January 28, 2023 | Personal Consumption Expenditures, Tesla’s Reported Earnings, Home Price Affordability, Debt Ceiling, Layoffs and Over-Hiring, Stock-Based Compensation, Federal Reserve...

<p>Personal Consumption Expenditures The Personal Consumption Expenditures index (PCE) for December came in with an annual growth rate of 5.0%. This is down from the November level of 5.5%. Looking at the Core PCE, which strips out energy and food and is the indicator, the Fed closely monitors the inflation number looks even better with an annual growth rate of 4.4%. I've heard people continue to use the CPI and say that inflation is running at more than 3 times the Fed's 2.0% target. That is extremely misleading as the Core PCE is not nearly as high as the CPI. Overall, we still have work to do on inflation, but it is still decelerating at a good rate and I'm optimistic it will continue to improve as we progress towards the end of 2023. My projection is still that we will see one maybe two quarter point hikes from the Fed and then that rate would be maintained through the rest of the year. I do not see any rate cuts this year from the Fed as I believe the economy will be better than many fear. Tesla’s Reported Earnings Tesla reported earnings and they did very well. This sent the stock up as much as around 11% in trading. I have been against Tesla for years not because it’s a bad company but because it was too richly valued. That is now changing, the earnings for December 2024 stand at $5.79 with a price of the stock around $150 that gives a forward PE of 25.9. That's not great, but not as terrible as in the past. When the stock was at the low of $102 that would’ve been a forward PE of 17.6, much more reasonable. I’m not saying that Tesla is a buy, it still has more to drop or needs to see a larger increase in earnings for it to be considered a value. It is getting close, maybe in a year or two it could become a buy? Home Price Affordability Even with the recent declines in home prices, there is still a major affordability problem. In fact, looking at an affordability index from the National Association of Realtors (NAR) shows we are still out of line with pre-pandemic levels. The index is based on home prices