The Fed Is King

Inflation in the U.S. hit three-decade high in October, of 6.2%, delivering wide spread and sizable increases to households for everything from groceries to cars due to persistent supply shortages and strong consumer demand, with no ‘let-up’ in sight. The Labor Department said the consumer-price index, which measures what consumers pay for goods and services–rose 6.2% last month from a year ago. That was the ‘fastest’ 12 month pace since 1990 and the fifth straight month of inflation above 5%. The core price index (CPI) which excludes the often-volatile categories of food and energy , climbed 4.6% in October from a year earlier, higher than September’s 4% rise and the largest since 1991. Price increases were across-the-board, including autos, gasoline, and other energy, furniture and medical care, the Labor Department said. Prices for groceries and dining out were the most in decades. Prices fell for airline fares and alcohol. U.S. stocks fell and bond yields rose as investors ‘digested’ the impact of price pressure on the global economy. Persistently higher inflation triggered by a faster-than-anticipated but uneven economic recovery is hitting the consumer’s wallets. At the same time, a rebounding economy and healthy household balance sheets are nudging demand and cushioning price increases. After the inflation report Wednesday, the White House issued a statement from President Biden saying: “Inflation hurts Americans’ pocketbooks, and reversing this trend is a top priority for me.” Ms. Rosner-Warburton, a senior economist at MacroPolicy Perspectives, expects inflation to persist for a while, with the U.S. entering a six-month period of unusually fast price increases. “I do think we’re moving into a new phase where inflation is broader and where things are going to get a little more intense,” she said. “Part of that reflects that supply-chain bottlenecks aren’t resolved going into the holiday season, when a lot of purchases are made, and the economy is running ‘full-tilt.’ ” A separate shortage of available workers is also affecting inflation and the overall economy, said Kathy Bostjancic, chief U.S. financial economist at Oxford Economics. “The bigger picture is we’re likely to see inflation climb higher,” she said.

Everyone is afraid of inflation…..Investors should be afraid of the bond market instead…. Stocks’ 5-week winning streak came to a fizzle. Most of the damage came on Wednesday (11-10) when the Labor Department released October’s Consumer inflation report. It showed the consumer price index jumping 6.2% from the previous year. The stock market was far less worked up about the numbers than economists, politicians, and the people on the street, at least initially. In fact the ‘real market’ drop didn’t occur until later in the day, and it followed a ‘terrible’ auction of 30-year Treasuries–one that saw yields surge to 1.947%, from 1.9%, in order to get the bonds sold. Spikes in bond yield are particularly damaging for the Nasdaq, which ended the day down 1.7%. Still by the end of the week much of the ‘turbulence’ had dissipated. The 30-year yield closed the week at 1.955%, up from 1.885% on November 5, which explained why the stock market bounced back later in the week. For the week’s end, major indexes finished lower, with the S&P 500 losing 0.3%, the Dow down 0.6%, and the Nasdaq falling 0.7%, respectively.

Your Sandwich Will Cost More….As Wheat Prices Surge. Wheat prices climbed above $8 a bushel for the first time in nearly nine years, with demand for the commodity going strong and supplies expected to end the 2021-2022 marketing year at their lowest levels in more than a decade. “Global demand remains robust, at record or near-record levels, with foreign buyers aggressively purchasing wheat supplies during the past several weeks,” says Sal Gilbertie, president and chief investment officer at Teucrium Trading. The US wheat ending stocks for 2021-2022 will be 583 million bushels, the lowest since the 2007-08 marketing year. Wheat supplies dropped after a drought in the northwestern U.S. Plains reduced the production of ‘hard red spring wheat’ and ‘durum wheat,’ says Todd Hultman, lead analyst at commodity information and analysis provider DTN. The USDA estimates domestic 2021-22 wheat production at 1.646 billion bushels, down 10% from 2020-21–the smallest crop in 19 years, according to Hultman. On November 11, prices settled at $8.125 a bushel in Chicago. It was the fifth straight monthly gain in October. “The world has cusummed more wheat than (has) been produced in the last two-years–hence the shrinking ending stocks,” says Jake Hanley, managing director and portfolio manager at Teucrium. “Demand is strong because wheat’s primary use is for human consumption,” he says.


Eric J. Savitz, Tech writer, Barron’s “One clear message from the latest batch of Tech earnings: Travel is back. Airbnb’s third-quarter revenue was up 67% from a year ago, even exceeding its pre-pandemic revenue from two years earlier. The short term rental platform called it the best quarter ever.”

Tom McTaggart, a pricing consultant and founder of Pricing, WSJ Mr. McTaggart began sensing a sustained rise in supply-chain-driven inflation in the summer. “It’s a never-ending loop–by the time you’ve implemented one price increase, you’re already ready to implement a new one.”

Peter Boockvar, chief investment officer at Bleakly Advisory Group, WSJ “The stock market keeps whistling past the inflation and monetary tightening that is upon us,” Mr. Boockvar said.

Larry Culp, CEO of General Electric Company, Barron’s “Today is a defining moment for GE, and we are ready,” on the decision to break up the company.

Louise Chen, an analyst at Cantor Fitzgerald, Barron’s “It definitely helps prove the point that (Pfizer’s) pharmaceutical R&D is better than people had thought,” referring to the vaccine and its superior effectiveness.