Author Archives: Michael Murphy

Dear New World Investor: We ended 2022 and started 2023 with very mixed economic messages. The Personal Consumption Expenditures price index came in cooler than expected, rising 0.1% in November from October when the consensus estimate was for 0.2% growth. Year-over-year, the PCE price index rose 5.5%, matching estimates. But the core PCE price index came in a bit hotter than expected, rising 4.7% year-over-year versus the 4.6% estimate. Yesterday’s Institute for Supply Management manufacturing data for December pretty much settled the recession debate. The Purchasing Managers’ Index (PMI) fell 0.6 percentage points to 48.4% in December from November. The...

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Dear New World Investor: My annual holiday vacation is next week, so the next Radar Report will be on January 5. I may post a Flash Alert after the December 28 FDA decision on TG Therapeutics’ drug to treat multiple sclerosis. We end this annus horribilis with one of the best investment opportunities I’ve ever seen. Toby, Derek, and Daniel Rice IV, three brothers from Pittsburgh, started Rice Energy in 2009 to acquire, explore, and develop natural gas and oil properties in the Appalachian Basin. Their strategy was to be an early entrant into the core of a shale play...

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Dear New World Investor: As expected, yesterday the Federal Reserve raised the Fed funds rate by half a percentage point (50 basis points or bps), bringing the benchmark interest rate to a range of 4.25% to 4.50%, the highest level since 2007, while making it clear more rate hikes are coming in 2023. I can’t imagine anyone was surprised, although the sell-off yesterday afternoon and today indicates someone was. Chairman Powell said: “Over the course of the year, we have taken forceful actions to tighten the stance of monetary policy. We have covered a lot of ground, and the full...

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Dear New World Investor: A big welcome to several new and returning subscribers! As you could tell from yesterday’s action, you’re just in time for the fun. Please read the Comments and make your own – there are a lot of smart people here. Fed Chairman Powell started the pivot I expected yesterday, signaling a 50 basis point (1/2 percentage point) increase in the Fed funds rate at the December 14 meeting, and the stock market loved it. He now thinks a recession is just as likely as not: “…risks to the baseline projection for real activity were skewed to...

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Dear New World Investor: The latest Fed minutes, released today, said a “number of participants” said it would “become appropriate to slow the pace of increase in the target range for the federal funds rate.” That, I hope, comes as no surprise to you, as I’ve run this graphic for the last three weeks: Click for larger graphic The Fed pivot never was going to be a sudden 180 degtees. The pivot is a process, not an event. Chairman Powell has been saying for months it will be data-driven – not inflation-driven, but data-driven. That means all the data. Powell...

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Dear New World Investor: October’s core producer price index (PPI) was unchanged from September – there was zero inflation. Annual core PPI was 6.7% year-over-year, well below the consensus estimate of 7.2%. Fed Vice Chair Lael Brainard said: “It probably will be appropriate soon to move to a slower pace of increases. By moving forward at a pace that’s more deliberate, we’ll be able to assess more data and be better able to adjust the path of rates to bring inflation down.” But in their usual attempt to create uncertainty, today St. Louis Fed President James Bullard said the Fed’s...

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Dear New World Investor: And that is why they say: “They don’t ring a bell at the bottom.” A 1,200-point increase in the Dow Jones Industrial Average, up 5.54% on the S&P 500 Index, and up over 7% on the Nasdaq Composite – now that’s a good day. The October Consumer Price Index increased 7.7% over last year and 0.4% from September, both slightly below the 7.9% and 0.5% consensus estimates. Used car and truck prices are collapsing, while medical care, apparel, and airfares all declined over the month. Shelter, a lagging indicator (and the Fed knows it), is nearly...

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Dear New World Investor: Yesterday the Fed raised the Fed funds rate by 3/4 of a percent, or 75 basis points (bps) for the fourth consecutive time. There was something for everyone in the Fed’s action. The press release had a dovish tone: “In determining the pace of future increases, the Committee 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.” “Cumulative tightening” and “lagged impact” suggest that this will be the last 75bps hike and in December the move will most likely...

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Dear New World Investor: September quarter real gross domestic product (GDP) rose at a 2.6% annualized rate, double the Blue Chip consensus for +1.3% and half a percent under the latest Atlanta Fed’s GDPNow model forecast for +3.1%. Click for larger graphic So are we not in a recession? Alas, we are. Although it’s mild so far. Domestic demand was the weakest in two years and residential investment contracted for the sixth straight quarter. Consumer spending, which accounts for more than two-thirds of US economic activity, slowed to a 1.4% rate from the June quarter’s 2.0% pace. I expect tomorrow’s...

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