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Restaurant Stocks: “David vs Goliath”

It’s been a rough year thus far for the restaurant industry, with a pullback in traffic, higher costs due to commodity/wage inflation, and a challenging environment for some companies from a traffic standpoint.
The result is that much of the group has become un-investable, and some names are looking worse by the month, including Red Robin (RRGB), which will post its third straight year of heavy net losses in FY2022.
Given this backdrop, the best strategy is to focus on the industry leaders and those with proven business models enjoying unit growth and still enjoying strong restaurant-level margins.
However, in a sector where there are still several names with these attributes, it’s tough to decipher which are the best to own. In this update, we’ll compare newly public restaurant operator First Watch (FWRG) with long-time franchiser Dominos Pizza (DPZ) and see which is the better name to own in the current environment.
Scale & Business Model
Dominos and First Watch are akin to David and Goliath from a scale standpoint, with Dominos being the largest pizza company globally with ~19,300 restaurants and First Watch being an emerging breakfast chain with ~450 restaurants.
The differences in the business model are also night and day, with Dominos being a 98% franchised model with a significant international footprint and First Watch being a primarily company-owned company model, with just 22% of its restaurants being franchised currently.

While Dominos’ operators have seen some headwinds due to elevated cheese prices and difficulty securing drivers from a margin standpoint, Dominos is more inflation-resistant than First Watch, given its franchised model where operators bear the brunt of higher costs.
The good news is that First Watch still has very respectable restaurant-level margins, even if they dipped 440 basis points in the most recent quarter. Besides, this margin erosion was largely due to a conservative pricing approach to maintain its value proposition. Plus, as its alcohol mix grows and it’s rolled out to 100% of the system, we could see some additional benefit from a margin standpoint.
That said, Dominos is the clear winner from strictly a margin standpoint, with 30% plus gross margins and double-digit operating margins vs. First Watch at 21% and 4%, respectively, on a trailing-twelve-month basis.
Domino’s Pizza – 1 / First Watch – 0
Unit Growth & Positioning In A Recessionary Environment
Moving to unit growth, First Watch is the leader by a wide margin, with considerable white space (~450 restaurants in 28 states vs. ambitions of up to 2,500 restaurants) and consistent double-digit unit growth rates. Meanwhile, Dominos has continued to grow at an impressive pace given its scale but will be lucky to grow at 5% this year and 4% next year.
However, from a positioning standpoint, pizza tends to hold up better than casual dining occasions, given its relatively low average check to feed the family, the ability to skip tips to keep checks low when picking up, and convenience. In fact, Dominos started paying guests for picking up earlier this year with a $3 tip in the form of online credit.
That said, First Watch’s traffic is clearly suggesting a different story, with it being one of the only brands industry-wide to see positive but high single-digit traffic growth in Q2 (8.1%). This suggests that First Watch’s differentiated menu might make it more recession-resistant than some of its casual dining breakfast peers.
It’s also possible that its breakfast daypart might be stickier, with it being a tradition for many families to go out for breakfast on weekends without breaking the bank vs. a higher check dinner occasion.
So, with better unit growth and what appears to be similar positioning in a recessionary environment due to recent traffic trends, First Watch wins in this category.
Domino’s Pizza – 1 / First Watch – 1
Valuation
Finally, from a valuation standpoint, Dominos is not cheap at first glance, trading at ~22x FY2023 earnings estimates in a recessionary environment with some margin compression. That said, Dominos has historically traded at 27.8x earnings (15-year average), and even using a 5% discount to this multiple (26.4 x 27.8) places a fair value on the stock of $393.40.
Meanwhile, First Watch trades at 47x FY2023 earnings estimates, and while a premium valuation is justified, this is not cheap when the S&P-500 (SPY) is in a cyclical bear market, and growth stocks are being taken down due to multiple compression.
So, while I think there is some upside for FWRG long-term as its earnings play catch-up, DPZ is the more attractive bet from a valuation standpoint.

Domino’s Pizza – 2 / First Watch – 1
Final Verdict
Dominos and First Watch both make excellent buy-the-dip candidates, but neither are in low-risk buy zones just yet, even if Dominos is the better restaurant stock to own on the above criteria, slightly edging out the newly listed and high-growth breakfast concept, FWRG.
However, if we were to see DPZ decline below $292.00, or FWRG below $14.20, I would view pullbacks to these levels as buying opportunities.
For now, I see safer bets elsewhere in Retail, such as Capri Holdings (CPRI), which trades at less than 6.5x FY2023 earnings estimates.
Disclosure: I am long CPRI
Taylor DartINO.com Contributor
Disclaimer: This article is the opinion of the contributor themselves. Taylor Dart is not a Registered Investment Advisor or Financial Planner. This writing is for informational purposes only. It does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Taylor Dart expressly disclaims all liability in respect to actions taken based on any or all of the information in this writing.

Inflation Continues To Spiral Higher

Key reports released last week in both the United States and the Eurozone revealed what global citizens have been acutely aware of. Inflation continues to spiral higher and at a staggering level.
This prompted Credit Suisse to issue a dire global economic outlook, saying that the “worst is yet to come”.

The Commerce Department released the latest inflation numbers vis-à-vis the PCE that revealed that the Core PCE jumped 0.6% in August. It shows that inflation is still intense and increasing.
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The preferred gauge used by the Federal Reserve, the PCE (Personal Consumption Expenditures Price Index) revealed that inflation accelerated even more than expected in August. On a year-over-year basis, the core PCE which omits food and energy costs increased 4.9%, above projections of 4.7%.

It was reported by Dow Jones newswires that inflation in the eurozone hit a new record high of 10% in September.

Dow Jones reported, “The consumer price index–a measure of what consumers pay for goods and services–increased 10.0% in September compared with the same month a year earlier after climbing 9.1% in August, according to preliminary data from Eurostat, the European Union’s statistics agency.”
The CPI for the Eurozone differs from the United States in that it was higher energy prices up 40.8% year-on-year in September after a 38.6% increase in August. The latest numbers for the CPI in the United States showed a slight downtick in August from 8.5% to 8.3%.
After five consecutive interest rate hikes including three consecutive 75 basis point rate hikes at the last three FOMC meetings, the Federal Reserve has raised interest from 0 to ¼% in March 2022 to its current range of 3% to 3 ¼% since March.
However, Friday’s report suggests that the Fed’s extremely aggressive rate hikes have yet to lower inflation.
Vice-chair Lael Brainard spoke at a research conference organized by the Board of Governors of the Federal Reserve System and the Federal Reserve Bank of New York, saying, “Inflation is very high in the United States and abroad, and the risk of additional inflationary shocks cannot be ruled out.
She later added that policymakers were “committed to avoiding pulling back prematurely saying that, “Monetary policy will need to be restrictive for some time to have confidence that inflation is moving back to target,”

Last week gold futures basis the most active December contract traded to a low of $1621, a high of $1684.40 and as of 5 PM, EDT is currently fixed at $1668.30 after factoring in Friday’s net decline of 0.02% or $0.30.
Until December gold can effectively close above $1680 per ounce there is still an extreme danger that gold could drift lower if severe dollar strength as witnessed recently continues.

Chart 4 is a daily chart of the dollar index in Heikin-Ashi format. It differs from a standard candlestick chart in that the open is fixed from the prior candle’s midpoint. It clearly illustrates a potential pivot looking at the third candle from the right which is green and has an extremely small real body and long upper and lower wicks. This is followed by the two green candles.

Chart 5 is also a daily Japanese chart in Heikin-Ashi format. It shows the opposite pivot with a series of red candles up until three days ago when the candle color changed from red to green with a small green real body with long upper and lower wicks.
Both of these charts are indicating that on a technical basis we could see a short-term pivot with the dollar moving from extremely bullish to bearish, and gold moving from extremely bearish to bullish.
For those who would like more information simply use this link.
Wishing you, as always good trading,Gary S. WagnerThe Gold Forecast

pexels-photo-164527.jpeg

The Dollar Has Hit The First Target

The king currency has finally hit the first long-term target of $114 that was set in the summer of a distant 2019 when it traded around $96.
That aim wasn’t clear then as the dollar index (DX) looked weak in the chart. The short-term structure was similar to a pullback after a heavy drop.
The majority of readers did not believe the DX would ever raise its head as you can see in the 2019 ballot results below.

However, I had found a bullish hint in a very big map, and I warned you “Don’t Get Trapped By Recent Dollar Weakness”.

Back in August, you had already been more bullish on the dollar as you voted the most for the target of $121.3 in the earlier post. This confidence is due to the certain position of the Fed, which resolutely fights the inflation, lifting the rate aggressively round by round.
Let me update the visualization of the real interest rate comparison below to see if the dollar still has fuel to keep unstoppable.
Source: TradingView
The real interest rate differentials are shown on the scale B: blue line for U.S. – Eurozone, orange line for U.S. – U.K. and the red line for U.S. – Japan.
As you can see in the chart above the dollar’s buffer only grows over time as the trend gets even sharper. In August, the blue line was at +2.4%, the orange line was at +2.35% and the red line was at -3.3%. The change is huge in favor of the U.S. compared to its rivals.
Currently, the DX is lagging behind two differentials: U.S. – Eurozone (the largest component of the DX) and U.S. – U.K. (3rd largest component of DX). We can clearly observe the potential of the dollar to close that gap, rallying at least in the area of $120-$123, where the next target of the distant 2001-year top is located.
Let me refresh the technical chart below for more details.
Source: TradingView
This chart above represents the right part of a Giant Double bottom pattern (purple). It emerges accurately as planned as the price is approaching the main barrier of the Neckline.
There is another crucial element in the chart, the uptrend channel (blue dotted). Recently, the price has pierced the upside of it above $114. However, the DX couldn’t consolidate the success and dropped back below the barrier to close the month’s candle underneath.

The price could take two paths from here. The continuation to the upside based on the aggressive tightening is the first option. Another option could put the market on the pause within a consolidation (red down arrow). The former is needed to let the market take a break and reflect on the consequences of the Fed’s actions. This path is not bearish as it is just one of the natural stages of the market to let the latter accumulate enough power for further growth.
The bearish scenario is not considered as the next target of $121 is closer than the first support at $100. That area has been shown in my earlier post. It consists of the simple moving average for the past one year and the large volume profile zone.

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Intelligent trades!
Aibek BurabayevINO.com Contributor
Disclosure: This contributor has no positions in any stocks mentioned in this article. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.

Sugar-Coating the Likelihood of a Recession

Does anyone remember when then President Donald Trump told the American population that the Covid-19 lockdowns and spread of the virus that caused the pandemic would all be over by Easter? Or when referring to Covid-19, that it was “the flu”?
During the first few weeks of the pandemic, President Donald Trump downplayed the severity of the virus to not panic the American population. In hindsight, perhaps the early days, especially when the country was in lockdown, it would have been more beneficial to not sugar-coat the virus and the timeline of when the government would lift the lockdown restrictions.
Had President Donald Trump told people the virus would kill hundreds of thousands of people, perhaps we could have stopped the virus from spreading during the lockdowns.
If President Trump hadn’t given a timeline for the lockdowns and the pandemic seeing brighter days, perhaps the government wouldn’t have lost its creditability with so many Americans during the summer of 2020 and its continued response to the pandemic.

Our current situation with the Federal Reserve and its chairman Jerome Powell, is very reminiscent of the early days of the Covid-19 pandemic.
Back in the winter and early spring, Powell told us that inflation was “transitory” and wouldn’t last. He even said current inflation wouldn’t need aggressive monetary policy changes to fall. Then, even when Powell began to raise interest rates, he told Americans that there was a high probability of a soft landing, referring to the idea that the Fed could bring down inflation slowly and gently.
Powell continued to tell us this summer that raising interest rates gradually and methodically would lower inflation but not put the economy in a recession.
Fast forward to just a week ago, and Powell tells us that the “chances of a soft landing are likely to diminish.” Inflation has hardly moved even though the Fed has raised interest rates five times, starting in March 2022. At that time, the Fed increased rates by 0.25%, 0.50% in May, then a 0.75% bump in June, July, and September.
Powell also said at the most recent Fed press conference following its announcement of the September rate hike that “we have to get inflation behind us. I wish there were a painless way to do that. There isn’t.”
The Federal Reserve is increasing interest rates so that borrowing money will become more expensive. Theoretically, fewer people will do it if borrowing money becomes more costly. If fewer people borrow money, spending will be reduced, and thus the economy will slow down. If the economy slows down, inflation or the increase in prices of goods and services will slow.
Slowing inflation is the Fed’s current goal. But Powell is currently sugar-coating that we are staring down the barrel of a recession. As things are now, it is improbable Powell and the Fed can increase interest rates precisely enough to lower inflation without sending us into a recession.
However, just like President Donald Trump didn’t want to come out and scare the world into an all-out panic, Powell is trying to do the same thing. The Fed Chairman wants to warn people but not put them in full panic mode that a recession is imminent.
The fear is that if Powell told us the recession was months away, it would be a self-fulfilling situation. That could be enough to cause people to panic and stop mass spending. A country-wide immediate spending stop would be enough to put the economy into a rapid recession.
One of a few things could happen from a snap recession. One would be the Fed would lose complete control of the situation. They could have a hard time pulling us back out of the recession. Another issue is that the severity of the recession may be worse. Suppose the economy stops immediately, the chances of falling into a profound recession increase.
On our current path, with the Fed sugar-coating the situation and controlling the slowdown, there is a good chance we don’t fall into a long-deep uncontrolled recession.

If you are looking for a few ways to benefit from the coming recession or how to protect your portfolio, take a look at these two articles I recently wrote, Now is the time to Hedge Your Portfolio and ETFs For a Negative Market Turn.
The Direxion Daily S&P 500 Bear 1X Shares ETF (SPDN) and ProShares UltraPro Short QQQ (SQQQ) are two Exchange Traded Funds I discuss in-depth in those articles. But I also like the ProShares S&P 500 Dividend Aristocrats ETF (NOBL), the ProShares Short 20+ Year Treasury ETF (TBF), or my favorite ETF when interest rates are rising, the FolioBeyond Rising Rates ETF (RISR).
If you agree with what the Fed is doing or what you would do differently, let me know in the comments below.
Matt ThalmanINO.com ContributorFollow me on Twitter @mthalman5513
Disclosure: This contributor did not hold a position in any investment mentioned above at the time this blog post was published. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.

3 Stocks to Leave Out of Your Retirement Portfolio

The Fed announced its third consecutive 75-bps interest rate hike last week, which has caused the benchmark indices to plunge. The S&P 500 has lost 5.2% over the past week and 23.3% year-to-date. Moreover, Goldman Sachs slashed its 2022 year-end S&P 500 target to 3600, down 16.3% from 4300.
According to Chris Zaccarelli, Chief Investment Officer, Independent Advisor Alliance, Charlotte, NC, “The Fed is going to raise rates until inflation comes back down, and they will cause a recession in the process.”
Also, Steve Hanke, a professor of applied economics at Johns Hopkins University, said, “The probability of recession, I think it’s much higher than 50% — I think it’s about 80%.”
Given the uncertain economic outlook, fundamentally weak stocks Uber Technologies, Inc. (UBER), Workhorse Group Inc. (WKHS), and AppHarvest, Inc. (APPH) might be best avoided for your retirement portfolio. These stocks do not pay dividends, which is the key requirement for a stock to be added to a retirement portfolio.
Uber Technologies, Inc. (UBER)
UBER develops and operates proprietary technology applications in the United States, Canada, Latin America, Europe, the Middle East, Africa, and the Asia Pacific. The company operates through three segments: Mobility; Delivery; and Freight.

On September 25, 2022, Pomerantz LLP announced the filing of a class action lawsuit against UBER and some of its officers, alleging violations of federal securities laws. The suit is on behalf of a class of all persons and entities except Defendants that purchased or acquired UBER common stock between May 31, 2019, and July 8, 2022.
UBER’s revenue came in at $8.07 billion for the second quarter that ended June 30, 2022, up 105.5% year-over-year. However, its net loss came in at $2.60 billion compared to an income of $1.14 billion in the year-ago period. Moreover, its loss per share came in at $1.33, compared to an EPS of $0.58 in the prior-year period.
UBER’s EPS is expected to decline 367% year-over-year to negative $4.67 in 2022. Its EPS is estimated to remain negative in 2023. It missed EPS estimates in three of the four trailing quarters. Over the past year, the stock has lost 42.3% to close the last trading session at $26.89.
UBER’s POWR Ratings reflect its poor prospects. It has an overall grade of D, which indicates a Sell. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Also, the stock has a D grade for Value, Momentum, Stability, and Sentiment. UBER is ranked #57 out of 80 stocks in the D-rated Technology – Services industry. Click here to learn more about POWR Ratings.
Workhorse Group Inc. (WKHS)
Technology company WKHS designs, manufactures and sells zero-emission commercial vehicles in the United States. In addition, the company designs and builds high-performance, battery-electric vehicles, including trucks and aircraft, as an American original equipment manufacturer.
On August 9, 2022, Roth Capital analyst Craig Irwin downgraded WKHS from Buy to Neutral.
WKHS’ sales decreased 99% year-over-year to $12,555 for the second quarter ended June 30, 2022. Its cash and cash equivalents came in at $140.06 million for the period ended June 30, 2022, compared to $201.65 million for the period ended December 31, 2021. Also, its total operating expenses came in at $18.06 million, up 97.8% year-over-year.
Street expects WKHS’ revenue to decline 2,280.8% year-over-year to $18.58 million in 2022. Its EPS is estimated to remain negative in 2022 and 2023. It missed EPS estimates in all four trailing quarters. Over the past year, the stock has lost 64.2% to close the last trading session at $2.69.
WKHS has an overall F grade, equating to a Strong Sell in the POWR Ratings system. Also, it has an F grade for Value and Stability and a D grade for Sentiment and Quality.
It is ranked #55 out of 64 stocks in the D-rated Auto & Vehicle Manufacturers industry. Click here to learn more about POWR Ratings.
AppHarvest, Inc. (APPH)
APPH, an applied agricultural technology company, develops and operates indoor farms to grow non-GMO produce free of chemical pesticide residues. Its products include tomatoes, fruits, and vegetables, such as berries, peppers, cucumbers, and salad greens.
On August 1, 2022, APPH declared that it secured $50 million across two loans guaranteed by the United States Department of Agriculture through Greater Commercial Lending, a Greater Nevada Credit Union subsidiary.
APPH’s President, David Lee, said, “This funding agreement with the USDA allows us to continue to scale operations as we plan to bring the Somerset farm and two additional CEA (controlled environment agriculture) facilities online before the end of the year.”
However, the company’s liabilities are already rising with a receding cash balance, and such additional loans or borrowings might contribute to a deteriorating balance sheet.

For the second quarter ended June 30, 2022, APPH’s net sales came in at $4.36 million, up 38.9% year-over-year. However, its cash and cash equivalents came in at $50.94 million for the period ended June 30, 2022, compared to $150.75 million for the period ended December 31, 2021. Its long-term debt came in at $121.41 million, compared to $102.64 million for the same period.
APPH’s EPS is expected to fall 19.1% year-over-year to a negative $1.31 in 2022. Its EPS is expected to remain negative in 2023. Over the past year, the stock has lost 71.7% to close the last trading session at $1.89.
APPH’s POWR Ratings are consistent with this bleak outlook. The stock has an overall F rating, equating to a Strong Sell in this proprietary rating system. In addition, the stock has an F grade for Value, Stability, and Quality and a D grade for Growth.
It is ranked #83 out of 86 stocks in the Food Makers industry. Click here to learn more about POWR Ratings.

About the Author
Riddhima Chakraborty is a financial journalist with a passion for analyzing financial instruments. With a master’s degree in economics, she helps investors make informed investment decisions through her insightful commentaries. Riddhima is a regular contributor for StockNews.com.

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Crude Oil Closes the Gap

Back in July, I shared with you a chart of Market Distortion where I put together crude oil and platinum futures. I spotted a disruption of a strong correlation pattern between these two instruments that has been lasting for a quarter of a century.
That post drew your attention with strong support and feedback as readers shared their valuable comments. Below is the graph showing the distribution of your opinion on how the divergence would play out.

The majority of readers chose the option that implies the equal move in the opposite direction of both instruments to meet somewhere in between – crude oil should drop to $75 and platinum futures should rocket to $1,200. The second largest bet was on the widening gap.

I prepared for you an updated chart below to see what happened after two months.
Source: TradingView
None of the bets have hit it right, although your main choice is still the closest. Indeed, the crude oil futures (black line) did its job fully to close the gap as it almost touched the $75 area. The lowest handle hit was $78 so far.
The counterpart, as it often happens in human relationships, did not meet the other part halfway. The platinum (green line) is still weak as it can’t raise its head to the upside.
Should crude oil do the job for both and drop even lower like a rock to catch up with the metal? Or is platinum quietly accumulating power for a rally?
Let us check the latter in the weekly chart of platinum futures below.
Source: TradingView
I zoomed in on the big map of platinum futures posted in July to focus on the pullback that is still in progress as we didn’t see the touchdown on the black support. I contoured it with the red downtrend channel. The downside of the channel hasn’t been hit as well.
I put the question mark on the second red leg down as it has yet to travel the distance of the first leg down. However, the main criteria of a lowest valley has already been met as the minimum price of $797 was $10 down compared to the previous valley. This gives hope for a reversal that failed earlier in the summer.

So far, the price has failed to overcome the double barrier on its way to the upside both last month and this month. That resistance consists of a 52-week simple moving average (purple) at $966 and the mid-channel (red dashed) around $940. The chance for reversal is still there as long as the price is above the current growth point (black dashed) of $797.
The RSI couldn’t break up during two attempts either. It should cross the “waterline” of 50 to the upside to support the potential rally.
The upside of the red channel is the next resistance around $1,200, right where crude oil has been waiting for it.

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Intelligent trades!
Aibek BurabayevINO.com Contributor
Disclosure: This contributor has no positions in any stocks mentioned in this article. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.

The Fed Kicks It Up a Notch

A long, long time ago — 1992 to be specific — the American media howled with derision when then President George H.W. Bush professed “amazement” at a new supermarket bar code scanner, the coverage of which was supposed to demonstrate that Bush was hopelessly out of touch with the daily lives of ordinary Americans.
To its credit, the Associated Press a few days later tried to correct that impression, but by then the rest of the press had moved on and the falsehood has lived on ever since.
Bush’s supposed gaffe at least had no policy ramifications, although the story didn’t help his reelection efforts that year.
The same can’t be said about President Biden’s absurd comments to 60 Minutes last Sunday that inflation is now under control, albeit at more than 8%, the highest sustained level in more than 30 years.

After dismissing August’s monthly CPI reading as “up just an inch, hardly at all,” he proceeded to gladly dig himself even deeper, proudly telling the interviewer Scott Pelley that “we’re in a position where for the last several months, it [inflation] hasn’t spiked, it’s been basically even.”
In other words, inflation hasn’t risen to 9% or 10% year-on-year, so we’re in good shape.
This comes on top of other whoppers he and other members of his administration have said over the past several months, such as telling us that the recent student loan giveaway and an earlier deficit-raising budget measure were all already “paid for,” as if there was no cost involved.
Not to mention labeling his most recent budgetary measure the “Inflation Reduction Act.” Talk about Newspeak.
The point here is to demonstrate just how hard Federal Reserve Chair Jerome Powell‘s job is going to be to try to bring down inflation — yes, Mr. President, it’s really high and not getting lower — without any help from the fiscal authorities led by the White House. So brace yourselves for more interest rate increases.
During the Great Recession and global financial crisis of 2008 and the 2020 pandemic, the fiscal and monetary authorities worked closely together to try to get the American people and economy through with as little pain as possible. Congress and the White House threw massive amounts of money at the problems, while the Fed paid a big part of the bill by buying up an enormous chunk of the U.S. Treasury and mortgage bond markets.
Now that these crises are pretty much over, with inflation as the hangover, government policy needs to move to a tighter monetary policy and a more restrained fiscal policy.
Unfortunately, only one of those authorities seems to have got the message. It’s like a married couple with opposite views of their family budget—one spouse feels the need to tighten their belts, while the other just keeps spending as much as they ever did. That’s usually a marriage headed for big trouble.
Unfortunately, consumers and investors will have to deal with the repercussions, consumers with higher prices for just about everything and investors with lower and likely deeper negative returns. It would certainly be a lot easier and quicker to resolve these post-crisis problems if both fiscal and monetary authorities acted together to try to cure inflation and get the country back to normal, but that doesn’t seem to be in the cards.
Not surprisingly, then, the Fed pretty much had no choice but to raise its benchmark interest rate another 75 basis points at its meeting on Wednesday, to a range between 3.0% and 3.25%, the highest rate since before the 2008 crisis, while signaling another 125 basis points in rate hikes at its two remaining meetings this year (early November and mid-December).
That would put the federal funds rate at 4.25% to 4.5% before the end of the year. By comparison, the fed funds rate stood at 0% as recently as March.
Since the one raising rates is the Fed, it gets the lion’s share of the blame for the resulting drop in stock and bond prices from angry investors. And it certainly deserves its share of the blame, since it allowed its easy money policies to go on way too long.

If it had been a little more proactive, like starting to raise rates last year — maybe even before that — the pain that Powell now speaks about that consumers and investors will need to suffer through might be a little less acute and a soft economic landing might have been achievable.
But that ship looks like it might have already sailed, and we may be heading into rougher economic waters than we otherwise might have.
Yet the folks on the fiscal side, namely the White House and Congress, have gotten off basically scot-free for their role in pumping up inflation and doing nothing to try to stifle it.
Biden’s out-to-lunch comments to 60 Minutes might indicate that investors and consumers shouldn’t even bother to expect anything better from them. Which means the Fed’s rate-hiking policy will need to be even more aggressive going forward.
Don’t be surprised if the fed funds range has a 5 handle sometime early next year.
George YacikINO.com Contributor
Disclosure: This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.

Apple Just Entered the Space Race

Over the past few years, many big technology companies have entered the space race, whether it was Amazon’s (AMZN) Jeff Bezos with Blue Horizon, Tesla’s (TSLA) Elon Musk with Space X, or Alphabet’s (GOOG) satellite internet service, which will be competing with Space X Starlink internet service.
Now the newest technology company to enter space is Apple (AAPL), but in a slightly different way than the others.
On September 7th, Apple released its newest iPhone, the iPhone 14. One of the key features of this new device is the Emergency SOS via satellite feature. This feature allows iPhone 14 owners to contact emergency services via satellites in an emergency when the individual does not have traditional cellular telephone service.
This feature could be a game changer during natural disasters and cell towers are knocked out. Those in need of help will be able to contact first responders with their location, health status, and other pertinent information to help save lives.

Apple is subcontracting the satellite service with a company called Globalstar (GSAT) which already has a network of satellites in outer space for which Apple iPhone 14 and newer phones will be able to access.
The Emergency SOS satellite service will be free for the first two years of owning the iPhone 14; after that time, there will be a price associated with the service, but those details are unknown now.
With more and more of the major technology companies entering space in some form or fashion, it is not hard to see that aerospace technology and the companies currently operating in that industry will benefit from the shift.
That is why I believe you should consider investing a small portion of your portfolio in the aerospace industry. And one of the best ways to gain broad access to any sector is using exchange-traded funds. So, let us look at a few ETFs you can own today, which will give you access to the aerospace industry.
First is the largest and most well-known of the three I will highlight today, the ARK Space Exploration & Innovation ETF (ARKX). ARKX is one of Cathie Woods funds. ARKX focuses on global companies engaged in space exploration and innovation.
As described by the fund advisor, space exploration is leading, enabling, or benefiting from technologically enabled products and /or services that occur beyond the surface of Earth and the introduction of a technologically enabled product or service that the advisor expects to change an industry landscape.
The fund’s scope seems broad, but ARKX only has 36 holdings with a weighted average market cap of $82 billion. The fund currently has $293 million in assets and charges an expense ratio of 0.75%. ARKX had an inception date of March 30th, 2021.
Next, we have the Procure Space ETF (UFO). UFO was the first global aerospace and defense fund, founded in April 2019. It focuses on companies that span several industries, including satellite-based consumer products and services, rocket and satellite manufacturing, deployment and maintenance, space technology hardware, ground equipment manufacturing, and space-based imagery and intelligence services. 
UFO has 47 holdings with a weighted market cap of $25 billion and charges an expense ratio of 0.75%, the same as ARKX. UFO has $60.8 million in assets under management.

And finally, the SPDR S&P Kensho Final Frontiers ETF (ROKT). This ETF has been around since October 2018 but differs from UFO because it focuses more on US-based companies whose products and services drive the innovation behind exploring deep space and the deep sea. 
ROKT has 36 holdings with a weighted market cap of $31 billion and an expense ratio of 0.45%, making it the cheapest of the three ETFs highlighted today.
Year-to-date, all three funds are in the red. ROKT is down 8.5%, while ARKX and UFO are down 27.75% and 25.2%, respectively. But, the whole market is off this year, so I wouldn’t trust these ETFs to stay red over the long run.
Furthermore, as we have seen the progression of technology and outer space collide, with the most recent by Apple, I believe it is hard to deny that more and more companies will make a similar move. In the future, we will have more companies operating in the aerospace industry or the space industry providing them a service, such as internet or cell service. Obviously, that will drive the industry and make any investments you make today much more valuable in the future.
Matt ThalmanINO.com ContributorFollow me on Twitter @mthalman5513
Disclosure: This contributor did not hold a position in any investment mentioned above at the time this blog post was published. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.

September FOMC Meeting – How Might Gold Respond

The Federal Reserve will conclude its September FOMC meeting and release a written statement at 2 PM EDT today. This will be followed by Chairman Powell’s press conference a half-hour later.
It is widely anticipated that the Federal Reserve will raise the “Fed funds rate” by 75 basis points. The CME’s FedWatch tool is forecasting that there is an 84% probability of a 75-basis point hike, and a 16% probability that the Fed will raise rates by a full percentage point.
In the unlikely event that the Federal Reserve raises its benchmark interest rate by 1%, it would most certainly pressure gold to lower pricing.

According to MarketWatch, “economists at the brokerage Nomura Securities … became the first on Wall Street to predict a full-percentage-point increase in the Fed’s benchmark short-term rate.”

However, if the Fed raises rates by 75 basis points as expected market participants could see some short-covering activity amid a relief rally. As of 5:05 PM EDT yesterday gold futures basis, the most active December contract is trading five dollars lower and is fixed at $1673.20.
The hard truth is that after four consecutive rate hikes beginning in March inflation remains extremely elevated and persistent. The latest data revealed that the CPI index had a slight decline from July’s 8.5% to 8.3% in August. While the headline CPI had a fractional decline the core CPI which strips out food and energy costs increased 0.6% more than double the prior month’s increase. This means that the core inflation rate climbed to 6.3% from 5.9% in August.
Because the August core inflation rate is three times the 2% target the Federal Reserve wants to achieve members of the Federal Reserve will continue the exceedingly hawkish tone expressed at the Jackson Hole economic symposium.
Based on the hot and persistent core inflation participants can expect to see interest rates continue to rise during the remaining three FOMC meetings in September, November, and December. The CME’s FedWatch tool is forecasting that there is a 38.9% probability that the Fed will raise rates to between 400 and 425 basis points and a 44.8% probability that rates will be between 425 and 450 basis points by December 2022.

Interest rate hikes that began in March were the primary fundamental events that resulted in a major price decline in gold. After four consecutive interest rate hikes gold has declined by approximately 19% or $400 per ounce.
In his speech last month Jerome Powell acknowledged the severe fallout of reducing inflation. “The Fed’s drive to curb inflation by aggressively raising interest rates would bring some pain.”
For those who would like more information simply use this link.
Wishing you as always good trading and good health,Gary S. WagnerThe Gold Forecast