it is impossible to predict which ones will remain. Clearly, this problem will continue to act as a weight to further global growth, but it won't kill it, as some are predicting. As for its inflationary impact, it adds another variable to the factors that are already contributing to a rate of inflation that has surprised everyone, including the Federal Reserve Bank.
One reason the markets rallied this week above that all-important 50-DMA was a less than anticipated rise in both the Consumer Price Index (5.4 percent year-over-year), as well as the Producer Price Index (8.6 percent year-over-year) for September 2021. Prices paid to U.S. producers increased in September at the slowest pace of the year, thanks to cooling costs of services. Final PPI demand increased just 0.5 percent from the prior month.
Since PPI is one of the main variables that the Fed studies when making monetary decisions (like when to raise interest rates), markets rose over 1.5 percent on Thursday and added to those gains on Friday. But one set of monthly numbers does not tell the whole story. I expect further increases in the inflation rate before the pressure subsides.
However, I am hopeful that we enter a more positive period for stocks in the last two months of the 2021 led by cyclical sectors of the market. I began the year by recommending commodities, industrials, financials and some technology. That advice remains viable. We are halfway through October and the markets are already shaking off their worries. Let's keep our fingers crossed.
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The Retired Investor: Barbie Gets Better With Age
Despite this new age of video games, electronic toys, and diminishing attention spans, children are returning to a toy that is almost as old as me. Mattel's Barbie doll is back and at the top of many holiday shopping lists.
Some of the credit for Barbie's new-found popularity can be attributed to the pandemic. The lockdowns and the subsequent search for things to keep children occupied had mothers remembering their own fascination with all-things Barbie. Buying a Barbie, however (at least until recently), had parents wrestling with several negative stereotypes. Leading the list was the doll's image of a whites-only toy that ignored the realities of the melting pot we call America. Then there was the all-too-perfect body, which critics said promoted an unrealistic body image.
Consumers took the criticism to heart. In years past, sales declined, competitors gobbled up Barbie's long-reigning market share, and there was even talk of discontinuing the 62-year-old model from the company's lineup.
Instead, Mattel's management, after much soul-searching, decided to revamp their products to better reflect the world we live in. Taking their cues from the success of Disney's Marvel and it's cast of superheroes of every race, age, gender, and walk of life, Barbie entered the 21st century.
Mattel revamped their entire product line and produced news dolls with various skin tones as well as body types. The doll now comes in 94 hair colors, 13 eye colors, and five body types. But they haven't stopped there. Some models have prosthetic legs or wheelchairs. Ken dolls have also been updated with their own skin colors, body types, and hairstyles.
Mattel has also delved into areas such as wellness and has introduced a line of role-model Barbies. The company, for example, recently announced a series of dolls honoring the heroes of the novel coronavirus pandemic. COVID-19 vaccine developer Sarah Gilbert, a 59-year-old Oxford University professor and co-developer of the Oxford/AstraZeneca vaccine, is one of six women who have new Barbies modeled after them. Others include an emergency room nurse, a frontline doctor in Las Vegas, as well a Brazilian scientist and a Canadian psychiatry resident at the University of Toronto who battled systemic racism in health care.
Mattel has also established a film department and enlisted some social media influencers to help propel their toys into the forefront of popular culture. It appears to be exceeding. Last year, Barbie had its best sales growth in 20 years. The company's stock price has risen by almost 50 percent, and analysts are expecting good results for 2021 as well.
And given its long history, certain dolls have become collectors' items. Barbie debuted at the American International Toy Fair in New York on March 9, 1959. Over the years, thanks to limited edition models, or exclusive collaborations that resulted in a unique doll design, there are about 60 Barbie dolls worth as much as $667,757.
The "I Love Lucy" Barbie fetches as much as $1,050, while other expensive collectables such as the Coach Barbie ($1,500) or the Christmas Show Barbie ($2,000) are in demand. There are also Chicago Cubs versions, as well as a NASCAR Official Barbie. Both models are commanding $2,000 or more. Not bad, for a new doll that usually retails for under $40. It should come as no surprise that the Mattel is now considering turning its collector brands into non-fungible tokens (NFTs) as the next market to explore.
In the coming months, a Barbie movie, starring Margot Robbie, should keep the kids and their parents' pocketbooks quite busy into the holiday season. In anticipation of the film's release, management has increased prices for the iconic doll, due to higher commodity prices and transportation costs. The company said it expects full-year net sales to increase by 12 percent to 14 percent driven by Barbie's new-found popularity, as well as demand for toy cars (Hot Wheels) and other action figures.
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The Retried Investor: Golf Continues to Grow
In 2020, during the midst of the pandemic, golf made a comeback. More than 24.8 million people discovered outdoor refuge on the links, last year and the popularity of the sport continues to grow.
Golf, as many have discovered, is an outdoor activity that has proven to be an almost perfect answer to the limitations of the pandemic. Players can get outside, exercise, and at the same time, socially distance themselves from one another. Last year the U.S. saw the largest increase in golfers (2 percent) in 17 years. This year, the number of rounds played was up 16.1 percent, compared to the same period in 2020, according to the National Golf Foundation. And with this increase has come an upsurge in both golf equipment and apparel.
Golf equipment sales in the U.S. have grown by double digits (37 percent) so far this year, as have food service shipments to country clubs (plus-32 percent) and golf courses (plus-51 percent) compared to last year. Typically, for those who do not play golf, the reward for playing a good round of golf is usually the food and beverage consumed afterwards. The top items this summer included bottled water and energy/sports drinks, juice, chicken wings, hot dogs and French fries.
There are roughly 15,000 golf courses in the U.S. that account for the almost 25 million outdoor golfers. However, there are another 21 million people who are enjoying the sport through different entertainment venues like Drive Shack, Big Shots Golf, and Top Golf.
TopGolf, which started in China and now has 70 locations in six countries, offers an alternative to driving ranges. It is a high-tech golf game that appeals to players whatever their skill level. It is only one of a growing list of interactive golf experiences and virtual simulators that go beyond the traditional 18-hole golf course. Throw in a more social and gamified atmosphere, plus food and drinks, and the appeal to neophyte golfers is understandable.
The sport is also attracting more women as well as younger players, and even families. The number of female golfers jumped by 8 percent in 2020, which was the largest gain in more than five years and 44 percent of those who played at least one round of golf last year was under the age of 40. That is not to say that the older, passionate golfer is on the down swing. They are still in the game and their average number of rounds played continues to increase. An all-time high of rounds played (20.2) was hit last year, according to NGF, and that number will probably be surpassed this year.
It appears that the same wave of golfing popularity is surging worldwide as well. In the U.K, golf staycations are skyrocketing, while China's growth rate in new players is above 7 percent. Both Japan and Canada, which are top golfing countries, are also seeing robust growth.
Golf equipment companies such as Callaway, Titleist, and Dick's Sporting Goods are all forecasting increased strength in the future. The only caveat is the difficulty in obtaining product due to supply chain disruptions. Some managers are already seeing a slowdown in deliveries for certain golf equipment.
The good news is that Americans are exercising more and perhaps realizing that playing golf is not as difficult as they thought. If this develops into an entirely new generation of golf enthusiasts, so much the better.
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@theMarket: Markets Are on the Cusp
It was another tumultuous week in the markets. Volatility spiked as events in Washington and around the world injected an atmosphere of caution and indecision among investors. I expect more of the same.
Welcome to October. A month in which I see a continuation of the last few weeks of uncertainty. The political circus in Washington, D.C., is not helping, and is set to continue making headlines in the days ahead. The debt limit controversary is probably the largest challenge investors face this month. Simultaneously, the battle between progressive and moderate Democrats over the passage of two government spending programs, will continue to monopolize investor's attention.
The bipartisan infrastructure package and the larger, "Democrat only" Biden social safety net program is the scene of an unusual battle between splinter groups of the same party. Republicans have already said that the larger Biden program would be dead on arrival in the U.S. Senate, so passage will depend on getting Biden's program passed via the reconciliation process. In order to achieve that, the progressive wing of the party demands that the programs be twin tracked, otherwise no deal. At stake is a lot of spending that would power the economy in the years ahead, but also increase the federal debt substantially.
I expect both will pass at some point. The Biden $3.5 trillion spending plan will need to be whittled down by a $1 trillion or so for the moderates to agree. The $1 trillion bipartisan, infrastructure plan will probably pass as is, because polls show that most American voters are in favor of the infrastructure spending on roads, bridges, and transportation. Parts of the larger package — boosting education, care of the sick and elderly, health care, and climate change — also have strong voter support. But the areas that have lower support among voters will probably determine what will get cut (or modified) and what stays in the plan.
As I advised last week, the shutdown in government was averted. A stop gap measure passed on Thursday, Sept. 30, effectively kicked that can down the road until December 2021. It is still on the plate, but on the back burner for now.
Expectations of the U.S. economy's third-quarter performance, as well as the yearly results for 2021, continue to be ratchetted down. As I warned readers, economic growth has been slowed somewhat by both the Delta variant of the coronavirus and supply chain bottlenecks. That said, the GDP is still expected to grow by 5.6 percent, compared to the 6.7 percent forecasted in a May 2021 survey conducted by the National Association for Business Economics.
Although the economy may be slowing, inflation remains stubbornly high, contrary to the Fed's belief that any inflation we experienced would be "transitory." In fact, the word has disappeared from Fed statements and speeches altogether. Instead, Fed Chair Jerome Powell called inflation "frustrating" and sees it running into next year. Some market forecasters wonder if we might be heading toward stagflation, which might be in the cards for next year.
It is too early to tell, but whatever the outcome, the Fed has already decided to taper, beginning sometime this quarter. About the only thing that might delay that decision would be the non-farm payroll report set to be released next Friday, October 8, 2021. If job gains slow dramatically, it might cause the Fed to postpone tapering, or so the market believes.
As for the markets, last week, I warned that we were not out of the woods just yet. This week we suffered another pullback, re-testing and broke last Monday's lows on the S&P 500 Index. This is a change from the recent behavior of the stock market since last March. Up until now, every dip has been bought, and stocks never looked back. We have now broken the uptrend channel in place since last April This change in behavior and the technical charts argue for further downside ahead, maybe even to the 200-day moving average, which would be another 5 percent down from here.
Large cap technology suffered the brunt of the selling, while cyclical sectors managed to outperform on a relative basis. I expect the selling will continue if the U.S. dollar continues to rise and bond yields rise along with the advancing greenback. If we are headed downward, there will be oversold bounces that could last for a week or two along the way. I believe that after this volatile period, markets will rebound into the end of the year.
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The Retired Investor: Out of Gas
Winter approaches and with it a potential natural gas crisis. Areas of Europe are already scrambling to find the energy required to heat homes and continue their economic rebound. Could the U.S. be next?
Over the last year, prices for European natural gas have jumped by almost 500 percent. Natural gas prices on this side of the pond have also spiked by more than 100 percent this year. But it isn't just countries in the Northern Hemisphere that are feeling the scarcity. Parts of Asia, which are importing liquified natural gas (LNG) at record prices, are being forced to switch to coal and heating oil as LNG shipments decline. Japan and Korea are somewhat protected so far, thanks to their use of long-term LNG contracts, but not so with China.
China, the world's largest importer of natural gas, is having a power crisis as a result of the shortages. Many provinces are rationing electricity to industries. This is resulting in production cutbacks in cement, steel, glass, plastics, and a host of other products.
Brazil, and other areas in South America, depend on hydropower for much of their energy. However, serious drought has reduced the flows in various rivers such as the Parana Rover basin. The output of energy has declined to the point that utilities have been forced to make up the loss through natural gas imports.
The present shortages have multiple sources. Industrial production in this post-pandemic world has surged, which has expanded demand for natural gas and LNG. Climate change from a cold and flooding European spring to a grueling hot summer in Asia also boosted energy demand. Russia, the main gas supplier to most of Europe, has been piping less gas into European stockpiles. Whether by accident, or on purpose, is anyone's guess.
Alternative energy sources have also contributed to the present shortage. Politicians, ESP advocates, and the wind and solar sectors have argued that "going green" makes increased investment in natural gas production and exploration unnecessary. Only now, in this crisis environment, is the world realizing that transitioning to cleaner fuels will require a decades-long period. In the meantime, we will still need natural gas as an integral ingredient to the world's power supply, which fuels so much of our industrial and residential sectors.
This winter, with huge demand from the world, importers are looking to Qatar, Trinidad, Tobago and especially the U.S. to increase supply. Unfortunately, the U.S. is experiencing its own shortfall in supply. Blame climate change once again for some of that. Summer heatwaves and back-to-back hurricanes have disrupted production and distribution, while increasing overall energy demand and consumption. Our own economic recovery has also diverted more consumption of natural gas away from residential use to industrial sources.
Then there is the reduction of U.S. gas production. "Fracking" has become a dirty word in many areas of the country. As a result, shale drillers are far more focused on achieving acceptable climate goals and increasing dividends and buybacks of their stock than in raising production. Energy analysts predict that there is little new gas coming online anytime soon — an increase of just 1.1 percent over the next six months. That is a big change from the recent past when our domestic surplus of gas was climbing steadily, and exports of U.S. LNG was the wave of the future. In the short-term, there is no real alternative to looming shortages.
Readers should brace for the highest energy prices they have seen in many years this winter. But if that is the only impact, we should consider ourselves lucky. The risk is that we follow Europe's and Asia's lead and experience widespread cutbacks in production. That would damage economic growth, while adding to the already rising rate of inflation. An environment that could cause stagflation. About the best we can hope for is a mild winter, but in this era of disastrous climate change, what are the chances of that?
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