OK, I have more bullish confirmation on inflation and markets.
This is what consumers think mostly because this is what they are seeing, a slowdown in inflation.
So these jokey core CPI numbers stubbornly stay at .4% don't match most other measures showing disinflation: ISM, wages, expectations, etc. Fed Chair Powell finally admitted core CPI has a lag because of rents and said rents are most likely going to start dropping hard. In fact Powell said to congress he expects rents to drop (his words) "significantly." He mentioned on Fed day that rents make up 1/3-1/2 of core inflation.
So 1/3-1/2 of core inflation which is lagged is going to start dropping hard. Uh, hello, anybody?! I hear nobody talking about that. Then again I'm not fishing through what people are saying.
There's some visibility that core CPI starts following other inflation measures... lower.
But this is such a bullish set up especially because the majority of the world is not expecting it. Countries are raising rates.
The economy's holding up and inflation is about to drop 'significantly.'
What should that mean for markets with a strong Q3 earnings season coming??
You know what I think, very very bullish.
Bears and shorties are constantly concerned about recession but this is yet another combination of data saying we avoid recession.
And lookie lookie, oil dropping. Goes up a little on dislocation but then drops hard. I think it has a disinflation magnet with everything else.
This trajectory of inflation slowing is too strong for rates way up at 5%. The Fed is going to have to drop rates.... hard.
You remember when they said 'transitory' and I said nope. I said they'll raise rates hard and fast then when the Fed was saying no way no how. Well they did raise hard and fast. I think the fastest trajectory maybe in history.
Now i think that in reverse. They think two hikes. I think hard cuts. The Fed is leaning the wrong way.
And if hard hikes didn't kill the market. Hard cuts I think explode the market higher.
Yes, I believe this is setting up.
And for the Fed's 'well anchored' inflation expectations which are so important to their rate moves...
Phew. Fed breaths a sigh of relief.
And GDP Now holding fine at 1.8% through all this. Economy holds, inflation drops hard... rates drop hard while economy holds = bullish.
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