Pain Now or Later
When my father bought me an expensive CD player, which, at the time, was considered a luxury for a thirteen-year-old, he congratulated me and wished me a happy birthday. He let me have my fun, celebrate it and show it to all my friends, but didn’t forget to explain to me, right before bedtime, that this was the only gift I’d receive this year and not to expect anything like it for my birthday the following year.
It’s fun to have a father who knows how to splurge a bit, but is disciplined enough to see that the path he is taking is unsustainable.
He told me, “A little pain now or a lot of pain later; there’s no other way to tighten the belt, financially speaking.”
Jerome Powell essentially said the same thing to senators and to the nation on Tuesday.
He told the banking committee that in order for the economic boom to continue and to include more people and ethnic groups, inflation must first be tamed, so that people will have confidence in the economy and want to participate in it.
This year, the FED plans on announcing interest rates hikes, with the first one in March already.
Raising the FED Funds Rate is important for two reasons:
- It gives the FED the option to lower the rate back down if the economy hits a rough patch, and a slowdown creates some need for stimulation.
- It serves as a mechanism to curtail and hold back more inflationary pressures from occurring.
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Powell suggests to be more disciplined now, rather than using Volcker-era emergency measures later, when we just don’t need to.
He was very clear that this economic expansion we’re currently on is held back by the ongoing lingering issues caused by the healthcare crisis and the implications of the way we’re responding to it, as well as from recovering from shutdowns and lockdowns.
He feels that the risk is that people start believing that inflation has become an issue – not a temporary one, but an entrenched one – and begin to behave accordingly.
Currently, most people, myself included, think that inflation has either peaked or will do so soon, and that more normal levels of CPI and PCE will appear later this year, as the supply of goods and services stop being interrupted by port congestions, for example.
Powell is not going to retract his words or walk them back; there’s no reason to.
Without criticizing politicians, he hinted that they must make sure to wisely handle the pandemic and what’s left of it, while allowing the FED to do what it believes is crucial: balance sheet shrinkage and higher interest rates. In Powell’s opinion, both of these are necessary for the next recession and should be done now, when times are good and when the economy is strong.
2022 is the year of the end of the printing press; the vacuum suction of credit and liquidity has begun.
Be prepared. Here’s our list:
CrowdStrike (CRWD): Between $167 and $180 per share offers 25%-33% potential upside in the next 12 months, in my opinion.
Etsy Inc. (ETSY): Between $170 and $185 per share offers 25%-33% potential upside in the next 12 months, in my opinion.
The Honest Company (HNST): Between $7 and $9 per share offers 100%-150% potential upside in the next 12 months, in my opinion.
Innoviz Technologies (INVZ): Between $5 and $6 per share offers 33%-80% potential upside in the next 12 months, in my opinion.
Paya Holdings (PAYA): Between $6 and $6.80 per share offers 33%-60% potential upside in the next 12 months, in my opinion.
Redfin Corp. (RDFN): Between $28 and $35 per share offers 60%-100% potential upside in the next 12 months, in my opinion.
The Rollins Company (ROL): Between $30 and $33 per share offers 25%-50% potential upside in the next 12 months, in my opinion.
Wayfair Inc. (W): Between $160 and $180 per share offers 40%-70% potential upside in the next 12 months, in my opinion.
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