Author Archives: Michael Murphy

Dear New World Investor: The headline Consumer Price Index year-over-year change was 8.5% versus the 8.7% estimate and 9.1% last month. The month-over-month change was zero compared to the 0.2% estimate and 1.3% last month. That is the lowest month-over-month change since COVID hit, but the entire cause was the drop in energy prices, which I don’t think will last for long. And even if inflation prints at 0% month-over-month between now and December, the CPI will still end 2022 at +6.3% year-over-year. The core CPI excluding food and energy was up 5.9% year-over-year versus the 6.1% estimate and 5.9%...

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Dear New World Investor: The lesson of this market since the June 17 low is when stocks rally and very few investors can say why, and it looks absurd and un-fundamental, sometime those are the most vicious rallies. Everyone thinks the next lesson will be a dramatic reversal from mid-August to mid-October that pulls the rug out from under the few bulls and gives all the bears and underinvested hedge funds a chance to get long. Well, maybe. But when that many people are looking for an opportunity to get invested in time to make back some of their first-half...

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Dear New World Investor: The Fed raised the Fed funds rate ¾ of a percent (75 basis points or bps) to a range of 2.25% to 2.50%. The cumulative rate hike for June and July is the most aggressive since the early 1980s, yet the stock market exploded higher. Their very first sentence makes it clear why: “Recent indicators of spending and production have softened.” So despite openly recognizing economic growth is softening, the Fed unanimously decided to hike by 75 bps because it’s all about inflation, inflation, and inflation. But stocks and bonds started rallying strongly only after Chairman...

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Dear New World Investor: Tuesday was a 17:1 up day (advancing volume/declining volume), the best day since March 24, 2020. Combined with Friday’s 11:1 up day, it was the second 10:1 up day in three sessions. In the past, after two 10:1-or-better up days within three months without a 10:1 down day in between, on average the S&P 500 has more than doubled its long-term average gain one, three, and six months later. Yet the combination of asset managers and leveraged funds (mostly hedge funds) has one of the biggest net short positions in the last 15 years. A reversal...

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Dear New World Investor: Happy Bastille Day! July 14 is the French National Day celebrating the anniversary of the storming of the Bastille on July 14, 1789, a major event of the French Revolution. In the US, we could be celebrating the likely end of Fed fear as the main driver of the stock market, even though it is about to be replaced by recession fear. The precipitating event, of course, was yesterday’s Consumer Price Index report. Those who want to scare you the most will focus on the year-over-year change in the total number, +9.1%, the highest number since...

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Dear New World Investor: The Federal Reserve Open Market Committee minutes from their June 14-15 meeting said: “Participants judged that an increase of 50 or 75 basis points would likely be appropriate at the next meeting.” OK, that negative is in the market. At the July 26-27 meeting, a 75 basis point increase – ¾ of 1% or 0.75% – shouldn’t surprise anyone and if they only raise the Fed funds rate by 50 basis points it will set off a rally. And “the Committee’s credibility… had been helpful in shifting market expectations of future policy and had already contributed...

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Dear New World Investor: The third estimate of March quarter real GDP growth released yesterday showed a 1.6% annualized drop in economic growth, a bit worse than the 1.5% previously reported. The update primarily reflects a downward revision to personal consumption expenditures (consumers buying less) that was partly offset by an upward revision to private inventory investment (caused by consumers buying less and a drag on June quarter GDP as inventories are sold). This morning, the Atlanta Fed’s GDPNow model reduced its June quarter forecast from +0.3% to -1.0% due mostly to weakness in both personal consumption expenditures growth and...

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Dear New World Investor: The economy is slowing rapidly. The S&P Global Manufacturing PMI in the US fell to 52.4 in June from 57.0 in May, missing expectations of 56.0 and pointing to the slowest growth in factory activity in almost two years – the second-weakest since July 2020. It showed slower service sector output expansion and the first contraction in manufacturing production in two years. While output and new orders contracted, inflationary pressures cooled. Looking ahead, goods producers registered the lowest degree of confidence for 20 months. What’s next? Deflation in the core price indices, including the Fed’s favorite,...

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Dear New World Investor: What a week! After last Friday’s mini-crash (see below), the S&P 500 entered a bear market on Monday, the Fed raised the funds rate 3/4 of a point yesterday, the biggest increase since 1994, and stocks closed today at their lowest since December 2020. Investors are worried that a more aggressive Fed will cause a recession – wants to cause a recession – while inflation stays high because the factors driving it are not affected by the Fed. That’s the “perfect storm” outlook and I think it’s too negative, although there’s no doubt the economy is...

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Dear New World Investor: I spent this week looking at Snap (SNAP), hoping I could recommend it as a first step towards taking advantage of the bear market in high tech, but – nope. I really like the way they are getting ready for the metaverse, which I think will cause dramatic changes in the way people learn, work, and play. But… Snap was founded 11 years ago as Snapchat on the simple idea that users would like to send pictures to others knowing the pictures would disappear after a certain period of time. In the first year, they processed...

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