This Week In The Market - July 9, 2021
Welcome back to "This Week In The Market," where we break down all of the latest market news in easy to read, easy to understand ways. Let's go!
JP's Back. Tell A Friend
The BFD: Federal Reserve Chairman Jerome Powell spoke in front of a House of Representatives panel this week, specifically questioned on the topic of inflation. Powell attributes the recent spike in U.S inflation to the economy reopening and not, as he was very quick to say, similar to the 1970's and 1980's where inflation spiked more than 10%
In Plain Speak: Inflation is, generally speaking, not great. Sure it brings about higher wages and things like higher savings account interest rates, but you get hit on the backside with much higher costs of goods and services. The U.S is currently experiencing price spikes across the board, with the highest increases seen in lumber, food, airline and hotel tickets, as well as used cars. Powell attributes all of this to sheer demand by the American people as the world tries to get back to normal. People are leaving their homes, buying new homes like crazy and traveling as much as possible. With this, supply chain shortages, coupled with the insane demand, bring about higher prices for pretty much everything. Powell did admit however that the current rate of 5% inflation is more than they thought:
“I will say that these effects have been larger than we expected, and they may turn out to be more persistent than we have expected,” - Chairman Jerome Powell
How Can This Make Me Rich?: Profiting off of inflation isn't easy, as the cost of doing pretty much everything outpaces any potential wage growth you might experience. However, in times of mega-inflation, stores of value tend to increase. This could be gold, silver, copper, or even cryptocurrencies like Bitcoin. If you believe that inflation is on the way, you could jump into these pretty quickly and easily. Also, companies that sell the inflated goods and services (Apple for phones, Microsoft for software, Kroger for groceries) and pay a dividend could provide you an investment double-whammy.
Weird Story of the Week
The Tokyo Olympic nightmare continues. Due to the ongoing COVID-19 pandemic, Japan announced in March that it had limited in-stadium spectators to only those that already live in Japan, meaning foreigners need not travel. Fast forward to this week, and the new Delta variant spread has led to the Japanese government now banning ALL spectators, meaning the vibes for the Olympics this year are going to be way off. Even getting to Japan is becoming a struggle. The Fijian team wins the Gold Medal for creativity by hitching a ride to Japan in a cargo plane full of frozen fish.
Stock of the Week
The market giveth, and the market taketh away. This week, it took hard.
Chinese ride-sharing company DiDi (NYSE: DIDI) make its triumphant debut on the public markets last week, and with some pretty phenomenal fundamentals. The "Uber of China" boasts over 90% market share in the country (compared to Uber's less than 35% market share in the U.S). It debuted at $14 a share, making it's $68 billion market capitalization one of the biggest IPO's of the year. Then, like Miley Cyrus through a wall, China came in like a wrecking ball.
On Tuesday, the Chinese government ordered the removal of Didi from major mobile app stores while it investigated cyber security concerns with the company. The stock plunged 19.5% when the markets opened, and then it got worse. The Chinese government is now mandating that DiDi remove 25 other applications on mobile stores that the company owns and operates, and American Congressmen are now demanding an investigation into the IPO in the wake of a report that China requested a delay to the IPO. Buckle up, folks. This could evolve into one of those precedent-setting cases that results in regulation changes for Chinese-based companies and their American Depository Receipts.
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