Margin 'compression' - is a traditional concern about stock prices, especially in big-cap issues, which depend on ongoing operations more than technology, as is often priced based on forthcoming rather than existing revenues.

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So while it's not hard to visualize 'red flags' amidst slower growth during 2022, at least in the year's first half, that is somewhat mitigated by attributing it all to 'scarcity' in supply, rather than just to inflation. But the combination isn't good.

What can soften the blow (if we get a big hit which will be called a 'shock', but isn't as it makes sense especially if the Fed doesn't diverge from taper plans), will be better treatments and vaccines for COVID. That is not a broken record, when you consider the ongoing pandemic and numerous breakthrough cases (whether attributed to people with comorbidities or not).

Executive Summary:

• Ultimately we get better treatments for COVID, and true vaccines which protect against infection, not merely severe disease or hospitalization, when we do, even if growth remains tame for a bit, it will roar beyond.

• Achieving decent protection against getting infected in the first place, will reopen society more broadly than pushing-the-envelope happening now, so it's difficult to finesse given nothing is carved-in-stone (for the Fed too).

• Much of the U.S. vaccine hesitancy/opposition relates to not just fear, but from realizing the limitations of the current 'jabs', better will materialize.

• I have contended from the start early (current) vaccines are not 'really' vaccines, but shots, not due just to needed repeated injections, but as they don't prevent the Sars-Cov-2 infection to start with.

• The broad market and economic impact of getting 'real' solutions to this horrid pandemic should not be underestimated, as that will clear the deck of lots of concerns beyond putting the disease into a lower category, but that's likely part of our 2023 forecast, let's get through 2022 first (haha).

• Global economics (yes 'some' globalism is not bad, excessive isn't good as everyone has learned, but some get too crazed about having any), of course it will perk-up, and remember over the last 20-30 years, many U.S. companies (including the very largest) have gotten a majority of growth in growth from global sales, not merely domestic markets.

• So, economic isolationists should recognize the need for global trade to expand again, while the 'supply' distortions are a valid logistics lesson to always remember, especially when it comes to semiconductors / tech.

• Oil prices are nicely in the 80's/bbl for WTI here in the U.S., but prices in the rest of the world aren't likely to move appreciably higher (OIL).

• If Oil stops going up soon, that will help blunt the inflationary wave 'a bit', as it's not Oil primarily behind inflation, but the expansionary policies with no containment thus far, as this inflation impacts China more than us, the response can be more Agricultural purchases from the U.S. if China does properly respond to the inflationary challenge and not use it to mobilize.

• China is continuing to cut factory production due to power shortages, so that's ultimately a reminder to this nearly-universal plan to move all autos to electric, that the sources of power (and the grids) will be challenged.

• Along those lines the rise of the U.S. as the 'cryptocurrency' mining hub versus formerly China, is going to help our computer companies, but will indeed demand lots of power, but it's a positive for our long-held Advanced Micro Devices (AMD).

• Some power will be solar and thus renewable, but not all, in any event I'm dismayed there's not more push to 'hybrid' vehicles, which both assists a slimmed-down Oil industry future survival, but cars will work even with the power outages that occur more frequently in parts of the Country.

• If I'm right about hybrid being a better solution (essentially backup power) then the 100% EV rush is another example of 'all or nothing' extremes, at the same time I do not expect the current EV trend to reverse this, so for stocks like our AEHR Test Systems that's fine (AEHR).

• So just saying industry's so quick to adopt electric and not focus more on a hybrid system vs. becoming entirely electric dependent (hydrogen gets mixed reviews, and natural gas isn't sufficiently used), that's where it is, it's even more challenging in Europe (Germany goes EV but uses coal heavily to generate electricity, so where is the carbon benefit?).

• Even more ironic there is a reticence to use nuclear or even shut-down perfectly good nuclear plants that are not at-risk like Fukushima was.

• Today Sorrento (SRNE) got an important CE Mark (approval) for Covi-Stix sales in the EU, via afternoon PR, shares briefly popped on news, discuss a bit later in this report, but definitely welcomed as the EU market is huge.

• Las Vegas Sands (LVS) drifting a bit lower, and I liked the brunt comment of how China/Macao's comeback requires not just vaccines, but medicinal treatments for COVID (precisely my concern about how many pretend the pandemic is behind, and expect more than feasible from initial vaccines).

• Monetary policy is what the Fed is mostly concerned about, not the fiscal influences, while the Tan (Beige) Book does acknowledge continued slow conditions and perpetuated inflation, none of which is surprising.

• Note that after Mt. Etna in Sicily, La Palma in the Canary Islands, now you have the 2nd largest volcano in Japan erupting, planet is angry and yes volcanic ash is not only toxic, but damages jet engine turbine blades.

• S&P on Thursday might dip a bit because of IBM and Tesla, but rebound ahead of another likely effort for a record high close by the S&P (IBM, TSLA).

Of course the 'Beige (Tan) Book' came out, and the Fed recognized what we all basically know, that we don't have maximum employment or consumption (due to availability in some cases), but we do have monetary-fiscal inflation, of an enduring nature for numerous reasons, of course they don't say it that way.

Inflation 'is' running hotter than the Fed anticipated, and other than warning it was not merely 'transitory', we've tried to describe the Fed wishful thinking as misleading due, sure, to supply constraints in almost every sector, but also to shortages / bottlenecks which will persist. Although the Fed expects inflation tamed next year, it may change Fed aggressiveness with regard to tapering. Key to it: COVID.

The baseline forecasts that have inflation coming down ironically would occur 'if' we have a further repression of re-opening by virtue of the pandemic. For now they can blame 'supply/demand' distortions or Oil, but it's also Congress, fiscal excesses, and of course the actual Fed ease persisting for very long.

In-sum: 

We will continue to see consolidation in many domestic retail aspects and a slower holiday season in some ways. Actually some retail and online business sales are pulling holiday demand forward, due to fear of availability of products later, so interestingly that may dampen late Q4 sales.

The market itself remains vulnerable in the way we've described, as a 'hooray new high' is behind, and the S&P starts taking into-account the real story for a slew of margins being squeezed as we go forward, for awhile. Overall inflation has already shown itself very 'enduring' as I contended, clearly not 'transitory'.