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Crucial Charts to Know with Charlie Bilello: October 2021

Each month, we sit down with Charlie Bilello, Founder and CEO of Compound Capital Advisors, to discuss the most important and current market trends for advisors and their clients. Illustrated through visuals that Charlie creates using YCharts, these trends and topics provide fascinating insights and also make for excellent talking points in your own client communication. Click here to register for the next webinar with Charlie, on Thursday, November 18th.

YCharts users can access all of Charlie’s visuals as pre-built templates in the Fundamental Charts tool. Not a client? Reach out or start a 7-day free trial.

Watch the full discussion here, or read on for select highlights from the October 26th webinar:

 

Why 0% Rates Make 0 Sense

Charlie believes the case can no longer be made for both rates to be at 0% and the Fed to describe inflation as transitory given today’s strong economic backdrop. With the unemployment rate under 5%, average hourly earnings at record highs, and inflation above 5%, Charlie notes the Fed doesn’t often mention the “wage push inflation” that has driven CPI to one of its highest levels on record.

US Average Hourly Earnings from 2007 through October 2021

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US Consumer Price Index and Core Consumer Price Index from 1990 through 2021

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A vast number of companies, including major corporations such as Target (TGT), Walmart (WMT), and Amazon (AMZN), have raised wages in the past year. Charlie, however, doubts that businesses will be able to lower worker pay in 2022 given the current shortage of workers. Because payroll is typically a company’s largest cash outflow, Charlie cites they must often choose between two options to deal with that growing expense: take a profit hit, or pass increased prices on to consumers. So far, Charlie observes that companies have been choosing the latter.

As a result, inflation expectations for one and three years ahead remain high as well. One of the Fed’s main objectives is to control inflation by way of rising rates, and so far, the central bank hasn’t taken any action. As long as prices keep rising and the American consumer wants to continue spending at a high volume, zero rates will continue to make zero sense, according to Charlie.

US One-Year and Three-Year Ahead Inflation Expectations as of October 2021

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Don’t Go Chasing Memes

In January, armies of retail investors congregated in Reddit forums to buy stocks of companies perceived as outdated or with poor fundamentals. These “meme” stocks—initially GameStop (GME) and AMC Entertainment (AMC) but spread to include additional names such as Beyond Meat (BYND) and Bed Bath & Beyond (BBBY)—soared to astronomical levels at unprecedented speed from all the buying. Those who got in early enjoyed massive gains, but more investors than not bought these stocks at or near their highs, prompting Charlie to reiterate against chasing memes.

For example, Beyond Meat is currently down 56% from its 52-week high of $221 on January 27th. If you bought and held BYND at the start of the year before the meme stock craze, around its peak, or even during its corrective trough in mid-May, your investment would be in the red as of this writing.

Beyond Meat (BYND) 2021 YTD price performance

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Similarly, if you bought Bed Bath & Beyond at the start of 2021, you would have seen BBBY rise by as much as 198% at the close on January 27th, only for the stock to give it all back by the end of September. If you continued holding through today, your investment would have reached a 52-week low.

Bed Bath & Beyond (BBBY) 2021 YTD performance

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Those who believe they can follow the herd during parabolic moves and end up with a positive outcome likely will not, says Charlie. He finds this especially true for investors chasing companies with weak fundamentals. More often than not, those who attempt to chase meme stocks in pursuit of large, immediate gains have found themselves either taking realized losses just as quickly or refusing to sell in the hopes of a turnaround. As defined by the Reddit community, this is the key distinction between those who have “paper hands” and “diamond hands”. No matter which camp you might fall into, the odds of finding meme stock success remain unfavorable.

 

Join us for next month’s webinar with Charlie Bilello on Thursday, November 18th. Click here to register for the webinar.

For YCharts clients: all charts discussed in the webinar are available as templates in Fundamental Charts for further analysis. Not a current client? Start your free trial.

 

Connect with YCharts

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