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Further liquidity is waiting in the form of announced but not yet implemented stimulus packages. Whether it is the 1.9 trillion US dollars in the USA or the hundreds of billions of euros of the EU and its member states for green deals and economic development measures.

Inflation - was there something?

Another trigger for the rise in interest rates is an even older acquaintance, inflation. Just in time for the turn of the year, it stands on the mat and makes the stock markets tremble. The central banks are fighting rising inflation figures with interest rate hikes, which in turn puts a strain on the economy and share prices.

And then the first vaccination successes can be seen, and with it the hope of easing the lockdown measures and a return to normality, perhaps as early as the summer. The stock exchanges rotate the stock sectors: The corona winners, especially technology stocks, are high on the sales lists, while the corona losers such as hotels, tourism and airlines are wanted.

Furthermore, people saved a lot in the Corona phase, they paid off debts, but above all increased their savings rate. A lot of money that is waiting for open shopping streets and fashion temples and which should therefore additionally drive inflation.

One of the main inflation drivers is also the sharp rise in raw material prices. The cold snap and the OPEC cuts met re-opening fantasies.

The previous “Goldilocks scenario” turned into a parametric nightmare almost overnight.

And yet ... it's not that simple. Yes, inflation is picking up significantly. However, that was clear for a long time. Let's take Germany as an example. Last year, the federal government cut VAT by 3 percentage points, which expired at the end of 2020.

In addition, the energy prices have risen and they will become even clearer from March, because the economy crashed at this time in the previous year due to the corona. The slump at that time and the very low inflation figures are now acting as “optical price drivers”. In real terms, inflation in the previous year was too low due to Corona and it will be too high in 2021. In 2022 this effect "grew" again.

In addition, at the beginning of the year Germany made so-called pollution certificates more expensive and extended them to significantly more industries. There was therefore not only a big jump in prices at the petrol station, but also for many affected products. What is reflected in the inflation values.

Inflation as a bugbear

Objectively speaking, inflation is rising. And that, according to the pure theory, is evidence of a price explosion due to an economy that has run too hot. The central bank handbook therefore recommends interest rate hikes to make loans more expensive and thus take the economy down - with the result that prices no longer rise as quickly and inflation subsides.

"Find the mistake" ... at what point do you find an overheated economy at the moment? There was a historic economic slump in 2020 and at most part of the slump will be made up for in 2021. Nothing overheated here.

In this respect, the chain of consequences of rising inflation and interest rate hikes does not work. The central banks would be crazy if they were to kill the beginning of the economic recovery with interest rate hikes and a shortage of money.

So there will be no interest rate hikes and money shortages by the central banks. We have known this not only since Jerome Powell only just announced it to us again, but for many months. Instead of a specific number, the FED is now focusing on an inflation target of “average” 2 percent. And that based on a time horizon of up to 10 years.

What sounded like a semantic correction half a year ago was anticipating today's situation: inflation is rising, although the economy is down. The central bank is ready to accept temporary deviations in the inflation rate from its 2 percent target without putting itself under pressure to act. Instead of a red line, there is now a target corridor and more flexibility. And that's good for the economy and good for the stock markets.

Value instead of growth?

Rising interest rates bring advantages for value stocks over growth stocks. And the impending economic recovery is causing the money to rotate in the cyclical industries, so that growth stocks are being sold off.

But will it stay that way? Is it a turning point?

In the short term, cyclical stocks have upside potential, but then economic reality catches up with them. And Corona left a wildfire. The barbarians fell into the large gaps that had arisen and they not only raged, but made their homes: the online competition.

Perhaps apart from the funeral industry, every industry is feeling the pressure of online competition and even if many people yearn to finally get their old life back, many changed behaviors will persist. Anyone who has got used to ordering their medication online is unlikely to become a regular customer in a pharmacy again. And if you have equipped your living room with surround sound and a gigantic television, you should continue to stay with your streaming provider and hardly ever go to the cinema again.

Less growth

Growth stocks are under pressure as growth rates decline. Which is understandable, because Corona brought several years of growth forward and therefore the growth rate has to flatten out. Here, too, we meet the base effect again. Which does not mean that there is no more growth. But the market first has to understand and process this effect and that will take some time. During this period, volatility is high and temporary sell-offs of individual stocks, despite good results, are likely to remain the order of the day for the near future.

For investors, the question arises whether they shouldn't bet on cyclicals after the slump in technology stocks. The same question arose in late summer 2020 and after a few weeks of consolidation, technology stocks began to soar again. Whoever catches the perfect time to change trains here can earn a lot of money. Everyone else pays if they chase after the new and rapidly changing trends. On the other hand, clearly 2-digit percentage price losses are not nice to look at in the depot and not everyone can mentally cope with these fluctuations.

They cannot be completely avoided, but there are also stocks that are at home in both worlds and with which you can drive more relaxed.

Costco Wholesale

Costco is a wholesaler and retailer with stores primarily in the United States and Canada. As the second largest retailer in the USA, he uses his purchasing power to achieve high discounts on purchases, which he then passes on to his customers. But Costco is not a classic retailer like Walmart or Target, because Costco hardly earns a cent from its enormous sales.

Still, Costco is highly profitable. And it works because Costco is a club, more precisely a consumer club. Its shops are only open to members who pay a membership fee for them. In this way, Costco generates a high and regular flow of money from which it feeds its business. It is therefore not dependent on making profits with the actual sales of goods, which is why it can offer them even more cheaply than classic retailers.

Costco specializes in selling branded products at discounted prices, offering groceries, toys, jewelry, electronics and travel to its members. So you don't compete with the cheap stores, but rather address a market that is about higher purchase prices. And where the annual membership fee seems relatively low.

But it's worth it, especially for active customers. And this also explains why relatively few people do not renew their membership after a year, while on the other hand more and more new members are added. And with this easily calculable flow of money, Costco continues to expand, and with each additional store, Costco's own purchasing power increases and offers room for even greater purchase discounts. It's a near-perfect system that promises success even in times of recession.

In Corona times, the shops are full because you can get everything at Costco. Especially fresh food. And after Corona, the shops will also be full because people don't want to miss the many discount and special promotions for electronics, etc.

Costco is growing steadily with high single-digit growth rates and is now expanding into China. The first store has already opened in Shanghai and has exceeded all expectations by far. More will follow. The concept is simple and ingenious. And only partially vulnerable to online trading. And here Costco itself relies on online sales and is experiencing high growth rates. A true all-weather retailer with a correspondingly lush rating. But that's a price you can pay for secure and steady income and growth rates. Buy-and-hold quality stock.

Costco Wholesale Corp.(ISIN: US22160K1051)

* This text is an excerpt from my free investment report. *

Today's issue was again created in collaboration with Michael C. Kissig, Value Investor and operator of the blog iNTELLiGENT iNVESTiEREN.

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Notification obligation according to §34b WpHG:The author (s) is / are invested in one or more of the securities / underlyings mentioned above at the time the article was published: Costco & Tomra Systems. There may therefore be conflicts of interest. The information contained in this article does not constitute a solicitation to buy or sell any securities.

I wish you every success with your investment

Yours Armin Brack
Editor-in-Chief Investment Report

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