To Investors,
The market was hoping to see lower inflation numbers yesterday morning, but those hopes were short lived as inflation numbers came in hot.
Headline numbers clocked in +0.6% higher month over month
December inflation numbers were revised higher from the previous estimate and in my opinion are still low as the government excludes certain items in their inflation calculation, which is rather disingenuous.
Year-over-year inflation came in at 7.5% higher, the highest inflation rate since the late 80s.
Higher inflation numbers are negative for the stock market as there will continue to be a period of uncertainty with Federal Reserve policy. Inflation doesn’t appear to be “transitory” as the Fed members stated only a few months ago and look to be more permanent in nature as the economy continues to adjust to a new normal with additional printed money and debt in the system.
At this point there is only two things the Federal Reserve can do:
Raise rates to combat inflation
Keep rates where they are and let inflation run through the system
If the Federal Reserve raises rates, valuations will get crushed as investors will be forced to raise their discount rates. Tech valuations will feel the brunt of this as investors value cash flows from tech companies way out in futures years. As discount rates are raised, these potential cash flows in year 10+ become less and less valuable.
If the Federal Reserve keeps rates at near zero levels, inflation will run rampant and likely continue to increase. To keep rates at zero the Fed will continue to buy bonds, pushing yields lower. Right now yields are ultra-low and anyone investing in fixed income is losing money if their yields are not higher than 7.5%.
The Federal Reserve is currently stuck. This game of funky fake money is coming to an end and the one left standing will not have a chair to sit on when the music stops. If the Federal Reserve raises rates, valuations will get crushed as discount rates are adjusted higher. In addition, the Fed would be raising rated on the U.S. Government’s massive debt obligations ($30 trillion and counting) which would add an insane amount of stress to the global financial system. 500 basis points of higher rates will obliterate our ability to even consider servicing this massive amount of debt.
If the Federal Reserve keeps rates at zero, inflation will continue to increase and anyone on a fixed income will be pinched. Think Weimar Style Hyperinflation at this point. Asset prices will go nuts as investors attempt to predict what cash flows look like in a higher priced environment. The working class will likely struggle the most here as the top 1% of asset holders see their valuations increase.
FOMC minutes will come out Wednesday. I’m guessing the minutes will have a hawkish bias to them as the Fed looks to calm investors and the global financial system. The Fed will probably signal that they will tighten (likely four rate hikes for 2022) and the market will rush to price in this event. In my opinion, the talk on raising rates is all talk and the Fed won’t have the guts to raise interest rates on themselves.
I’ve been preparing for a Weimar Styled Hyperinflationary event for some time now. It is a dire and depressing situation that doesn’t make you friends at cocktail parties. Eventually the amount of debt and fake fiat money in the system will end extremely badly. When the tide turns, the ones who are not wearing a bathing suit will be seen.
I’ve talked multiple times about what I am doing to prepare for an inflationary environment. As a recap, I am pretty much fully invested as I think cash has become trash. I own companies that own real assets and pricing power in an inflationary environment. In addition, I recently just purchased a homestead of myself, locking in 3.99% interest rates. Sure, the housing market will likely collapse if rates are raised. But on the flipside, if inflation continues to run, I feel extremely good about locking in a 30 year-term at 3.99% when inflation is 7.5% and counting.
Good luck out there and stay safe. The road will be choppy going forward.
Alpha
Circle March 18th on Your Calendar Right Now
That’s when the Fed will most likely start raising interest rates. It’s been 18 years since the last cycle of rate hikes. It’s been 18 years since the last cycle of rate hikes.
If you don’t recall what happened in 2004 here’s a recap:
Borrowing money becomes more expensive
Stock earnings tend to decrease
Less opportunity for growth
So what can you do? Well, you could diversify with some new investments. I found one that may do the trick, blue-chip art. I’ve been using Masterworks to diversify my Alpha portfolio and definitely think you all would love the platform.
Here's why I’ve been investing with them:
Exceptional Appreciation: Blue-chip Art prices outpaced the S&P 500 total return by 164% from 1995-2021
Low Correlation: Citi reported art as an asset class shares the lowest correlation to public equities of the ten major assets
Revolutionary Technology:. The Masterworks Secondary Market is the first online platform that lets you buy and sell art securities.
Here’s the best part: Membership is free and Alpha Letter Readers get priority access to their newest offerings*
*See important disclosures (sponsored post)
The Portfolio
The first two months of 2022 have continued to be extraordinary for my portfolio. For those of you who are new here, I almost exclusively invest in the smallest publicly traded companies in the public markets and consider myself a hardcore value investor.
I love stocks that are trading at a multi-decade low, own asset that are worth more than the public valuation and buy when everyone is panicking.
I killed it in 2021 buying coal equities. And continue to watch coal equities reach new highs as investors begin to realize that higher coal prices, combined with inflation leads to significant free cash flows.
In addition, another favorite sector of mine has been the beaten down retail companies. I first started buying retail companies during the pandemic when the world was freaking out about COVID-19. Most retail companies were priced as if they were going bankrupt. As COVID began to subside, retail stocks outperformed and re-rated higher.
Now the talk with retail companies is higher costs from the supply chain, combined with retail companies coming up against harder comps as stimulus money is not hitting the pockets of everyday American’s this year. Sure, these are definitely headwinds retail companies will face. But these are short-term headwinds that are solvable that I am willing to take an asymmetric risk on.
Given the recent price movement in retail stocks, it appears as if other investors are seeing the asymmetric upside here as most retail stocks are beginning to re-rate higher in the last couple of weeks.
Finally, as I have begun to talk with paying subscribers to Alpha Letter, I will start to talk about The All In Portfolio again due to popular demand. The All In Portfolio struggled through the end of 2021, but has begun to recover in 2022. For those who are new here, The All In Portfolio is a side portfolio I have where I put 100% of the assets in one single stock. To see the stock The All In Portfolio is in click here.

Good luck to everyone in the market. These are turbulent times with extreme volatility.
Just remember this:
Time in the market > Timing the market
Disclaimer: The publisher does not guarantee the accuracy or completeness of the information provided in this page. All statements and expressions herein are the sole opinion of the author or paid advertiser.
Alpha Letter is a publisher of financial information, not an investment advisor. We do not provide personalized or individualized investment advice or information that is tailored to the needs of any particular recipient.
THE INFORMATION CONTAINED ON THIS WEBSITE IS NOT AND SHOULD NOT BE CONSTRUED AS INVESTMENT ADVICE, AND DOES NOT PURPORT TO BE AND DOES NOT EXPRESS ANY OPINION AS TO THE PRICE AT WHICH THE SECURITIES OF ANY COMPANY MAY TRADE AT ANY TIME. THE INFORMATION AND OPINIONS PROVIDED HEREIN SHOULD NOT BE TAKEN AS SPECIFIC ADVICE ON THE MERITS OF ANY INVESTMENT DECISION. INVESTORS SHOULD MAKE THEIR OWN INVESTIGATION AND DECISIONS REGARDING THE PROSPECTS OF ANY COMPANY DISCUSSED HEREIN BASED ON SUCH INVESTORS’ OWN REVIEW OF PUBLICLY AVAILABLE INFORMATION AND SHOULD NOT RELY ON THE INFORMATION CONTAINED HEREIN.
No statement or expression of opinion, or any other matter herein, directly or indirectly, is an offer or the solicitation of an offer to buy or sell the securities or financial instruments mentioned.
Any projections, market outlooks or estimates herein are forward looking statements and are inherently unreliable. They are based upon certain assumptions and should not be construed to be indicative of the actual events that will occur. Other events that were not taken into account may occur and may significantly affect the returns or performance of the securities discussed herein. The information provided herein is based on matters as they exist as of the date of preparation and not as of any future date, and the publisher undertakes no obligation to correct, update or revise the information in this document or to otherwise provide any additional material.
The publisher, its affiliates, and clients of the a publisher or its affiliates may currently have long or short positions in the securities of the companies mentioned herein, or may have such a position in the future (and therefore may profit from fluctuations in the trading price of the securities). To the extent such persons do have such positions, there is no guarantee that such persons will maintain such positions.
Neither the publisher nor any of its affiliates accepts any liability whatsoever for any direct or consequential loss howsoever arising, directly or indirectly, from any use of the information contained herein.
By using the Site or any affiliated social media account, you are indicating your consent and agreement to this disclaimer and our terms of use. Unauthorized reproduction of this newsletter or its contents by photocopy, facsimile or any other means is illegal and punishable by law.
For Full Terms of Use Click HERE. For the Privacy Policy Click HERE.
alphaletter.co (“Alpha”) is a website owned and operated by Substack. Alpha is paid fees by the companies that make investment offerings on this website. Be aware that payment of these fees may put Alpha in a conflict of interest with the investor. By accessing this website or any page thereof, you agree to be bound by the Terms of Use and Privacy Policy, in effect at the time you access this website or any page thereof. The Terms of Use and Privacy Policy may be amended from time to time. Nothing on this website shall constitute an offer to sell, or a solicitation of an offer to buy or subscribe for, any securities to any person in any jurisdiction where such an offer or solicitation is against the law or to anyone to whom it is unlawful to make such offer or solicitation. Alpha is not an underwriter, broker-dealer, Title III crowdfunding portal or a valuation service and does not engage in any activities requiring any such registration. Alpha does not provide advice on investments or structure transactions. Offerings made under Regulation A under the U.S. Securities Act of 1933, as amended (the "Securities Act") are available to U.S. investors who are “accredited investors” as defined by Rule 501 of Regulation D under the Securities Act well as non-accredited investors, who are subject to certain investment limitations as set forth in Regulation A under the Securities Act. In order to invest in Regulation A offerings, investors may be asked to fill out a certification and provide necessary documentation as proof of your income and/or net worth to verify that you are qualified to invest in offerings posted on this website. All securities listed on this site are being offered by, and all information included on this site is the responsibility of, the applicable issuer of such securities. Alpha does not verify the adequacy, accuracy or completeness of any information. Neither Alpha nor any of its officers, directors, agents and employees makes any warranty, express or implied, of any kind whatsoever related to the adequacy, accuracy, valuations of securities or completeness of any information on this site or the use of information on this site. Neither Alpha nor any of its directors, officers, employees, representatives, affiliates or agents shall have any liability whatsoever arising from any error or incompleteness of fact, or lack of care in the preparation of, any of the materials posted on this website. Investing in securities, especially those issued by start-up companies, involves substantial risk. investors should be able to bear the loss of their entire investment and should make their own determination of whether or not to make any investment based on their own independent evaluation and analysis
Thanks Alpha. Have you added to PDER? Any updates on CMLS and SPWH? Also, what about Dorel?
I think the fed cares a lot less about inflation and a lot more about keeping asset prices elevated than they'd like to admit.