New Episode! Weekend Bite, a Seeking Alpha original series. This week we’re joined by David Trainer, from Value Investing 2.0 and New Constructs. We get his views on whether this is a new bull market, what the Fed is going to do about inflation, meme mania, and stock picks that investors should consider. Kim Khan also highlights what to watch next week in Catalyst Watch!
Fed Chair Jerome Powell’s speech at the Jackson Hole Economic Policy Symposium today is expected to convey the central bank’s resolve to push inflation down closer to its 2% goal, even at the risk of raising the unemployment rate, currently at 3.5%, a 50-year low. To provide some context, two years ago at the Wyoming gathering of monetary policy wonks, Powell introduced the central bank’s new inflation averaging policy that would tolerate inflation running above its 2% goal for some time in order to push the unemployment rate lower. That was when inflation had been stubbornly lagging the Fed’s goal for years.
Fast forward to 2021: Powell said the bank’s test for inflation was met and the economy had made “clear progress” toward maximum employment, before ditching the “transitory” thesis and getting aggressive. Since then, the Fed started shrinking its balance sheet and raised its policy rate four times, bringing the federal funds rate target range to 2.25%-2.50%, the same level it was in May 2019 at the height of the last tightening cycle. Now traders, are betting on a third 75-basis-point rate hike in a row, with sentiment shifting from 50 bps over the past week, according to the CME FedWatch tool.
Investors, portfolio managers and economists will all tune for clues as to whether Powell expects to pause the rate hikes, though that doesn’t appear to be in the cards. “Chair Powell is likely to give the marketplace a dose of reality as he expresses that inflation must be the Fed’s main priority rather than growth,” said José Torres, senior economist at Interactive Brokers. “Since the July meeting, financial conditions have loosened significantly which counters the Fed’s goal of lower inflation. Chair Powell is likely to be tougher this time around to not make the same mistakes of the July meeting which mirror the mistakes Arthur Burns made in the 1970s.”
Data dependent: As usual, expect Powell to say the Fed officials will base their decisions on incoming data. Note that by the time Powell speaks at 10 a.m. ET, July’s personal consumption expenditures – the Fed’s favorite inflation gauge – will have been reported (core PCE is expected to rise 4.7% Y/Y, while headline PCE consensus is +6.3% Y/Y). Powell is also likely to repeat that many of the factors that drive inflation are outside of the Fed’s control. While the central bank can only influence the demand side of the equation, the supply side has been impacted by post-pandemic supply chain disruptions and geopolitical factors like the war in Ukraine. (6 comments)
After hinting to a technology alliance earlier this week, Elon Musk has announced a new venture that will involve a partnership with U.S. telecom company T-Mobile (NASDAQ:TMUS). The plan aims to eliminate “dead zones” by using large antennae on SpaceX’s (SPACE) second generation of Starlink (STRLK) satellites to transmit directly to consumer cell phones. Most current smartphones will work with the new service, which is expected to be included for free on T-Mobile’s most popular monthly plans.
Specifics: “This won’t have the kind of bandwidth a Starlink terminal will have, but this will enable texting, it will enable images and if there aren’t too many people in the cell zone, you can even potentially have a little bit of video,” according to Musk. “We will no longer read about these tragedies that happened where people got lost and if only they could have called for help they’d be okay.”
Hurdles remain as the FCC still needs to sign off on SpaceX’s use of T-Mobile’s wireless spectrum. Musk is also known to tout grandiose visions way before a project can be rolled out to the market, like Tesla’s network of autonomous taxis, timelines of the Semi and Cyber trucks, installing 1,000 solar roofs per week, mass transit tunnels, etc. This time around, texting services in the beta phase of the Starlink/T-Mobile plan are only expected to roll out by the end of next year, and much can happen before then.
Outlook: Whether or not the cell service gets off the ground, Starlink is handily outpacing its rivals. Facebook (META) abandoned plans for its Aquila solar-powered internet drones in 2018, while Alphabet (GOOGL) pulled the pin on internet balloon project Loon last year. The future definitely seems to belong to low-Earth-orbiting satellites, though Amazon’s (AMZN) Project Kuiper is mostly on paper and competitor OneWeb has only launched 218 satellites (compared to the 3,000 that are currently supporting the Starlink network). AST SpaceMobile (ASTS) is also building a global cellular broadband network in space, but its first scheduled launch will only happen in September. (5 comments)
British energy regulator Ofgem is raising the country’s price cap on consumer energy bills by 80% to £3,549 ($4,200) a year, exacerbating a cost-of-living crisis in the U.K. The latest increase will come into force from Oct. 1, though costs could get drastically worse over the next year. Consultancy Cornwall Insight forecasts the cap could rise to £4,650 in Q1 of 2023 and to £5,340 in Q2, up from an average £1,400 annual bill in October 2021.
Snapshot: Ofgem is now recalculating price caps every three months rather than every six months to reflect volatility in the wholesale market and other industry costs. It comes amid higher demand, supplier bankruptcies and as Russia “slowly and deliberately” turns off the gas supplies to Europe. The situation has even prompted the government to pay a £400 grant to all households over six months from October – with another one-time £650 payment going to 8M low-income households – but many are still waiting on a more decisive plan from lawmakers.
“A catastrophe is coming this winter as soaring energy bills risk causing serious physical and financial damage to families across Britain,” said Jonny Marshall, senior economist at the Resolution Foundation. “We are on course for thousands to see their energy cut off entirely, while millions will be unable to pay bills and build up unmanageable arrears.”
Over in the U.S.: 1 in 6 American homes have fallen behind on their utility bills, according to the National Energy Assistance Directors Association (NEADA). It’s the worst crisis the group has ever recorded, with households owing a combined $16B in unpaid bills, about double the pre-pandemic total. (4 comments)
“All adults should stay up to date with COVID-19 vaccination,” the CDC has declared, after releasing a study that centers around coronavirus hospitalization this past spring. “Among hospitalized non-pregnant patients [from the end of March until the end of May], 39.1% had received a primary vaccination series and 1 booster or additional dose; 5.0% had received a primary series and ≥2 boosters or additional doses. In May 2022, the monthly population-based, ‘age-adjusted’ hospitalization rate among unvaccinated adults aged ≥18 years was 3.4 times as high (95% CI = 3.2–3.6) as rates among vaccinated adults who had received ≥ 1 booster or additional dose.”
Other findings: The total number of hospitalizations remained much lower than when the Delta variant was rampant last fall, when vaccinations were more effective at preventing hospitalization. Those over the age of 65 were hit the hardest, while those with two booster shots were less likely to be hospitalized than those with just one during the BA.2 period.
The data could hasten approval for Omicron-specific COVID-19 boosters. Pfizer (PFE) and German partner BioNTech (BNTX) submitted an application for FDA emergency use approval of the shots on Monday, while Moderna (MRNA) followed suit on Tuesday. The New York Times this week also reported that the Biden administration is eying a campaign to begin the rollout of updated vaccines shortly after Labor Day.
Coming soon: FDA Commissioner Robert Califf said yesterday that the agency would not hold a vaccines advisory committee meeting on Moderna and Pfizer’s new emergency use requests, as it feels “confident” in the extensive discussion that was held in June. “The Vaccines and Related Biological Products Advisory Committee voted overwhelmingly to include an Omicron component in COVID-19 boosters. FDA has no new questions that warrant committee input. Bivalent and multivalent vaccines are very common and modifying a vaccine to include different virus strains often does not require a change in other ingredients.” (258 comments)
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