Inflation = 0% in July was very good news yesterday for 30 minutes

By: Jeffrey Cohen, Investment Advisor Representative & President
Chicago Quantum
US Advanced Computing Infrastructure, Inc.

Many tried to politicize the news and say it wasn't good, and maybe the market reflects that narrative. I say, if prices were flat, and I mean there is a zero in the column for July CPI-U index growth, then the US Federal Government (less spending), the US Federal Reserve Bank (QT and rates) along with the people of the United States (change behavior), did their job and brought prices back under control. Good job, round of drinks for everyone!

So, the market did not buy the same narrative. The stock market went up for the first two candle sticks, or about 40 minutes, then rode flat all day.

Just say it again to let it sink in. After inflation rose 8.5% for the year (and it rose for 11 months), it stopped in its tracks in July and did not rise.

The lead lining in the news is that while energy prices fell (gasoline wholesale back to $3.00 from $4.00 for example), the price of food that you buy in the grocery store and prepare at home rose very quickly. It rose over 1% in July. People, real people, are still suffering.

Also, US non-farm labor productivity fell 4.6%. This reflects more hours worked and less product and service produced. Also, wages rose ~10% for the same period. So, we worked longer, made more money, but produced less. This is not very good news for the economy, and might be a result of over-hiring for some, and under-performing for others. As a funny example, I am on Twitter during the day because that is how we promote our points of view. We share our video link and make comments about stocks, bonds and markets. We do it as part of our work.  However, there are many on Twitter during the work day that I think might have full time jobs, and are not paid to tweet personal views. Just saying...and the work at home model is great until you want to go for a bike ride (we did yesterday), or your wife 'wants to talk' (she did), or you have to go to the store and fix an electrical fixture someone broke last night (I do). Productivity is down (in part) because employers have less control over their workers' productive time that they are paying for.

The other thing that I reflect on this morning is the whip-saw in interest rates. We were going along great, with mortgages and loan rates low and accommodative. We were building, fixing, buying and selling homes across the nation. Prices were rising, money was being made, but it only lasts while people can afford to invest, risk, buy, and pay on real estate. The rise in interest rates and prices have given people pause, and that is enough to slow things down. 

Let's see what today brings. I expect that the new corporate income taxes (15% on stated income), declining labor productivity, declining corporate fixed income (forgot to talk about that - bonds are falling while UST risk free bonds are rising, reflecting greater corporate risk), reduced consumer spending and enthusiasm, and the possibility of two global wars for the US might drive down corporate profits. That would be the end of this bear market rally, and bring back the bear. Only time will tell.

Please be careful out there and always do your due diligence before investing.
​GLTA