Ep 182: Inflation on the Rise, Federal Reserve, & Charts

May 3rd, 2018

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We're going to focus on the Federal Reserve along with the inflation target that they talk about. Show you some proof in the pudding that inflation is running way higher, possibly at least in certain sectors, than they project it.

Keep in mind that the Federal Reserve talks a lot about the inflation target. Inflation target means that you know the price of goods continues to go up, which also means the value of your money continues to go down. Meaning, a box of cereal from $3 this year might cost you $3.25 in a year or two. It just continues to rise with time.

They look for a 2% inflation target but remember when you looked at Cannes ice cream a hundred years ago, might be nine cents. Or a hamburger might be five cents or 50 cents. Prices have increased over time, and that's what they continue to do.

I want to share with you some tough facts to show you where price increases are starting to skyrocket, at least in specific sectors out-of-control.

The Federal Reserve has the big announcement the other day

They didn't change the rates, and I believe they didn't do that because they wanted to do it when there was a speech coming out. So they could back it up and talk about and discuss it because if they had changed it, maybe without the statement, it might have been a little too aggressive.

The market did sell off, in fact, it is selling off right now. If we look at it right here, we're down to like 33/35 almost 40 points we were down. I had to make some adjustments and hedging a little bit more than I wanted to. But that's what the market's doing.

The Dow declines after the Federal Reserve keeps rates unchanged. We had a pullback towards the close that previous day on Wednesday and now we're getting a follow-through day on Thursday. The market's acting weak.

My key thing today for you is to:

  • Share with you the issue we have with the economy
  • Why things are slowing down
  • You're paying for things much more now.

I'll show you in some sectors because we've had earnings released. I'll show you in these specific Center sectors from the restaurants like Chipotle, McDonald's, Amazon Prime, and Apple as well.

I want to back these things up but again keep in mind I'm only looking at a few close, tight-knit sectors which we just recently had earnings. In which companies boasted about their profits and their record earnings. But a lot of this is due to inflation, which is kind of interesting. Keep in mind that when the Fed looks at in the rise and the inflation, they're looking at overall US economy while I'm just looking at a few sectors.

As a consumer, the inflation is way higher than what the Fed indeed states. Now granted these are over a couple of years because Chipotle has raised prices as at its locations. It's one of the things that made that stock pop in a big way because they've hit some targets. You can see that stock popped and exploded very high there, from kind of these lows and then exploded and moved. But when you look at the percentage increase, their prices were kind of similar over a few years.

Due to inflation, they're also raising prices. But that raise is 5-7%, and now they're rolling out to more locations with the price increase.

When you look at buying a $10 meal between, whatever you're getting the drink and your burritos, you're going from a $10 meal multiply that by 5 or 7%, so you're going to pay $10.50.

Now, you multiply that times a couple of hundred million burritos and you're starting to look at some serious money and cash flow.

Looking at the general public, it also means we're spending more money on lunch.

The same thing goes with McDonald's. Look at Big Mac and Rise McDonald's hikes Coca-Cola and meal prices due to sugar tax. They could blame it on whatever; it doesn't matter. This one was on the 6th of April. You look at this and again look at McDonald's here, if we take a look at what happened, they popped here after earnings. We are getting a little pullback and just markets week.

But overall investors like this because McDonald's is making more money, but you as a regular person paying more to go out to eat because of McDonald's push the price of coca-cola and meals by as much as 12% due to new sugar tax.

From Chipotle, 5-7%, McDonald's about 12%, and here I'll give you the biggest one, look at Amazon Prime, $20.00 dump. Now, they've had the same kind of price throughout, and they're trying to continue to give you more and more services. That's one way to justify inflation.

One way that companies disguise these is they add more to it. For example, instead of just having movies, now you have movies and music. Instead of just having movies and music, now you can also get free two-day shipping. They continue to stack services, and now you're getting a $20 bump into that Prime membership.

You got a 5-7% in Chipotle, 12-14% on McDonald's, a 20% on Amazon

Here's what's interesting. Look at what companies are trying to do as well, here's Apple. Apple sold only 3% more iPhones last quarter but profits increased. Why is that?

The rise in prices increase. This is one of the ways that's disguised, of course, they'll don't mention other things.

Why is it that they thought about making this iPhone X 999? Yes, it didn't sell amazing or anything like that, but they're able to make much more on that on the margins.

They're raising the iPhone price by a couple of hundred dollars, on average, so that way they could sell these more expensive phones. Customers will start justifying and becoming the new normal.

It was like when gas prices were $1.14, and then gas prices went up to about $2.20. It started to normalize things, and then they went up to $3 and then back down to $2. It's now normal to have gas prices $2.20 to $2.50 to $3 or right under $3, at least in the US. It's not normal to have gas prices 99 cents a gallon, and it's not normal to have it $5-6 a gallon, at least not in the United States, in Europe maybe that's a different story.

This is what's happening now. They're trying to normalize, if you want a phone, the standard rate you know well is going to start to creep up. $800, $900 and then $1200, then you'll see $1500 phones because they're trying to pack more and more things - Apple Pay, Apple music, they'll put it into your watch, start integrating things - and this is the way it works.

That's inflation. It just means you're paying more money overall, which means you have less money to spend on other things.

Multiply that times hundreds of millions to hundreds of billions of dollars across consumers, basically a lot of money is being lost or gained by the corporations. But you as a regular individual, you're going to have less money in your pocket. And that's really what it all comes down to.

When you drive a car, and you're looking to get from destination point A to point B, you don't just keep driving for 45 hours straight. You will take pauses - bathroom breaks, you'll need to refuel, that kind of thing. Think of this as like driving a car, whether it's to the upside like a rocket ship or whether it's to the downside like a jackhammer, trying to drill to the center of the earth, you need a break.

You can see even on our way down; we had a few green days. They weren't powerful. So even here, you're about due for a little bit of a break meaning - a little bit of a pop, also if it's 275 and then roll back over. Right now, you could come back in to retest the 80s, but I'm talking about this with a mess of stocks.

When they sell off for a significant period or a more extended period,  you get this little counter-trend bounce. That's what happens. You need a break, digestion because the shorts will take some profits. There's always breathers in there.

Elon Musk said, if you and your day trader don't like the volatility of the stock, you don't have to buy it.

It's true it's right

A lot of investors think he shouldn't have said, but the reality is if you're trying to day trade, you need to prepare for the consequences that it goes up and it goes down, moves around pretty quickly.

Author: Jorge Diaz

I'm Sasha, an educational entrepreneur and a stock trader. In addition to running my own online businesses, I also enjoy trading stocks and helping the individual investor understand the stock market. Let me share with you some techniques & concepts that I used over the last 10+ years to give you that edge in the market. Learn More

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