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Hot Inflation Reports to Dominate Next Fed Meeting
By EconMatters
Important Econ-Inflation Events
The Federal Reserve meeting begins Tuesday June 17th with the FOMC meeting announcement the following day Wednesday June 18th which will be followed by their forecasts and the Fed Chair press conference.
In the last Fed meeting a weak housing concern cropped up on the Fed`s agenda, but all the housing data has rebounded in the latest economic reports with the spring weather, and the new concern at next month`s Fed meeting will be inflation.
With much hotter CPI & PPI reports the last two months and another hot set coming right before the Fed meeting with the PPI coming on Friday June 13th, and CPI coming out on Tuesday June 17th. We anticipate these reports to be on the high side of estimates with higher food, energy and rising wage cost pressures; and that the Fed will probably have to address these new inflation pressures in their statement and the following press conference by Janet Yellen.
We also think the Employment Report which comes out nextweek will show some rising wage pressures which are the real push through on the inflation numbers. We think the Fed and the market at large is way behind this inflation curve, the market is still trading and making decisions on numbers that came out three months ago, all the latest economic inflation data has been very hot, and well above expectations, with the consensus just thinking these are temporary data blips. However, a third hot round of CPI and PPI reports right before the Fed meets is going to raise some eyebrows and establish the inflationary trend that we anticipate will be with us for the next 5 to 10 years.
Further Reading: May`s Employment Report to Top 300K
Bond Market: Mispriced Asset Class
The fallout from this is obvious the Bond Market in the United States is the most mispriced asset class right now and this time they are wrong, and equities are telling you that inflation is full bore upon us. Look for the S&P 500 to hit 2200 much sooner than most realize with the 2500 area pinging on the radar as investors run out of bonds and into equities as inflation heats up and the Fed starts raising rates much faster than the market has currently built into their models.
The Trade
Valuations can be a concern regarding equities, and who knows what type of volatility hits that market once Bond Yields spike so the best place to be from a risk reward perspective is long 10-year yields.
Bond Investors are dangerously asleep at the wheel with the chasing yield fervor reminiscent of a Gold Rush that the best play is in the Bond Market. Start building short positions in the 10-Year Bond exposure area either through Futures or Treasuries, and do it now while yield is so low relative to where we believe it is headed over the next six months and beyond. If playing Futures just build a position and have enough liquidity to stay in the trade for the long haul, and keep rolling over your short Futures Price and Long Yield trade over the next six months.
This is one of the few times I am going to say this so pay attention, investors cannot lose on this trade if they get involved at these low yield levels in the 10-Year over the next six to nine moths time frame, this is essentially as free money as Wall Street ever gives investors, take advantage of it while it lasts.
The Fed will continue tightening based upon the good manufacturing and housing economic data of last week, and with the upcoming hot Employment and CPI/PPI Inflation Reports, this is really going to push the Fed into a stronger tightening mode. However, the Fed is going to raise rates regardless as they normalize monetary policy over the next six to nine months, Don`t fight the Fed, make money being on the right side of this trade, which is long yield and short price from where we are right now relative to 10-year treasury yields.
Further Reading: Fed to Raise Rates in 9 Months
Positive EV & Risk Reward Profile
This is the best Risk Reward Trade on Wall Street right now but you have to get in while yields are mismatched with where the Federal Reserve is eventually going to be forced to go, so that your risk profile is better managed by having such an excellent relative entry price.
Investors will start jumping on the trade when 10-Year Bond yields reach 2.8% and we break out of the recent range from 2.47% to 2.70%. But the beauty of getting in when the market is “sleepy” is that an investor has much more room to manage the trade to the upside, and really let the trade breath, i.e., let the trend develop by getting in early, and let your winners run.
This isn`t a short-term trade, and an investor isn`t looking for a quick profit, i.e., nobody is concerned about inflation right now, hold the trade through when everybody is worried about inflation – this is how you really get paid as an investor for taking on the risk of the unknown.
And as ‘Unknowns’ go this is one of the surest or knowable ‘unknowns’ the Fed is going to raise rates, inflation is going to rise and be a problem in the future, and 10-year bond yields are going to be higher in the future, and as an investor find a way to play this market and monetary normalization process.
Inflation, Inflation, Inflation
But mark my words the topic de jure three weeks from now will all be about inflation and how the Fed needs to start raising rates much sooner than is currently priced in the market. Mark your calendar for the Employment Report next week, CPI & PPI Reports 13th and 17th, and the Fed Meeting Announcement on the 18th of June. Inflation pressures will be more than an economic blip, and these reports will reinforce this recent trend, and markets will have to adjust to this new paradigm.
We have now entered the Inflation Paradigm of the Fed`s loose monetary experiment, it is time to pay the piper for all this excessively lax money printing complacency. We all knew this day would eventually come, ‘the boy cried wolf too many times’ we then let our guard down, and boom inflation smacks us and the Federal Reserve in the face, and nobody is prepared for the absolute carnage in the Bond Market!
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Everyone needs their own inflation number.
I guess the author does not know what starts to happen to housing (and hence the rest of the economy) when rates go even an inch higher.
Inflation will not officially exist for the indefinite future. No matter what.
Hednonics...substitutions....obfuscations.....bitchez.
When inflation gets bad, they will just stop doing the CPI report or lying in it altogether. They already proved they cannot stop QE by having the Brussels connection exposed. They can't stop printing. They are already well onto the slippery slope of lies. They will continue slipping.
They stopped doing it over 20 years ago
Govt can't afford higher rates on their bonds.
-Budget needs to be trimmed by $1bil to balance, political suicide,
CPI calculation is a joke...
-At the exact time everybody is worried about default deflation the should really be worried about an inflation.
Untapering later this year...
-Calamity.
Inflation is capped until there is an increase in wages and I don't see that happening anytime soon.
I get an increase in wages each year. 2.5%......good thing we don't have inflation
Wait, what?
Historically, there is zero evidence of that. No inflation has ever been wage driven. Infact, people generally abandon the currency altogether and use barter when it gets really bad. It doesn't matter to them how much they get paid.
Does the house burn up or does it burn down or both?
Does the house burn up or does it burn down?
Up
Does the house burn up or does it burn down?
Down
The Fed is terrified of this deflationary depression spreading to the housing sector or stock market ... look at retail, for example where sweaters, dresses, etc are 40-90% discounted...if that plunge infected huse prices, stocks, etc Bankers would lose thier shirts [again].
I agree with those above who predict Zero rates for the foreseeable future [meaning at least 5-10 years].
Just waiting for the "next big thing" that will restore employment / consumption levels. Then history will repest itself over and over and over..........
After much thought I have come to the conclusion that while inflation appears tame and is not showing up in a big way the seeds have been planted, and the number of them is somewhat shocking. Inflation lurks beneath the surface and is hidden away in the dark corners of our future.
Want to know where the real cost of things is going, just look at the replacement cost from recent storms and natural disasters. Several things to consider when trying to understand inflation come to mind, first competition tends to keep price increases in check, and our slow growth economy is helping the consumer in many areas, but the monster when unleashed will take a very large toll! More on this subject in the article below.
http://brucewilds.blogspot.com/2013/06/inflation-lurks-beneath-and-hidde...
If a congressman and a FED member were put in a cage with a button that would make heroin tablets for each other, before long they would have fiat coming out of their ... cages. Congress produces nothing but corruption, wars, welfare, and waste, while it destroys real jobs.
Sure fire, whiz bang, can't lose investments, step right up folks, step right up, everyone's a winner!
How long before hedonic adjustments allow for the option of living in a lower cost country? That could save the CPI all the way until the West resembles North Korea or Zimbabwe.
Until ?
Between Detroit and the stawk market we already arrived there,
"We all knew this day would eventually come, ‘the boy cried wolf too many times’ we then let our guard down, and boom inflation smacks us and the Federal Reserve in the face, and nobody is prepared for the absolute carnage in the Bond Market! "
Careful with your use of pronouns. "We" didn't let our guard down. "They" printed madly because a) it was politically expedient, 2) they are blinded by Keynesian pseudo-theories. It isn't that "nobody" is prepared for the bond market carnage, "some few" have been standing on the sidelines expecting it for awhile now.
They are NOT blinded by Keynesian pseudo-theories. They know all this is a big scam. They are doing all they kind to keep the Ponzi from collapsing on them. They don't give a rip if it collapses on us. They've got money/resources. They'll be okay. They would prefer us dupes would just keep working and paying the taxes and interest on stuff we never even asked for.
A lot more people now know its a scam. Until we the people bring down the central bank it won't really matter to those truly in control.
Not sure that rising intrest rates would force investors into stocks. Rising rates would keep companies from borrowing money at zero to buy back stawks.
These cunts will continue on their "low-inflation" fucking bullshit until they die.
Start making arrangements to get paid at least twice a day.
Makes sense except the part about the interest on U.S. sovereign dept. I don't think they can allow the rates to go up ever again. It's a Japan thing.
In others news "like we give a phuck."
To Bernanke's credit he saw the moonshot in prices coming and said something prior to.
"Excellent timing on the exit strategy" as well. Found the news reports he still wanted the job interesting. Even more interesting was that he was never in the running.
Of course no one has ever timed the market better than Hank Paulson. Think he'll be the first to say "that was just dumb luck."
Be interesting to see if he ever writes a book about his former employer.
Paulson is an evil tool.
I doubt he has any truth that could find its way out of him into some book, and I would not want to contribute to the money he would make from any book.
Maybe via the public library, but that is still providing that worm some support.
In 6 months 10yr yields will be sub 2%
Are you out of your mind, the FED will never raise and can never raise rates, the real economy is dog crap, the only benefactors are those at the top, debt is money and if consumers won't take on debt, someone has to, governments and or in this case corporations, for debt is money, and relaxation in debt levels, the system implodes, so if you think you can raise rates in an enviroment where debt must and will always increase you are missing the whole point of our monetary system, keep status quo, those that are wealthy and in control and keep the illusion to the masses that you are doing all you can. Its a joke out there, the fact that these financiers and banks haven't been burnt to the ground is just another pathetic sign that humanity has lost its will, we are all a bunch of followers, to a system that was designed to accomplish just that, make everyone drones.
If the FED is told by their bankster masters that it is time to clean Mom and Pop's chips off the table and crush the value of their 401K/IRA/Pension/Mutual Funds they will raise rates.
Remember Greedspun gradually raising rates 2004-2007 after everyone was told post 9/11/2001 to go out and patriotically CONSUME - and loans were given out to everyone and their dog?
Yup, like that, because the cheap credit (debt) came first, then the stock market ramp, then raising rates AFTER all the junk credit default swaps, mortgage backed securities, and other derivatives leveraged 60 to 1 were sold to the sheeple investor class.
The cheap credit (debt) has returned in the form of 0% 7-year car loans, student debt, reverse mortgages, and credit cards (and the MBS's and CDS's haven't gone away). As soon as the insiders rotate out it will be time to raise rates.
Cha-ching! Ring that register! The Wall Street casino wins again!
They will do it.
My turtle even had a loan. His name is Speedy. He will likely outlive me.
HELOC piggy bank will return. Just give it a little more time. We will be awash in crap we never use once again.
OK, Now do everything opposite.