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Analysis-The 1970s all over again? Stagflation debate splits Wall St

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October 27, 2021

By David Randall

NEW YORK (Reuters) – Phil Orlando has not heard this many people mentioning stagflation since he was a financial journalist in the late 1970s, when oil prices were soaring and inflation stood at more than double its current level.

Now the chief equity market strategist at Federated Hermes, Orlando says stagflation is poised to make a comeback and is piling into shares of companies that can thrive during periods of high inflation and slower economic growth.

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“The surge in inflation is not proving to be transitory like the Fed and Biden administration have been telling us,” he said. “It’s sticky and sustained when we’re past peak growth. That’s stagflation.”

Consumer prices rose at an annual pace of 5.4% last month, on track for their highest annual gain since 1990, a surge that analysts have pinned on everything from soaring commodity prices to some $5.3 trillion in U.S. fiscal stimulus passed since the start of the pandemic. Meanwhile, third quarter U.S. economic growth is expected to fall to 2.7%, from the prior quarter’s 6.7% rate. [.USGDPA=ECI]

Most economists believe stagflation is far from inevitable, and the Federal Reserve has said rising prices will prove temporary. The S&P 500 is up 22.1% this year and stands near record highs.

(For graphic on stagflation Worries Hover Over U.S. Economy Stagflation Worries Hover Over U.S. Economy – https://graphics.reuters.com/USA-MARKETS/STAGFLATION/gdvzyweogpw/chart.png)

Yet many investors are on alert, wary of the corrosive effect that past periods of stagflation have had on asset prices.

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Google searches for “stagflation” this month are on track to hit their highest level since 2008, while Goldman Sachs wrote the term is now “the most common word in client conversations.” The number of fund managers expecting stagflation rose by 14 percentage points in October to the highest level since 2012, a survey from BoFA Global Research showed.

“Clearly the deceleration in our economy is shocking and that points to stagflation,” said Louis Navellier, chief investment officer for Navellier & Associates. “We are going to tighten up all our portfolios because we see us going into a tunnel where [the equity market] gets more nervous and narrow.”

Past episodes of stagflation have weighed on stocks. The S&P 500 fell a median of 2.1% during quarters marked by stagflation over the last 60 years, while rising a median 2.5% during all other quarters, according to Goldman Sachs.

Bonds also struggled during the last major stagflationary period, which began in the late 1960s. Spiking oil prices, rising unemployment and loose monetary policy pushed the core consumer price index up to a high of 13.5% in 1980, prompting the Fed to raise interest rates to nearly 20% that year.

The benchmark 10-year U.S. Treasury fell in nine of the 11 years leading up to 1982, according to data compiled by Aswath Damodaran, a professor at New York University. Inflation erodes the purchasing power of bonds’ future cash flows.

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Orlando, of Federated Hermes, is holding shares of companies that can pass on rising costs to consumers, including energy and industrial firms. Navellier has focused on big-box retailers that own their supply chains, like Target Inc.

DIVIDED OUTLOOK

Many on Wall Street reject comparisons to the 1970s, arguing that the causes of the current bout of inflation are either overblown or likely to fade.

“We think we’re at the peak of stagflation concerns,” said Scott Kimball, co-head of U.S. fixed income at BMO Asset Management, who believes most of the spending in a potential infrastructure bill – a key worry for inflation hawks – is long term and would not have an immediate economic effect.

Jean Boivin, head of the BlackRock Investment Institute, expects growth will accelerate as supplies become more readily available and is positioned for Treasury yields to move higher.

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“The inflation pressures we expected are here,” he wrote in a recent report. However, “this is not stagflation, and we remain pro-risk.”

Analysts at UBS said that in addition to higher oil prices, stagflation in the 1970s was driven by factors that are less meaningful today, including government price controls that constricted supply.

One wild card is whether the threat of rising inflation will force the Federal Reserve into a more hawkish stance, as the central bank readies to begin unwinding its $120 billion a month government bond buying program. Signs of a faster taper and more aggressive interest rate increases could weigh on stocks.

“If next year you are still sitting with inflation levels like we are and growth hasn’t picked up, then you have to think the Fed will act,” said Jason England, global bonds portfolio manager at Janus.

(Reporting by David Randall; Editing by Ira Iosebashvili and Steve Orlofsky)

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‘Flash mob’ thieves target U.S. retail stores on Black Friday

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November 28, 2021

By Steve Gorman

LOS ANGELES (Reuters) – Black Friday shoppers weren’t the only ones out hunting for bargains on the day after Thanksgiving. Thieves were busy as well.

Police in Los Angeles and cities elsewhere across the country spent much of their holiday weekend patrols looking for suspects in a spate of “flash mob” robberies on Friday, part of a surging U.S. crime trend in which groups of thieves swarm a store, ransack the shelves and flee.

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Authorities also have used the term “smash-and-grab” to describe the trend.

At least two such robberies were reported on Saturday by the Los Angeles Police Department (LAPD) and the Los Angeles County Sheriff’s Department. A local television station, KCAL-TV, counted a total of six smash-and-grab heists on the city’s west side alone on Friday.

In one incident, a group of eight men entered a Home Depot outlet at a shopping mall in Lakewood, south of downtown Los Angeles, walked directly to the tool aisle and snatched a bunch of hammers, sledgehammers and crowbars valued at about $400 before making their getaway, the sheriff’s office said.

According to L.A. television station KTTV, the Home Depot robbery on Friday night involved up to 20 suspects who pulled up to the store in as many as 10 cars and donned ski masks before raiding the tool aisle.

“We tried to stop them,” store employee Luis Romo told KTTV. “We closed the front entrance, and they put their sledgehammers up and whoever got in the way, they were going to hurt them.”

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The Los Angeles City News Service said four suspects in that robbery were arrested on Saturday by Beverly Hills police.

In a similar incident Friday afternoon, a group of 10 men or more invaded a store in the city’s Fairfax district and started grabbing merchandise without paying for it, pushing employees out of the way before fleeing the scene, according to LAPD.

Police are investigating possible ties between that incident and a flurry of other robberies and retail thefts on Friday and earlier in the week, including two smash-and-grabs reported on Wednesday, an LAPD spokesperson said.

The rash of retail crime prompted the LAPD to place its officers on a citywide tactical alert on Friday afternoon.

Mass robberies also were reported on Friday at two Best Buy electronics stores in the Minneapolis-St. Paul area, one of them involving as many as 30 suspects, while a spree of pre-dawn retail burglaries were under investigation in Chicago.

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In one of the biggest flash-mob robberies reported on the West Coast in recent days, police in the San Francisco suburb of Walnut Creek were seeking about 80 suspects who swarmed and ransacked a department store last Saturday.

(Reporting by Steve Gorman in Los Angeles; Editing by Paul Simao)

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U.S. Black Friday shoppers tapered online splurge, as some returned to stores

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November 27, 2021

By Arriana McLymore and Richa Naidu

RALEIGH, North Carolina (Reuters) – U.S. shoppers spent slightly less online during Black Friday this year, with many venturing back to physical stores despite coronavirus fears, tight supplies, and retailers’ efforts to encourage earlier holiday purchases.

For the first time ever, spending online during Black Friday – traditionally one of the biggest shopping days of the year – fell, reversing the growth of recent years, according to data from Adobe Analytics, a wing of Adobe’s business that specializes in data insights and tracks transactions at 80 of the top 100 U.S. retailers.

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Retailers lured shoppers to make holiday purchases online as early as September this year, because the supply-chain logjam has prevented them from quickly replenishing year-end merchandise. Shoppers’ total outlay online during Black Friday was roughly $8.9 billion, less than the $9 billion in 2020, Adobe said. Spending online during Thanksgiving Day was flat at $5.1 billion, Adobe said.

Many retailers closed physical stores on Thanksgiving this year, as they did in 2020, amid a labor shortage and the coronavirus pandemic. Stores reopened the day after Thanksgiving, and shopper visits increased by 47.5% compared to 2020, but fell by 28.3% when compared to 2019, the last pre-pandemic year, according to data from Sensormatic Solutions.

Supply-chain challenges and shipping delays may have prompted shoppers to visit stores in order to increase the chances of securing gifts in time for Christmas. More are making purchases online that they can pick up in-store, which keeps shipping costs down.

Macy’s, Walmart, Target and Kohl’s, for example, gave shoppers the flexibility to shop online, in stores or through hybrid methods, walked away as winners on Black Friday, said Louis Navellier, chairman of investor Navellier & Associates.

Of those purchasing online, slightly more used their smartphones. Canadian e-commerce company Shopify said the number of shoppers on its platform who used smartphones to make purchases increased this year to 72% from 67% last year.

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Retailers’ moves to encourage buying holiday gifts earlier could also lessen the importance of Cyber Monday, the first Monday after Thanksgiving.

(Reporting by Arriana McLymore and Richa Naidu, Aakriti Bhalla and Sabahatjahan Contractor in Bengaluru; Editing by Nick Zieminski)

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Canada’s Shopify records Black Friday sales up 21%

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November 27, 2021

(Reuters) – Canadian e-commerce company Shopify Inc recorded worldwide sales of nearly $2.9 billion on Black Friday, an increase of about 21% in comparison to last year, the company said Saturday.

New York, London and Los Angeles were among the top-selling cities, the company said, while apparel and accessories was the top-selling product category.

Shopify also said it funded 23,000+ tonnes of carbon removal to counteract emissions from the delivery of every order placed on its platform on Black Friday.

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(Reporting by Aakriti Bhalla in Bengaluru; Editing by Nick Zieminski)

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