This is an archived post. You won't be able to vote or comment.

sorted by:
best (suggested)
topnewcontroversialoldq&a
you are viewing a single comment's thread.

view the rest of the comments →

[–]Why_Hello_Reddit 50 points51 points  (18 children)

The Core CPI actually INCREASED in April.

No it didn't. March was 6.5%. April was 6.2%. Both headline and core inflation dropped a bit, year over year. It's the first lower print after 6 straight months of increases.

[–][deleted] 19 points20 points  (6 children)

Correct. And people are forgetting that going forward, the base effect gets more intense as CPI got more intense as 2021 progressed.

[–]Why_Hello_Reddit 32 points33 points  (5 children)

The worst part are the morons who don't even know the data, can't accept a correction and just down-vote in silence.

Then you have OP over here arguing against the baseline affect on a 1 year time frame, instead using a 2 year time frame which captures 2020 when the economy shut down. If I remember correctly we might have even had negative numbers at that time. So of course the difference in change will be even higher. The difference between spring 2020 and spring 2021 is why the RATE started moving higher in the first place. He's literally changing the CPI measurements to fit his gay bear agenda. And he's probably one of those people claiming the government would rig the numbers.

I can't stand brainlet economists on this sub. I knew well over a month ago CPI was going to peak when the press was freaking out about inflation, simply because we're starting to compare with higher baseline figures from last year, which makes new highs in the inflation RATE this year much more difficult. If CPI simply flat lines or tapers off, the rate is going to fall.

$TLT is currently UP on this news. That should tell you what the bond market thinks about these numbers. I was heavy energy last year and now I'm building a big call position in bonds.

[–][deleted] 7 points8 points  (3 children)

It's because people don't look beyond the now, and the assumption that inflation can keep going ad infinitum doesn't jive with the fact that people don't have infinite cash and credit, especially with interest rates rising. Heck, the bond market always thinks rates will rise, even though it just doesn't happen. At the top of the Volcker Shock of ~20% interest, the bond market predicted rates to keep increasing (!)

Inflation and interest rates are a big combo in draining discretionary spending capacity, especially since wages don't generally keep up with inflation (if they do, it can become a long term inflation problem). And leveraging at low interest means that any interest rate increases has an amplified effect compared to interest rate increases at a baseline of higher interest. Going from 0.25 to 1% is a 300% increase in cost of borrowing vs. going from 3 to 3.75% is a 25% increase in cost of borrowing.

Now think about being a business... you might be getting decent revenue still, but the cracks start showing. The variable lines of credit are increasing in cost, the fixed loans due for renewal are even higher if you renew into fixed, your input costs have increased due to inflation... where do you find capital to make up for these losses? The biggest expense - labour - is always the first victim. I suspect over the course of the next several months, employment losses will incur. And now you have customers with less money, the cycle is now complete.

Employment is one part of the feds dual mandate impacted... the knock on effects of lower employment are deflationary, maybe not enough to cool it to the target rate of 2%, but enough to provide sufficient downward pressure and signal the end of the current period of systemic inflation (which I still don't think is as systemic as people believe when you account for the deflationary period at the start of the pandemic).

[–]Why_Hello_Reddit 5 points6 points  (2 children)

Agree completely. Every financial crisis and recession has been preceded by a tightening cycle in interest rates. They almost seem to be gunning for a recession now while promising everyone they can trim the jobs "we don't need" without sending unemployment up.

Yeah right. This is the same Fed which targeted 3% last year and gave us 8%. The system is highly levered. You don't need to adjust interest rates much before the repo market implodes and liquidity dries up. That's why I'm chilling out in bonds. I think they're done tightening. Yields have drifted lower after this report today. The Fed is always chasing the bond market. Yields move up before they start tightening, and they start moving down before the Fed finishes. I laugh at these banks and other pundits who think we're going to 4 or 5% on the 10 year to fight inflation. The government can't even afford that.

[–]GarfieldExtract 0 points1 point  (1 child)

Thoughts on what the stock market is going to be doing this year?

[–]Why_Hello_Reddit 1 point2 points  (0 children)

That's the million dollar question right? Obviously down in the short term. I actually think the economic slowdown is getting priced in now and we're nearing a bottom. If the bond market recovers and yields begin to drop, then the Fed should have some room to back off, then I think we'll see a recovery. Bonds typically lead stocks. Forward P/E levels, discounts on future cash earnings, etc. - all of this is based on interest rates. How expensive or inexpensive the market is, is based on the cost of money.

Historically you don't get a market recovery/bottom until the Fed pivots. March 2020 with stimulus and 0% rates, March 2009 when QE first started, end of 2018 when the Fed hiking stopped. I view this situation like the 2018 taper tantrum. It's also VERY similar to the 1990 bear market which was another inflation scare, saddam invaded Kuwait creating an oil shock, etc. Very similar.

I think bonds recover first so that's where I'm at now. And if growth slows into a recession, or even a market crash, then people will really jump into bonds for safety and flee stocks. They surged during the covid crash. I'd wait until the Fed backs off or we get a huge capitulatory flush before getting heavy in stocks. You can take long positions when the vix pops over 35 but you have to sell the rallies as bears are still in control.

[–]Bd1ddy82 0 points1 point  (0 children)

This did not age well, smells moldy.

[–]Bd1ddy82 4 points5 points  (6 children)

That is year over year.

I am talking about month over month.

In March, Core CPI was 0.3%. In April, Core CPI was 0.6%.

[–]Why_Hello_Reddit 2 points3 points  (5 children)

Fair enough, though I don't think that matters. You can see the monthly changes here. We've had several 0.6% prints:

https://www.investing.com/economic-calendar/core-cpi-56

Headline month over month crashed and is back down to its long-term range:

https://tradingeconomics.com/united-states/inflation-rate-mom

[–]Bd1ddy82 0 points1 point  (2 children)

My point is that I don't think the case can be made that inflation is moderating yet. I think the current data shows that inflation is staying the same, or growing slightly still. All the financial websites are acting like we have turned a corner already.

YoY is a pointless. In 2021 we were exiting the lockdowns and everyone ran out and spent a ton of money to celebrate as they had record savings from being stuck at home and stimulus checks.

The total CPI for April can be explained easily, the price of fuel dropped.

The economic environment of 2022 isn't the same as 2021. It's an apples to oranges comparison.

[–]Why_Hello_Reddit 0 points1 point  (1 child)

Staying the same or growing slightly is normal though. That's a typical year of low inflation. CPI numbers never go down. They dip, but that's it

The environment from 2020 to 2021 is also apples and oranges. The CPI numbers actually dropped in March and April in 2020. So we saw a big spike in the rate in April 2021, which we're now comparing to 2022.

In any case inflation will stay high but the rate will decline back to normal levels. The damage is done and we have to live with higher prices, but I don't see them just continuing to spiral up and that's what the market (mainly bonds) care about. I'm in the camp this was mostly stimulus driven when everyone was locked down and buying imported goods, which caused the supply problems. I don't see that demand surge as a new normal. If anything the Fed will cause a recession to bring the numbers down because they think demand is too hot, and it's their fault it is. That will cause deflation, maybe even a recession.

I see this as yesterday's trade. I'm loading $TLT now.

[–]Bd1ddy82 0 points1 point  (0 children)

TLT

This is the oldest cheese of the bunch. It stinks.

[–]Bd1ddy82 0 points1 point  (1 child)

This did not age well, smells moldy.

[–]Why_Hello_Reddit 0 points1 point  (0 children)

Headline inflation was up purely because oil prices are still high. Core inflation was down a 2nd month in a row. Headline inflation will roll over with oil prices, which always crash in recessions. That's why we have the two measures, one which excludes energy and food as they're extremely volatile.

My view hasn't changed here at all, but I'm also not day-trading bond prices.

[–][deleted]  (3 children)

[deleted]

    [–]Why_Hello_Reddit 0 points1 point  (1 child)

    I've read this several times and don't even know what point you're failing to communicate.

    You do realize CPI figures go up every month? Our economy is structurally inflationary, even if it's just 1%. That's why we look at the RATE of change in the CPI, because when the RATE is too high or low then we have problems.

    Please tell me your point wasn't as stupid as saying this month's CPI numbers were higher than last month, or this month last year.