There Should Be No Surprise… And Yet There Is<\/strong><\/h2>\nHigh inflation stops growth and seeps into earnings.<\/p>\n
Earnings are the ONLY thing that ultimately drives markets, regardless of whether some might think we’re in a “meme stock revolution.”<\/p>\n
Right now, we’re in the thick of earnings season, that’s why I’m focused on financial statements. But more importantly, I’m listening to what management is saying about future growth and inflation to either validate or invalidate what I’m seeing in the data.<\/p>\n
So, here are some examples from three companies, involved in three completely different industries, with three completely different types of consumers:<\/p>\n
\n- 3M <\/strong>is considered a bellwether to gauge inflation. CEO Mike Roman said they are focused on raising prices broadly<\/em> to mitigate the rising cost of materials. Why? Because the higher material cost accounted for a $.17 per share drag on Q2 earnings.<\/li>\n
- Ford <\/strong>will spend $2 billion more on commodities in Q3 and Q4. Its entire 2021 projected earnings before interest and taxes (EBIT) is $9-10 billion.<\/li>\n
- Apple<\/strong> CEO Tim Cook commented that he’s “paying more for freight than he’d like to pay,” while seeing slowing growth and worsening supply constraints.<\/li>\n<\/ul>\n
Now to contrast this, here’s what the steward of our economy in Washington, Fed Chair Jay Powell, had to say on Wednesday aside from the word “transitory”, which we’ve heard a thousand times by now… he believes there’s no evidence that the current high inflation readings are raising public expectations for future inflation.<\/p>\n
I find that hard to believe, I guess I won’t believe my lying eyes then…<\/p>\n
So here, we have the boots-on-the-ground CEOs saying one thing – and the ivory tower official saying something else… something just isn’t adding up.<\/p>\n
Now to contrast this, here’s what the steward of our economy in Washington, Fed Chair Jay Powell, had to say on Wednesday aside from the word “transitory”, which we’ve heard a thousand times by now… he believes there’s no evidence that the current high inflation readings are raising public expectations for future inflation.<\/p>\n
I find that hard to believe, I guess I won’t believe my lying eyes then…<\/p>\n
So here, we have the boots-on-the-ground CEOs saying one thing – and the ivory tower official saying something else… something just isn’t adding up.<\/p>\n
![\"\"](\"https:\/\/cdn.jeffclarktrader.com\/JMU\/images\/202107\/20210730-mm-01_skh247.png\")
<\/p>\n