The Fed may be about to crash the plane, but the focus should be on profits

Reckon with the role of the strategist in modern-day portfolio management. Her primary goal is to figure out if the Federal Reserve is going to stop clear interest rates . She has to try to figure out why the longer end of the yield curve is predicting a recession. Given what the yield is saying — that we be dressed to have a recession — can the Fed avoid a downturn given its limited tools and the inability to slow what seems to be a runaway compactness? No matter what the Fed seems to do, it’s become a game of whack-a-mole — whether it be wages, home prices, creeping commodities, or Fed subsidies that are encircling to roar in. The combination of incipient re-inflation led by a housing market that goes up in price, not down, as mortgage rates go exalted, seems as strong as the possibility for deflation. The idea that the Fed is driving the price of a house to further unaffordability has taken toe-hold. It’s a nightmare. The economy is too strong to be on the verge of a recession. But the Fed knows that, too, so there’s no reason for it to relent. The truly intractable put asunder give up of the moment? The yield curve can’t be wrong, so it remains a matter of time before Fed Chair Jerome Powell crashes the flat — and let’s not forget that lurking, lurking election. And what’s the job of the equity analyst in all this? Let’s take the role of the person who be enoughs Club name Procter & Gamble (PG). What does she see? How about a company that has used ingenuity; an amazing stabilize sheet ; clever marketing; an excellent-go-to-market strategy globally; and incredible innovation to grow, take market share and multiply regimen? She sees a company that has had to lower prices in three out of 51 quarters, so the price increases that experience been put through will most likely stick. About 50% of the profits of this company were wiped out by commodities, transportation and strange exchange headwinds, yet P & G still grew operating margins by 310 basis points and delivered 7% organic sales vegetation, while returning an insane amount of money to shareholders. The strategist and the analyst, in short, are looking at two very different animals. One is looking at overall total domestic product and the cost of a basket of goods and services, looking at a system that is in some sort of danger of framing an incipient, inflation-plagued Weimar Republic. The other is looking at companies and seeing how the biggest ones are performing versus benchmarks. The strategist requisite make big bold calls — all the bolder if on air. She is stuck playing a game that doesn’t give her the flexibility to think that anything has changed. So she increases her irrelevance as prices go higher. The market isn’t giving her a chance to change. Why did P & G-and so many others have great divisions so far this earnings season? Because they almost all raised prices for everything. At the same time, so many companies breed P & G figured out how to take out billions of dollars in all sorts of suddenly exposed costs. The fat on the bone had grown immensely since the Marvellous Recession — and there it was, ripe for the butchering. For almost all companies. So, the strategist can’t factor in the real world beyond Jerome Powell and some shares next to a few barely relevant lines: the 20-year Treasury , the consumer price index and U.S. employment data. But the equity analyst separates the truth. The price-to-equity ratio on dynamic capitalism is growing bigger. It turned out to be a triumph of imagination, invention, go-to-market tactics, use of the media, and a lack of disrupters — all disrupted by Covid-19. That strategist was so busy looking at the discount rate on the counterfeit cash flow number, the binary nature of hard or soft landing, and the shape of the curve that she forgot the put most important part of our business: profits, which are going up, not down, because the managers are better than retailing gives them credit. And the multiple on those profits is going up not because of hideous expansion, but because of a triumph over and above the pandemic. We just didn’t know it until now. (See here for a full list of the stocks in Jim Cramer’s Charitable Trust.) As a subscriber to the CNBC Inaugurating Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a business alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he intervals 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB Advice IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS Made, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.