Author Archives: Michael Murphy

Dear New World Investor: The Fed paused (good news for stocks) at their 22-year high for the Fed funds rate, but made it clear my “Higher for Longer” scenario is their current policy (bad news for stocks). Twelve memberssaid they expect one more hike this year while seven are ready to pause for good. The median participant projects two rate cuts in 2024. They expected four cuts at the last meeting. They now forecast the Consumer Price Index rising 2.6% in 2024. Chairman Powell said real interest rates are “meaningfully positive” and need to stay that way “for some time”...

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Dear New World Investor: The August Consumer Price Index rose 3.7% year-over-year (YOY), driven by gasoline prices that accounted for over half of the increase. That was faster than July’s 3.2% but far below the 40-year high of 9.1% in June 2022. It was the second straight increase after 12 consecutive declines in annual inflation. Shelter, including rents, jumped 7.3% over the last 12 months but it was still softer than July’s 7.7% gain. As you know, this reflects the situation six to nine months ago. Shelter has been up for 40 consecutive months but will be falling for months...

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Dear New World Investor: This week I want to review some TechBio companies applying Artificial Intelligence (AI) and Machine Learning (ML) to biotech. These are speculative positions, and I haven’t done enough work to recommend one yet, but this is going to be a HUGE investment theme for the next decade. Click for larger graphic Notes: “Growth Flow” is total R&D spending for the last 5 years (2023 estimated) divided by fully-diluted shares. Px/GF is a way to value development-stage technology companies. “Runway (#Q)” is the number of quarters a company’s current cash will last at their current burn rate....

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Dear New World Investor: At last week’s Jackson Hole Fed conference. Chairman Powell said he expected this morning’s core July Personal Consumption Expenditures Index– the Fed’s favorite inflation measure – to be +4.3% year-over-year. Wall Street was on board: Click for larger graphic – read month-over-month (year-over-year) The core number was up 0.8% from June, faster than the 0.6% in June over May. It was up 4.2% year-over-year, a tenth of a percent less than Powell and Wall Street expected. That was a fraction more than June’s +4.1%. Headline inflation rose 0.2% month-over-month and the expected 3.3% year-over-year, an uptick...

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Dear New World Investor: Tomorrow, Fed Chairman Powell speaks at the annual Fed symposium at Jackson Hole, Wyoming. Here’s what he will say: “We will continue to be data-dependent in determining the extent of additional policy firming that may be appropriate to return inflation to 2% over time. We will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.” Here’s what Wall Street will hear: “Higher for longer.” Here’s what will happen: “Not much higher but, yeah, for longer.” It’s been 17 months since...

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Dear New World Investor: Tuesday’s July retail sales report increased 0.7% from June, more than Wall Street’s estimates for +0.4%. Sales excluding auto and gas increased by 1.0%, well above estimates for +0.3% compiled by Bloomberg. June sales were revised up to +0.3% from +0.2%. Not surprisingly, the Fed meeting minutes released Wednesday showed that most members were concerned about “significant upside risks” to inflation and suggested more rate hikes could be needed. “A couple” of participants indicated they favored leaving rates unchanged, noting “the possibility that the macroeconomic effects of the tightening in financial conditions since the beginning of...

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Dear New World Investor: Today’s Consumer Price Index report ticked up to 3.2% in July, lower than expected. Core inflation fell to 4.7%, in line with expectations. Click for larger graphic h/t @SteveRattner On a monthly basis, inflation hit the Fed’s 2.0% annual goal, with headline at 0.17% month-over-month (2.06% compounded) and core at 0.16% (1.94% compounded). That’s the lowest back-to-back core reading since 2021. Click for larger graphic h/t @SteveRattner Look at the three “buckets” Powell says they are paying special attention to. On a year-over-year basis, core goods (including used cars) are falling. Core services ticked up slightly,...

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Dear New World Investor: Oh, no! Fitch downgraded US government debt from AAA to AA+! I did not expect this! It dramatically affects… Nothing. Literally. Not. A. Thing. As Mohamed El-Erian said: “Why now? When you look at the reason, you scratch your head as to the timing of this. I don’t think that this Fitch rating changes anything.” Warren Buffett says he’s not concerned about the Fitch downgrade, saying his company continues to buy $10 billion of Treasury bills each week. “There are some things that people shouldn’t worry about and this is one.” After S&P did the same...

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Dear New World Investor: I was wrong. I thought that with inflation cooling, lagging components like rent set to fall for several months, manufacturing already in a recession, and labor markets cooling, the Fed would be smart enough to continue pausing interest rates and watching incoming data to see the full effect of their most aggressive rate hiking campaign since the 1980s – 10 increases totaling over five percentage points since March 2022. Nope. They raised the Fed funds target range by 0.25% yesterday to 5.25%-5.5%, the highest level since March 2001. They repeated June’s language: “In determining the extent...

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Dear New World Investor: Cyclical bull and bear markets can last from several months to a few years. Secular bulls & bears last several years to decades and include multiple cyclical markets. The 2022 cyclical bear was far closer to the average cyclical bear in a secular bull than a cyclical bear in a secular bear. Click for larger graphic h/t @edclissold I continue to think we are in a secular bull market to 2036, based on the 36-year cycle that last peaked in 2000. But there will be cyclical bear markets along the way. Bear markets usually start when...

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