Short Selling

The Fed Is Nowhere Near Done with Rate Hikes

By Money Morning News Team, , Money Morning • Monday, December 5, 2022

Last week, the market told us exactly why we should stay short as the jobs report and personal-consumption-expenditures (PCE) index both showed growth. This morning we saw a continuation of this trend as the Services ISM surprised analysts to the upside, delivering a 56.5 reading versus an expected 53.5.

The ISM is a gauge of U.S. business conditions at companies such as restaurants and banks, and a rising value signals the economy is still expanding. Any number over 50% shows the economy is expanding, but a reading over 55%, like we got this morning, is above historical averages.

Strength of ISM employment was also up from 49.1 to 51.5 month over month, following last week's employment numbers from ADP.

While there was a slowdown in new orders (56 vs 56.5) and backlogs of orders from the previous month, the decline was negligible.

Here's what could happen next...

This $9 Stock Crushes Inflation with a 10% Yield

If China shuts down its factories again, it will have an impact on manufacturing, and it could once again create shortages of components for products. If that happens, those component shortages could lead to less supply and more demand for goods, which could result in more supply chain inflation.

That's why we want to keep targeting inflation-beating investments - we're not out of the woods yet. Last week I covered a REIT inflation hedge and I have one more for you right now.

This week, I want to talk about Closed-End Funds (CEF). They're a type of mutual fund that issues a fixed number of shares through a single initial public offering (IPO) to raise capital for their initial investments. The shares can then be bought and sold on a stock exchange, but no new shares will be created and no new money will flow into the fund.

Click here for my favorite pick in this category right now...

Stocks

Why the Market Told Us to Stay Short This Week

The market is still pricing in a magical soft landing or mild recession with inflation falling back to target. The odds of that occurring seem low, and yet markets are pricing in a fairly high chance of precisely that outcome.

Jerome Powell has not signaled he'll let up; he still points to how much needs to be done in order to bring down inflation. He even pointed to what is called a wage-price spiral, in which paychecks and prices move in lockstep, creating a very serious problem. Target rates which are still at 5% are above and we won't see that number until 2023.

Something far bigger is also set to drag the market down...