Another day, another stock market crash. Well at least it’s starting to feel that way. All you need to know if stocks will be down tomorrow is if they’re trading.

CPI came in at 8.3% year-over-year this morning. A little softer than last month’s 8.5% but a little hotter than the supposedly expected 8.1%. I don’t usually put a lot of stock in reports of what’s “expected” because I don’t know who they’re asking. Did they ask you? Nobody called me.

It’s not at all clear what conclusion markets drew anyway. Stock prices ended the day lower than they did yesterday, but bonds went the other way. If stocks interpreted the data to suggest a marginally tighter Fed, then why didn’t bonds? To the extent they reacted to the data, bonds priced in a slightly more dovish Fed. Prices rose, yields fell. But wait … that was only at medium to longer term maturities. Yields rose slightly at the short end. But stocks as a whole are longer duration securities, so that doesn’t help us much.  It was just a “meh” report.

It’s possible that bonds have simply overshot on the downside. As recent posts have noted my bond market outlook has become more constructive. Bonds are, if not outright attractive, at least no longer repulsive. Having opened the year staunchly bearish on bonds, Financology sidestepped the worst of the declines. With the ten year yield now in our target range of 3%, we’re back to our normal allocations.

We don’t usually pay much attention to the CPI in the first place, but these days markets do so we do too. We don’t usually pay much attention to the PCE deflator either, but the Fed does. In this case we don’t follow the Fed down that rabbit hole. The Fed’s reaction function isn’t clear cut enough for it to matter. When it comes to what the Fed will do, we don’t care. Yes that’s tantamount to financial heresy, but we believe the bond market does that for us. It’s the bond market through which Fed policy primarily works anyway, so why not skip the middle man and go straight to the yield curve. It tells us all that’s knowable about the outlook for short term interest rates.  And that, my friends, is higher.

We don’t closely follow cryptocurrency either.  But bitcoin moved another 7.2% closer to intrinsic value today.