Alan's Alert 6-10-2021

 

Just as Jan Brady got frustrated at her sister getting all the attention, sometimes I feel that inflation is all I ever talk about.  Inflation in China, inflation in the US, inflation in wages, inflation, inflation, inflation…  bah.

 The investing world’s eyes were glued to their screen at 5:30am pacific time for the Fed’s most anticipated release for the week, the consumer price index.  Investopedia tells us that the CPI “measures the average change in prices over time that consumers pay for a basket of goods and services” and “that the CPI is the most widely used measure of inflation”.  The problem with the CPI is that pesky “basket of goods” stuff.  See, the government has been tweaking that basket since the mid-90s.  The Bureau of Labor Statistics said that these changes in the basket’s makeup were necessary because “consumers change their preferences or new products and services emerge”.  My difficulty with these changes are that they always find that inflation is overstated and the basket is changed in favor of lower inflation numbers.  The Feds cook the books to pretend that inflation is lower than it really is.  This makes them look good and gives them license to keep the printing presses running.

Recently Zerohedge dug deeper on this issue and found in their article “The Fed’s Most Convenient Lie: A CPI Charade” that the Fed and the BLS “reports consumer inflation as honestly as Al Capone reported taxable income.”  They reference ShadowStats.com.  A guy who tracks consumer inflation the way the government originally tracked it in the 80s.  He shows “true” inflation around 10%.

Now, I’m not one to have blind faith in government statistics.  I’m also not one to have blind faith in a guy who runs a website.  I think the truth probably lies somewhere in-between.

 

So, when the government released their CPI data it came in at .6% on a month-over-month basis which is 7.2% on an annualized basis.  Remember, the Fed wants to target 2% but have said that they are ok with it going over target as we have been under target for so long.

Looking at the CPI on a year-over-year basis doesn’t help the Fed either, as that came in at 4.9%.  The government likes to tease out food and energy because they state these are more volatile.  This little trick didn’t help this month as the “core” CPI came in higher at .7% m/m.  So what was the market’s reaction?  Futures immediately dropped under the assumption that the Fed would react and raise interest rates, then immediately rebounded when they realized that the Fed couldn’t spot inflation if it hit them in the face as all inflation is now “transitory”.

Gold and silver both traded lower until 5:30 this morning where it looks like they bounced off a springboard.  Oil traded sideways overnight and now is starting to push higher past $70/bbl.  I expect Fed members to make the rounds on TV, continuing their “transitory” talk but what I see with my eyes and what my wallet feels is that this is not “transitory” but only time will tell but as a famous horse once said…