Earnings season is now in high gear, and as I predicted last week, the numbers are coming in stronger than the pundits expected.
That was definitely the case with the big banks last week; Goldman Sachs Group Inc. (NYSE: GS) blew the doors off Wall Street's expectations, posting earnings of $5.81 versus the $4.89 analysts had on the board. JPMorgan Chase & Co. (NYSE: JPM) posted earnings of $2.82 versus estimates of $2.50.
JPMorgan's CEO, Jamie Dimon, noted "positive momentum with the U.S. consumer - healthy confidence levels, solid job creation, and rising wages."
Now, it's certainly true the consumer is stronger than the headlines suggest. That's a truth we talk about frequently.
But that's not the real story...
The truth is something you and I and just about every American know deep down: There are some significant challenges facing U.S. consumers right now.
I'm talking about very real inflation - the existence of which the Fed has denied for years now - and the ever-increasing levels of consumer debt out there.
The two are related, despite what you might hear coming out of Washington and Wall Street.
Let me show you what's really happening here - and a stock you can buy to both profit and protect yourself...
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The Fed Went Looking for Inflation... and Got Mugged by It
In JPMorgan's earnings statement, Dimon said, "Double-digit growth in credit card sales and merchant processing volumes reflected healthy consumer spending and drove 8% growth in credit card loans..."
It's clear Dimon believes those numbers add up to healthy consumption. They certainly do point to consumption, but we differ on how "healthy" that is...
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I think those numbers reflect something deeper - and far more sinister.
Have you priced a car lately? A prescription? An education? Heck, have you enjoyed a meal out with your family lately?
The cost of everything is going up, and that's not healthy, because consumers are increasingly going into debt to support this.
The Fed, of course, swears up and down that there's no inflation. That makes me mad enough to chew nails, because it's implying what it can't say explicitly... That its models are utterly incapable of measuring what's really happening.
And that's all the more troubling because most regular Americans grasp what's happening instinctively.
Technological advances have dramatically lowered the cost of everything using new technology intensively.
Smartphones, to give just one example, have reduced the demand for everything from cameras to classified ads, postage stamps, and a whole host of other "stuff."
On the other hand, the costs of necessities like medicine, education, healthcare, daycare, elder care, food, cars, hard goods - "stuff" where technology is at the nexus of "can't live without it" and "can't possibly afford it" - is skyrocketing.
My breakfast costs 60% more now than it did five years ago... and the Fed is at a total loss to explain it.
The Fed has meddled with inflation calculations so frequently that it's only natural they fall. For all the bellyaching about wanting higher rates, it really doesn't, because of trillions in dollars of COLA - and I don't mean sugary soda pop.
I'm talking cost of living adjustments (COLA) to everything from social security to Medicaid, etc.
The Fed wants you believe it's the sheriff riding tall in the saddle, but it's being dragged along helplessly with its feet caught in the stirrups.
You can see that very clearly in the changes it's made in the calculations used to measure inflation.
This chart, incidentally, is from the St. Louis Fed, so it's not like the Fed can claim it doesn't "know" this stuff.
At the same time, here's another thing the Fed doesn't get, even though this chart is also from the St. Louis Fed... getting older is deflationary. I've been in Japan for nearly 30 years as a husband, father, and market watcher, and I'm here to tell you: This is very real.
Take a look.
Knowing what you now know, I submit that higher inflation is simply incompatible with the Fed's models. That's why it cannot rationally explain what you and I are feeling in our wallets - even if it wanted to... which it doesn't.
So Here's What to Do About It
Investing, fortunately, isn't so challenging if you really take a moment to understand that the Fed is powerless to change the equation (even though arguably it should).
My favorite choice against this background is Visa Inc. (NYSE: V), a longtime recommendation that's helped paid subscribers in our sister service, the Money Map Report, put up some fabulous numbers.
Make no mistake: There's plenty of upside to owning these shares; they can help you put up some big numbers, too.
The company is the undisputed king of payments processing and handles roughly 24,000 transactions a second, 24/7, 365 days a year.
It's tapping into new payment streams, bringing services to the unbanked, and hitting new markets. Plus, it pays a healthy dividend of 1% that you're gonna love - especially in a world where the Fed has been totally exposed and thoroughly neutered.
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About the Author
Keith is a seasoned market analyst and professional trader with more than 37 years of global experience. He is one of very few experts to correctly see both the dot.bomb crisis and the ongoing financial crisis coming ahead of time - and one of even fewer to help millions of investors around the world successfully navigate them both. Forbes hailed him as a "Market Visionary." He is a regular on FOX Business News and Yahoo! Finance, and his observations have been featured in Bloomberg, The Wall Street Journal, WIRED, and MarketWatch. Keith previously led The Money Map Report, Money Map's flagship newsletter, as Chief Investment Strategist, from 20007 to 2020. Keith holds a BS in management and finance from Skidmore College and an MS in international finance (with a focus on Japanese business science) from Chaminade University. He regularly travels the world in search of investment opportunities others don't yet see or understand.