Panic might not be the right word but when I see charts like this cross my screen:
The Consumer Price Index (CPI) was posted this morning and traders made some knee-jerk moves. Gold wasn’t the only one to see some wild swings. Needless to say, the CPI was shockingly high.
It came in at 5.3% on a year-over-year basis. That is an increase of 0.9% month-over-month (that’s 10.9% annualized!). This is well above the forecast of 4.9% year-over-year. Hence the knee-jerk
reaction by traders. This is the 6th month in a row that the CPI has printed higher than the month before. When the “core” CPI is teased out. It printed at a spicy 4.5%. Remember, the “core” CPI is the CPI without those pesky food and energy numbers. This is the largest 12-month increase in the core CPI since November of 1991. Just looking at energy, it was up 24.5% year-over-year and food was up 2.4% in the same comparison. Here’s the Bureau of Labor Statistics’ (BLS) full breakdown.
Another item that stood out to me was that used vehicles continued their rise. I anticipate that those categories that are hot now will cool and the categories that have been slow (food especially), will begin to get hot. Inflation doesn’t attack every component at once. It moves higher in a stop-and-go fashion. This is one of the reasons that the common man has such trouble figuring out what is going on. Few can detect that the reason the prices are going up is that the money in their wallet is worth less. It still looks like a $20 bill but when you compare what it can buy, you realize something is wrong.
In the grand scheme of things, we are very early on this trend. It takes a special individual to be able to; see a trend, know it will take place, get in position for it, and… sit tight. That last part is the hardest. It was described exceptionally well in Edwin Lefevre’s “Reminiscences of a Stock Operator” which was inspired by the life of stock trader Jesse Livermore.
“It
never was my thinking that made the big money for me. It always was
my sitting. Got that? My sitting tight! It is no trick at all to be
right on the market. You always find lots of early bulls in bull
markets and early bears in bear markets. I've known many men who were
right at exactly the right time, and began buying or selling stocks
when prices were at the very level which should show the greatest
profit. And their experience invariably matched mine--that is, they
made no real money out of it. Men who can both be right and sit tight
are uncommon.”
― Edwin
Lefèvre
I’m of the mind that we have seen a trend coming. We are now getting confirmation that it will be taking place. I think we have some good positions to take advantage of it (though I’m looking at a few more) and then we have to “sit tight”.
The Bureau of Labor Statistics (BLS) will be releasing the Producer Price Index (PPI) tomorrow. I do not believe that it is a coincidence that we have Fed Chair Powell in front of Congress on the same day. In fact, I’ve got a man on the inside. He gave me a preview of what Jerome is going to say.
The Fed has to come out and tell everyone they have it under control. If they don’t, there would be panic and chaos. This would not be conducive to a slowly rising stock market and lower unemployment figures. Privately they could be frightened of losing control but they have to put on a good face for the public. They have to say things like; this inflation is transitory, it is well within our new framework, we see no reason to worry. Otherwise, the jig is up.
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I really like the MEME photos on your blog, very funny.
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