OIB Weekly Update Report

I Can’t Drive 55

May 20th, 2022

I Can’t Drive 55

 It’s Friday!  Am I the only one that still can’t get the Friday song by Rebecca Black out of my head? Let’s start off by looking at the Traders Reserve Economic Dashboard.

Stagflation

 

The change here was the 4-week moving average of estimated jobless claims climbed over 8k to 199.5K.  Actual jobless claims came in at 218k, which was an increase of about 21,000 from the week before.  While it’s the highest rate since January and shows that the economy could be softening, it’s still an extremely low number.  

 

The sad thing for workers is that rising jobless claims is exactly what the Fed needs to see to fight inflation and a recession.  The job market is so tight that companies have to pay workers more since the supply of workers is limited.  Paying workers more drives up the cost of goods which leads to inflation, but as the Fed increases interest rates, the demand for labor should decrease.  This means the job market gets more competitive for the workers since there will be fewer jobs, and employers get away with paying them less, thus helping to decrease inflation.

 

The real question is are we headed for a period of stagflation, which is when a period of high inflation combines with high unemployment and stagnant demand for goods and services.

 

Keep reading below to find out why we need to review the past so we can go back to the future.  I’m going to list out some of my favorite stagflation stocks you need to know about now.

 

Next week I’ll continue our exploration of the 1970s and the similarities to today’s market.   

 

Stagflation in the ‘70s altered Americans’ way of life and brought an era of fuel conservation and rationing not seen since World War II.  President Nixon signed the Emergency Highway Energy Conservation Act, which set the maximum speed limit to a fuel-efficient 55 mph.  It stayed in effect until 1995.  In the ‘80s, the rock icon, Sammy Hagar wrote the song, I Can’t Drive 55, in defiance of the act that had been in place for a decade at the time.  

 

I think the covid pandemic was a different situation and it shows just how interconnected everything in the economy, or the world really, is to one another.  It’s not a terrible surprise that a few years later we’re still trying to get the world turning again and going through hurdle after hurdle to get there.

 

We’ll talk more about lost decades and stagflation next week and why you need a trading plan that will perform better than buy-and-hold.

 

For now, here’s a list of companies that I think are long-term plays should we go through a period of stagflation.

 

  1. Hershey (HSY) – It’s a company that has always been around for the good times and the bad.  They have low-cost options and average 15.9% returns during periods of elevated inflation and slowing economic growth.

  2. Kroger (KR) – Even if inflation hasn’t peaked and jobless claims continue to rise, people still need to eat. They still need groceries and Kroger offers a variety of brands with different price points.

  3. Abbott Laboratories (ABT) – They are a diversified health care products company that produces nutritional products, generic drugs, and diagnostic and medical devices.  Similar to the other two on the list, even if money gets tight, people need their medicine.  Abbott has averaged a 14.9% gain during periods of stagflation.

If you have any questions, comments, or anything we can help with, reach us at any time.

 
 

 

Jeff

Guest Writer, Filthy Rich, Dirt Poor

Editor, Wealthy Investor Society

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