Consumers expect inflation to rise 4.7%, highest since 2008

Eva Ados, ERShares COO, joins Yahoo Finance to discuss the outlook on the market, inflation concerns, opportunity in the shipping industry, and consumer sentiment.

Video transcript

ALEXIS CHRISTOFOUROS: All right, let's continue our markets conversation now and bring in Eva Ados, CEO of ERShares. Eva, always good to see you. I want to start with just what you're seeing this week. There's been a lot of ups and downs to the extreme for the market. Where do you think market sentiment is at the moment?

EVA ADOS: Well, we saw market sentiment lower this year. In fact, about 20% lower than what we saw two years ago. Pricing is up 1.8%. However, that adjusted to inflation of 3% to 5% is actually flat to slightly negative. And we think what we should be concentrating on is pricing because that shows us what people actually do.

And when it comes to the sentiment, what matters here is where was the survey done, which state? We saw a lot of migration during COVID. That pushed prices higher in certain states. That affects the sentiment.

Also when was the survey done? Was it done during the Afghanistan issues? Because that would have affected it too. So it all comes down to spending. And we think that 1.8% increase is the key number here.

ALEXIS CHRISTOFOUROS: I want to hone in on inflation, which continues to be a hot topic for investors. We got that August Consumer Price Index Report, which showed that inflation sort of cooled down but still remained at elevated levels. We're still seeing problems with labor shortages and supply chains. Do you believe that inflation, like the Fed believes, is indeed transitory? Or should investors and the Fed be a little more concerned here about inflation sticking around for longer?

EVA ADOS: Well, that's the main question. When is it going to end and if it's going to end? But what really concerns us is the low inventory levels that we are seeing. And that pushes raw material costs higher. And the more complicated the product is, in the case of cars or electronics, for example, the more upward cost spiral you have.

And once you're getting in this cost spiral inflation, it's really hard to dig out. So it's worse to have a cost-push in inflation than having a demand-pull scenario inflation. And that's what concerns us here and makes us think that we might see this ending in the foreseeable future.

ALEXIS CHRISTOFOUROS: What about the next catalyst for this market? I mean, is it going to be the Federal Reserve tapering those bond asset purchases here in the fourth quarter? Is it going to be fourth quarter earnings? To your mind, what's the next leg up or down for this market?

EVA ADOS: We are concerned with earnings. So for us, given that we are going to see tapering anytime soon-- so in some regard, that's baked in. But with the earnings, we are concerned we are going to see less sales when it comes to this quarter because companies do not have products to sell because of the shortage we have in certain parts and components.

So it all comes down to the supply chain disruptions, which we are seeing at a global level. In Southeast Asia, you have ports shut down or factories shut down even when there is one single COVID case. So this zero tolerance policy when it comes to COVID, it's really affecting everything here.

And it's not just the ships. It's not just the factories. It's the warehouses, the planes, the trains, the cranes, everything that you need to take one product from point A to point Z. And all these delays are pushing prices higher.

We have a set amount of containers and a set amount of ships. We have 25 million containers, 6,000 ships. 85% of this volume is controlled by only 10 companies. So you also have here oligopolistic pricing kicking in, pushing prices even higher. So on the one hand, you have your costs going higher by product manufacturing costs, by product. And you don't have the raw materials to make new products to meet the demand that you are getting.

ALEXIS CHRISTOFOUROS: It's a great point. I just know that anecdotally in my life, I'm going to different stores. I'm going online looking for products. And I just keep seeing out of stock, out of stock, which means these companies cannot finish the sale. They can't make the sale. And that would, of course, affect the bottom line at some point.

But you just laid out very nicely what the shipping industry looks like right now and the backlogs they have. But Eva, you actually like the shipping sector right now. Tell us why. And where are you seeing opportunity?

EVA ADOS: Yes, there's a shortage of ships out there, a shortage of containers. The shipping sector is having the best year they've had in more than a decade. We see the rates soar. They used to pay $2,000 by container. Now people pay $25,000 for containers. This is unseen for the last decade.

And we don't see this inning anytime soon as long as you have these zero-tolerance policies across Southeast Asia. That's going to benefit the shipping sector even more. We see that most are priced at a very good price. Their market cap to forward revenue is, on average, four times, which is very low compared to what we're seeing now in the markets. We think it's a very good place to be right now.

ALEXIS CHRISTOFOUROS: All right, I also want to be able to share one of your stock picks with our viewers. You like Palantir, Peter Thiel's company. Tell us why.

EVA ADOS: We think it's going to get a healthy slice of the infrastructure bill. There is no better company that I think that's going to benefit more when it comes to defense and the infrastructure bill. And that's because they have an extensive counterterrorism platform. And they serve the intelligence community.

They are also growing by 47% on a year over year basis. We're expecting them to double their customers this year. It's very high-growth. And it's also demonstrated by the fact that the in September were soft. But this company is about 8% to 9% up for the month.

ALEXIS CHRISTOFOUROS: And before we let you go, Eva, just tell us the one thing you're doing in portfolios right now to defend or protect against rising inflation.

EVA ADOS: We think have having a diverse portfolio right now is key. So we do maintain our positions in tech. Tech is anti-inflationary in some cases. But we also have slices and pockets of, for example, shipping companies now that they're benefiting.

So we are trying to find certain areas that are benefiting by current phenomenon, such as the infrastructure bill, the supply chain disruptions. So you need to maintain a diverse portfolio to navigate the challenges that we are seeing and the news that are coming up every day.

ALEXIS CHRISTOFOUROS: All right, we're going to leave it there. Eva Ados, CEO of ERShares. Always good to see you. Thanks so much.