A few days ago I offered the following comment:
“The near term risk to all asset classes except for dollars comes with next week’s CPI release. I called a resurgence in consumer price inflation on the day of the December FOMC meeting and have been right as rain. The Fed has been forced to walk back its reckless rate cut talk and whispers of possible rate hikes have even emerged. Commodity prices turned higher that very day, and the behavior of stock and commodity prices since continues to send the same message. Consumer price inflation continues to reaccelerate.
Due to the vagaries of the sausage making process that goes into the CPI, however, not to mention the expectations game Wall Street plays, it’s unrealistic to expect that any single month’s release will accurately represent this trend. If next week’s release comes in higher than expected, it will be bullish for cash at the expense of everything else, as it will nudge rates upward. Conversely, a lower than expected release will be bearish for cash and bullish for everything else as it will nudge rates lower.”
This morning we got our answer. April CPI was reported to have risen by 0.3% over the month earlier and 3.4% over a year earlier. This may not be good news for Main Street, but it’s being spun as such for Wall Street, having framed it in terms of expectations. Markets have so far reacted by treating it as bearish for cash and bullish for everything else. Bond, stock, and commodity prices all shot higher.
At least this was Wall Street’s initial reaction. If sustained, in the topsy turvy world of finance, it actually injects an additional inflationary impulse into the pricing chain. Consumer price inflation is just the end result of a decline in the value of cash first seen in asset price inflation. So the early indications are that long-suffering Main Street will not soon see relief from inflation.
This is hardly new … look at the impressive gains in stocks over the past five years in terms of dollars, via StockCharts.com:
Let’s graphically illustrate that these “gains” in stocks aren’t really gains at all, but pure dollar depreciation. The following chart is of stocks priced not in of dollars, but in gold. Measured this way, stock returns over the last five years have been less than nada.
Is it just because gold has been stellar? No, stocks haven’t done any better in terms of copper.
Presto … abracadabra! We made our returns disappear just by changing our units, Not so real in the first place.
The New York Times published the following article arguing a case that it is the poor who are being hurt the most by high interest rates. I usually don’t bother even looking at the NYT because of how lacking in credibility it is but this article and a recent article they published where they attempt to absolve the establishment of the lies it told and the corrupt policies it enacted during the COVID plandemic just take the cake.
This is yet another pathetic lobbying effort by the establishment bullhorn to lower the Fed Funds Rate to save Wall Street’s idiots and speculators. Another member of the establishment, Barry Sternlicht of Starwood, has made numerous public appearances calling for lower interest rates and it’s clear his commercial real estate portfolio is in trouble.
The Federal Reserve could drop the interest rates to zero percent and the poor will still pay double digit interest rates.
https://www.nytimes.com/2024/05/14/business/economy/interest-rates-inequality.html
Hurl-inducing. The relationship between interest rates and economic inequality is inverse. The size of the wealth gap rose as interest rates fell over the past four decades. It exploded higher still with ZIRP and Ben Bernanke’s “wealth effect” circa 2010, and leaped again with the Fed’s moneypalooza in 2020. Given some time, higher interest rates would bring it back in. But it’s clear powerful interests would rather not have that happen.
Much as I like watching these inflationary jags juice my portfolio numbers, the realization that they’re inflicting economic damage is hard to stomach.
We continue to see more of the counterintuitive pricing we expected across the metals complex. Our rule of thumb is that hotter official inflation stats mean weaker metals prices while softer stats are bullish. The former imply more inflation fighting urgency ahead and the latter less. The less the Fed frets about inflation the more the markets have to.
The point bears repeating because too many investors continue to complain that gold isn’t a good inflation hedge. They cite gold’s unimpressive performance on the “inflation” surge in 2022. But they’re confusing the CPI with inflation. 2022 was a deflationary year. The actual inflation had occurred in 2020-2021. By the time inflation was making headlines it was mature and the Fed was on the case.
But then the Fed went off the case. Copper is red hot, gold glitters, silver and platinum have even recently outshined gold. All have been trouncing stocks, probably because stocks had already run up so since last fall.
The media have a different story for each. Copper is supposedly rising on a short squeeze related to an imbalance between stocks held in the US and overseas. Gold because central banks are buying. This is an example of the old saw that the best lie has an element of truth in it.
These factors are for real, but they are merely accentuating pricing action that would be there anyway. So what explains the explosive action in silver and platinum? The bigger story is the one all these prices have in common … we’re expressing them in failing fiat.
Bad weather, greedy corporations, supply chain kinks … it’s a Roseanne Roseannadanna world … it’s always something. Odd how these bogeymen tend to crop up when monetary and fiscal policy go off the rails.
Gold Baby & Silver at last………….
You can say that again, Mega. There’s more where that came from. But not necessarily right now. Today we’re getting a bona fide dollar rally. The USD has been outperforming its forex competition – merely declining less – but at the moment it’s actually up. When a dollar rally is not only against its fiat rivals but also against gold, copper, stocks, etc, it’s real.
If it were to continue further without being quickly reversed it would put a nice dent in the consumer price inflation plague. The federal debt situation alas doesn’t bode well for sustained disinflation. It does bode well for copper, gold, silver, platinum, food, energy …
April PCE didn’t much add to the previous CPI data, coming in at 0.3% over last month and 2.7% over last year.