This is the US Central Bank we have, and there are grave consequences to tech stocks because of it.
This is not to start the blame game, but I’ve been warning readers for the entire year and I’ve been proven right time and time again.
I’ll take a victory lap at the end of the year.
The CPI number yesterday was scorching hot representing pain for higher prices in the United States.
The awful inflation number is highly negative for tech stocks as they tend to overshoot to the downside during bear market.
Higher borrowing costs mean that tech firms cannot run profitable businesses if resorting to capital markets to finance their operations.
Borrowing at 8% means that's growing at 7.9% is a loss-making operation.
This also means that again, future interest rate consensus has gone from bad to worse as another .25% interest rate rise is now priced in for next spring 2023.
I hope you like living in your house because you won’t be able to trade up any time soon because interest rates will stay higher for longer.
Although the mainstream media likes to mention how surprised the Fed is that inflation keeps surging, those reading my newsletter know that it hasn’t been surprising to me.
I’ve been consistently spot on.
No central bank can tame interest rates unless the nominal interest rate is higher than inflation. 3% nominal interest rates aren’t higher than 9% inflation.
The investors I know are still borrowing hand over fist to deploy 4% loans into the economy and it’s a great idea as the price of everything has skyrocketed.
These investors are migrating into the service sector where companies can charge an extra 30%-70% more than before the arbitrary lockdowns.
Essentially, interest rates are still highly accommodative, and will be until the Fed raises rates meaningfully.
This is horrible news for technology stocks as the narrative of higher rates for longer pulverizes tech shares.
This problem won’t magically resolve itself and as we head into the winter, higher utility costs through higher energy prices will contribute to a higher inflation percentage.
Eventually, these close to 10% inflation numbers have to moderate because the law of numbers will lap around after 12 months, but it could take a while.
Terrible Central Bank policy means impoverished tech stocks and tech companies have led the way with mass firings. Luckily, interest rates are still low enough that fired tech workers can score great jobs at US health companies like Pfizer and Moderna. Scoring these paychecks means more spending and more inflation.
US CORE INFLATION CHART FROM PAST 40 YEARS
