On Wednesday, a quote from St. Louis Fed president James Bullard revealed a stunning development in the high stakes game of monetary policy…
“Monetary, fiscal aid over [the] pandemic may have been too much.”
Here at Market Minute, we’ve been talking about the Fed’s policy mistake throughout 2021 and this is exactly what we meant.
Bullard must have seen recent data showing the Consumer Price Index (CPI) coming in at 7% and the Producer Price Index (PPI) coming in at 9.8% – both at multi-decade highs.
What’s more troubling is that the spread between the two measures is now widening.
Meaning producers are paying even more for materials and faster than what consumers are paying, which is a proxy for profit margins on a national level. And the wider the spread, the less they earn – and the more they try to pass down to us, the consumers.
Surprisingly, there are now calls within the Fed to up the ante and hike rates four times this year.
As you may have realized, I’m not a fan of the Fed. They’ve strayed from their dual mandate of max employment AND controlling inflation.
And they’re just now starting to wake up.
That’s because they rely on stale data. And they also rely on economic theory, which is often unproven and misguided… especially while they’re perched atop Washington’s ivory towers.
From that vantage point, they can’t possibly see in real time what Lael Brainard admitted months too late at her Fed Vice Chair confirmation hearing today, “Working people around the country are concerned about how far their paychecks will go.”
Where was the concern from the Fed last year?
Although it’s a step in the right direction, the damage may have already been done.
The Fed should seriously consider taking out the inflation part of their mandate and substituting it with “keeping Wall Street happy.” It would be more reflective of reality.
With all this about-face from the Fed, it’s no wonder the market is off to a rocky start in 2022 with tech leading the way down – the biggest benefactor of their ultra-loose monetary policy.
But not all stocks and sectors are getting hit… some are making all-time highs.
This Metal Keeps Going Higher
Commodities picked up where they left off in 2021… rising 5.5% to start the year.
The inflation trade continues to rage forward.
And right now, metals have the spotlight.
Especially copper (with the lowest inventories in almost 50 years), which has the entire market paying attention to it once again.
To understand why, take a look at this chart of the dollar (DXY)…
Over the past year, both copper and the dollar prices have been rising, defying its traditional inverse relationship. But recent weakness in the dollar has now accelerated copper’s rising trend.
The relationship between the two is well-known: when the dollar rises, copper falls.
But copper has been defying that relationship because when commodities are in a shortage, currencies just don’t matter as much.
However, the recent weakness in the dollar added some fuel to copper’s uptrend. And in so doing, copper mining stocks like Freeport-McMoRan (FCX) reaped all the rewards.
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Copper miners are one of the commodity-related recommendations we mentioned on November 9. And one of my favorite companies to play this trend is FCX.
On Wednesday there was a flurry of “unusual options activity” on FCX with call option volumes surging.
That kind of volume is institutional, meaning some big players are making bets on FCX – even with share prices at all-time highs.
It could be because FCX has a great technical setup here to go even higher.
In addition, its upcoming earnings report on January 26 could be a blowout.
With copper prices raging forward, that feeds directly into their bottom line. And the way 2022 is shaping up, this year is all about stocks with earnings in the here-and-now. Value is outperforming everything else.
The highest analyst target price for FCX right now is sitting at $55 a share.
So, January 26 should be an interesting day for FCX – I wouldn’t be surprised if it hits this level.
Regards,
Eric Shamilov
Analyst, Market Minute
Reader Mailbag
Did you buy into copper when it was first recommended a few months ago? If so, are you expecting it to go higher based on the earnings report?
Let us know your thoughts – and any questions you have – at [email protected].