Submitted by QTR's Fringe Finance
CPI came in at 8.2% this morning and, if this keeps up, I think we are heading toward a total loss of confidence in the Central Bank and a potential panic setting that, in my view, is long overdue anyway.
Yet another month has gone by where Wall Street has held out hope for some - any - respite with regard to inflation. And another month has gone by where inflation continues to steam forward without any regard for the castrated, too little too late attempts the Fed is making to control it.
Lower inflation numbers ostensibly translate to the Fed changing course, which causes stocks to jump. Or, in the case of this morning, CPI numbers that miss expectations to the upside reinforce the idea that the Fed must continue to act with rate hikes and that stocks (and the economy in general) are still in for rocky roads ahead.
While I prepare more thoughtful analysis of what this means for markets going forward, I didn’t want to leave my readers high and dry this morning. The numbers missed, in the wrong direction, across the board.
CPI 0.4%, M/M, Exp. 0.2%
CPI 8.2% Y/Y, Exp. 8.1%
CPI Core 0.6% M/M, Exp. 0.4%
CPI Core 6.6% Y/Y, Exp. 6.5%
In other words: the Fed seems to have absolutely no control over prices and, the upcoming strategy with rates (to quote my friend Open Outcrier) is basically going to be: “Keep firing, assholes!”
Zero Hedge noted this morning that shelter inflation and rent inflation are near, or at, the highest on record:
And recall yesterday, we saw the hike in food prices is still alive and well, with Pepsi's prices rising 17%.
And so the verdict is that not only inflation continuing to run rampant and out of control, and not only does it seem like the Fed simply has no control, but it’s getting prohibitively expensive to do the absolute very basis: finding a place to sleep, and finding something to eat.
This will help instill an inflationary mindset on the public, which can manifest in pull forwards of demand and perhaps the beginning stages of a hyperinflationary panic, should it continue. One thing is for sure - it is tough to look at what the Fed has done with rates over the last 9 months, and then look back at inflation and concluded anything other than the Fed has zero control.
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Odds of a 100bps hike will be on the rise for November, putting even more pain on markets than was anticipated with a 75bps hike (which is still brutally intense given our debt outstanding)
This inflationary crisis is why I was - and am - furious that Ben Bernanke could win the Nobel Prize in economics. It is policy that he advocated for, pushed and implemented that has led us directly to the crisis we are currently in.
And, in my opinion, the pain from this crisis is still only beginning. With no hope on the horizon that rate hikes will stop, the only way for stocks to move is lower - and I predict that the market may wind up losing another 30% to 50% from here before we find a bottom wherein (1) stocks become decently valued and (2) at the same time, inflation starts to subside slightly.
This is what I wrote about days ago in my piece “The Illusion of Safety”: The Illusion Of Safety
Heading into Thursday’s trading session, the market still remains historically overvalued by a significant amount.
On a market cap/GDP basis, we are still about a 30% drawdown from the mean. The mean Shiller PE is about 17x, putting us at more than 40% overvalued based on that metric.
As The Leuthold Group pointed out on Twitter two weeks ago, the S&P’s current PE ratio is still almost double what it has been on a median basis of all bear markets dating back nearly 70 years.
With the Fed feeling like it must hold course due to this morning’s data, I am expecting far more pain to come in equity markets.
And I don’t think the selloff is going to remain orderly. I have said for months I think the rate hikes we’ve already done still have not caught up to the market yet. Those will hit eventually, while the Fed is in the process of overshooting to the upside still. There will be real panic in equity markets: more margin calls, more de-leveraging, company failures and general pain.
If the Fed holds course, you can bank on this. I’d love to hear your thoughts on the matter, we have a free, ongoing discussion at this link.
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