If you’ve ever wondered what trillions of dollars in monetary and fiscal stimulus looks like, it appears you got your answer. Everything is up right now.
Stocks are up. Earnings are up. Consumer spending is up. Commodities are up. Food prices are up. Home prices are up. Car prices are up. Cryptos are up.
Last week marked President Joe Biden’s 100th day in office. Since Inauguration Day, the S&P 500 has increased an impressive 8.6%. Those are the best returns for the start of a presidential term since Kennedy in 1961. All those stimmy checks have to go somewhere.
Biden has best stock market bump in first 100 days since Kennedy
With the Federal Reserve signaling it will keep accommodative measures in place for some time longer, and Biden making the case for trillions more in government spending, is this what we can expect going forward?
And with everything up, where are the value buying opportunities?
Pain at the Car Lot and Grocery Store
Before I get into that, it’s important I point out that not every example of price appreciation is being driven strictly by stimulus checks and money-printing. Pandemic lockdowns are still having a massive effect on the global supply of everything from building materials to semiconductor chips, which is driving up production costs that are being passed on to consumers.
Take lumber. Because sawmills have had trouble ramping up production to meet demand, the price of framing lumber has skyrocketed 250% over the past 12 months to around $1,200 per thousand board feet. This has added close to $36,000 to the price of a new home, according to the National Association of Home Builders (NAHB).
Indeed, home prices surged 12% in February compared to the same month last year, S&P Dow Jones Indices reported last week. That’s the fastest annual pace since 2006, soon before the housing bubble burst.
Home prices rose at fastest pace since 2006 in February
Or take the ongoing chip shortage, which has been exacerbated in recent months by the winter freeze in Texas and a fire at Japan’s Renesas Semiconductor Manufacturing plant. According to Goldman Sachs, the shortage has impacted a whopping 169 industries, most notably carmakers. Last week General Motors (NYSE:GM) President Mark Reuss told Fox Business that the crisis “is probably the worst crisis I’ve seen in the auto industry, at least in my career, in terms of supply chain.”
As a result, the price of used vehicles, as measured by the Manheim Used Vehicle Value Index, has increased 52% over the past year. Preowned pickups have jumped an unbelievable 75%.
And then there’s food and consumer staples such as diapers and toilet paper. Recently I shared with you that corn prices have almost doubled over the past year, and last week Bloomberg reported that corn has gotten so pricey that some farmers are feeding their livestock wheat intended for human consumption. A host of consumer goods giants, from Procter & Gamble (NYSE:PG) to Kimberly-Clark (NYSE:KMB), have all announced they’ll be raising their prices in the coming months as commodity prices continue to soar.
Copper Near Record Highs
Iron ore and copper are both near record highs on tight supply and strong demand from China. Copper traded above $10,000 per tonne last week, its highest level in 10 years, as investors anticipate further supply constraints on global efforts to decarbonize and electrify everything.
To give you some idea of what I’m talking about, the NAHB last week recommended to homebuilders that they should start pre-wiring new houses for electric vehicle (EV) charging. That calls for more copper wiring in the home as well as the vehicle.
Several car manufacturers have already announced they’ll be phasing out internal combustion engine ICE vehicles in favor of EVs between 2025 and 2040. As I’ve mentioned before, EVs require three to four times as much copper wiring as a traditional vehicle. Morgan Stanley reports that ICE vehicles use around 50 pounds of copper on average, compared to 85 pounds for a hybrid and as much as 183 pounds for an EV.