If you listen to conventional wisdom and the endless parade of bearish pundits, then you’re sure to think the Federal Reserve is wrong in not raising interest rates and combating inflation head on. But Jim Cramer told his Mad Money viewers Wednesday that Fed chair Jay Powell is a lot smarter than the bears give him credit for and the naysayers couldn’t be more wrong.
Yes, it’s true that we’ve seen a lot of inflation over the course of the pandemic. But Cramer reminded viewers that the stock market doesn’t care about the past, or even today. It’s looking forward into the future. And when you look objectively into the future, you see pricing peaking and even falling, not the other way around.
Just listen to the conference call of Delta Air Lines (DAL) – Get Report and you’ll hear that bookings are falling and cancelations are on the rise as COVID cases spike once again. Look closely at the auto market and you’ll see used car prices retreating as more new cars become available. The labor market is also cooling as federal unemployment benefits are ending and more people are returning to work.
Then there are falling raw material prices for lumber and copper. Oil also appears to have peaked, at least in the short term. Even the banks are reporting a decrease in consumer spending after a surge in restaurant and retail sales earlier this year.
Add it all up and it’s easy to see why Jay Powell is right. Our inflation is transitory and a wide swatch of our economy is already seeing prices retreat to more normal levels.
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Executive Decision: Wendy’s
In his first “Executive Decision” segment, Cramer spoke with Todd Penegor, president and CEO of Wendy’s (WEN) – Get Report, the restaurant chain that delivered spectacular earnings that included a nine-cent-a-share earnings beat, a 16% rise in same store sales and a 20% boost to the company’s dividend. Shares responded by closing up 3.7%.
Penegor said that Wendy’s continues to bring in more customers and more often thanks to the addition of breakfast and its great menu of lunch and dinner items. The chain is also seeing a lot of movement into higher-end menu items, which is adding to the company’s profitability.
Sales have been so strong at Wendy’s, Penegor said they’ve even been able to raise prices slightly for some items to help offset rising costs. Penegor said 95% of the chain’s dining rooms are now open, but drive-thru and delivery remains their biggest opportunities. Wendy’s is currently testing ghost kitchens that are dedicated to delivery, and so far, those locations are doing very well.
When asked for his thoughts about catching the attention of the WallStreetBets crowd and becoming a meme stock, Penegor said that he views any publicity as a good thing, as it helped get the Wendy’s story out to more investors and younger investors who might not be familiar with their turnaround.
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At the time of publication, Cramer’s Action Alerts PLUS had no position in the stocks mentioned.