What Will CPI Tell Us Today?

June 10, 2021

* Currencies & metals lose ground on Wednesday

* Bill Bonner & Mohammed El-Erian join us for a discussion of inflation! 

Good Day… And a Tub Thumpin’ Thursday to one and all! Well, after a week of frustrating losses for my beloved Cardinals they finally won a game last night to stop their losing streak at 6…  Now they head to a weekend series with the Cubs… who are red hot!  OK… Well, today is the birthday of my good friend Mike Kettler, who happens to be on a wine tour for his birthday… Happy Birthday Mike! Mike turns 60 today… A youngster, right? HA! I sat outside watching the game last night with neighbor Paul.. So at least I had some company. Usually, I sit out there alone during the week. I go to get my new shell for my eye made today… It’s always an interesting adventure… Neil Young greets me this morning with his song: Southern Man, which was the song the band Leynyrd Skynyrd sang about in their southern rock classic: Sweet Home Alabama…

Well, all of the gains that the currencies booked in the overnight markets the night before, were wiped out in the U.S. market yesterday… Just switching things up on us… Just when I was pointing out how the overnight markets were buying dollars, and the U.S. market was selling dollars, they switch things up and go the other way… I’m sure just to throw investors off the scent of a collaborating deal with Traders… So… The BBDXY started yesterday at 1,116.10 and ended the day at 1,118.88, the euro which yesterday morning was within spittin’ distance of 1.22, fell back by about 1/3rd of a cent… And then to make things even more obvious of what’s going on, Gold ended the day down $4.50, but Silver closed up 14-cents!  I actually kept checking the Gold price yesterday as the day went along, and it traded in a tight range of up $4 to down $4… 

So, for those of you keeping score at home…. Gold closed the day at $1,889.00, and Silver closed the day at $27.83… I already gave you the close of the BBDXY, so the Dollar Index closed the day at 90.12, up from 89.99 early in the morning…  So… the move to buy dollars was not a major event like it was earlier this week with the engineered takedown… But still it was a case of buy the dollar, which to me make about as much sense as checking on how much gas you have with a match! HA!

In The overnight markets…  There’s been little to no movement in the currencies, and they begin the day here in the U.S. looking very much like they did yesterday morning… The BBDXY this morning is 1,118.56, compared to yesterday’s close of 1,118.58, so you see right there that the currencies are flat to begin the day. Gold on the other hand is down $9.80, this morning and Silver is down 10-cents…  Gold and Silver down the morning that inflation is reported?  Greasing the tracks is what that looks like to me, getting the tracks ready for a rise today that will have to start from station… 

Well today is the day the markets and traders have been waiting for… Why I have no idea, but to them the stupid CPI (consumer inflation index) is something for them to follow, and as you may recall April’s print showed inflation rising at the fastest pace in years… The traders want confirmation that inflation is here to stay and not transitory like the Fed Heads keep telling us…  Spoiler Alert…. The so-called experts think that inflation will have cooled a bit in May from April, from .8% in April to .5% in May… There’s no telling what the number will be by the time the bean counters get finished with all their hedonic adjustments. And as I always tell you… if you want to know what the real inflation rate is, you need to go to www.shadowstats.com  For it is here that John Williams calculates inflation the way it was done before Clinton and Greenspan moved the goalposts, and added their hedonic adjustments…

You know it’s just like most Gov’t reports… You can’t and shouldn’t trust them for accuracy… The BLS adds jobs out of thin air for their Jobs reports… as just another example of the Gov’t sticking their hands in the cookie jar… To make us all feel better and keep the merry-go-round going… For if we all decide to get off at the same time, the ride comes to a halt, and that would not be what Humpty Dumpty and all the King’s Men and all the King’s horses need …. For if we all get off at the same time, the economy comes to halt, and tax receipts go to hell in a hand basket, and the deficit goes higher, and higher… I can imagine Sly Stone at Woodstock, singing “I wanna take you higher”…  Sly and his band sure put on a show at Woodstock…

That reminds me I haven’t watched that movie in a long time, it’s time for to get it back out and experience the excellence of Alvin Lee, CS&N, Santana, Sly Stone, and others at Woodstock… 

OK… back to the world…  I told you earlier this week that if I heard one more Fed Head say that the inflation we’re seeing is Transitory, I would be yelling at the walls and not holding back on the language I used!  I have Mohammed El-Erian talking inflation in the FWIW article today, so I don’t want to steal his thunder, instead I have Bill Bonner, giving us his thoughts on inflation.. So take it away Bill!

“Well… since this century began, U.S. GDP has gone up from about $10 trillion to about $22 trillion. A solid double.

But the Fed’s balance sheet? Around $700 billion 20 years ago, if it had kept pace with GDP growth, it would be around $1.5 trillion today.

Instead, it’s now around $8 trillion – five times where it should be.

If we were looking for a simple explanation of inflation, need we look any further?” – Bill Bonner from his Bill Bonner’s Diary…

Good friend, Dennis Miller, called me from the road yesterday, and told me that we will never find another Paul Volcker, ( I had said that in the Pfennig that morning) and if we did, it would not be a good thing, because….  Let’s say inflation goes to 10%, and we would need to raise rates to near 20% to combat and bring the inflation under control… That would mean that all the tax receipts the Gov’t receives would go toward paying the interest on the debt! There would be nothing left for Medicare, Soc. Security, WIC and other Gov’t programs…  Thanks Dennis…

The Data Cupboard today has the Weekly Initial Jobless Claims, of which they have become a data print that carries little interest in the markets, as the numbers keep going down… But the markets have it all wrong, because as these numbers go down, people fall off the list of Unemployed, and are no longer counted as unemployed…  There are still 3.77 Million people on continuing claims, that will eventually run out… Here we go again on the merry-go-round…

Folks, I don’t mean to sound so gloom and doom, because that’s not my nature, I’m really a very optimistic kind of guy… But all the bad things that I talk about keep happening and growing worse all the time, what should I do say everything is seashells and balloons?

We already talked about the stupid CPI print today, so let’s move on now…

To recap… The currencies lost all the ground they had gained the night before during Wednesday’s U.S. session… Switching places that’s all, as Chuck pointed out… Gold  went back and forth all day in an $8 trading range and ended the day down $4.50, while Silver experienced a similar trading range, but Silver closed the day up 14-cents… In the overnight markets last night…. the currencies are trading in yesterday’s clothes, but Gold & Silver are down to start the day. 

For What It’s Worth…  I’ve spent a lot of time in the past year talking about rising inflation, and how it can destroy your buying power. There are some economists that still don’t believe that we have inflation and say it’s still deflation… I respect them, but don’t agree with them. This FWIW article today has a very well respected analyst talking about inflation, and I think behooves us to listen to what he has to say. It’s an interview, so we have to deal with the questions too… The article can be found here:Mohamed El-Erian on inflation and the recovery – Marketplace

Or, here’s your snippet: “Mohamed A. El-Erian: I’m more and more worried because of what I’m seeing on the ground, talking to CEOs and other people that really are participating in the price-formation process. We’re seeing significant supply bottlenecks. We’re seeing soaring transportation costs, difficulties in hiring. And all of these things are not immediately reversible. So when you look at the economy from the bottom up, you start sensing mounting inflationary pressures that are being encouraged by incredibly loose monetary policy.

Ryssdal: As you know, though, [Federal Reserve Chairman] Jay Powell and many others say, “You know what, we see all that too, but it’s transitory. These are weird times in this economy.” I’m paraphrasing the chairman here. These are weird times in this economy, we’ve been deeply scarred, it’s all gonna work itself out. And clearly you don’t buy that.

El-Erian: I buy the view that these are uncertain times. What I don’t buy is the notion that we are therefore confident that inflation is transitory. Undoubtedly, there are two elements that are transitory. One are called base effects. Simply, when you compare with the previous year, it really does matter that the price level came down. And the other one are very short-term imbalances between supply and demand. But we are seeing deeper things going on in the economy. And I just think you have to be open-minded to the fact that the supply side and the demand side are evolving structurally in a way that may be pro-inflationary.

Ryssdal: Can I read that as you saying that perhaps the Fed is not being open-minded right now, and that maybe Chair Powell has painted himself into a corner?

El-Erian: I fear that’s the case. And I say I fear because Fed credibility is key. So the Fed has done two things. One, it has repeated the “transitory” narrative, and it has become a mantra. Literally a mantra. And the second one is that it shifted at an unfortunate time from a forecast-based approach to an outcome-based approach. So if the Fed is wrong, it will be late. And if it is late, it’s gonna have to slam on the brakes. And if it has to slam on the brakes, history suggests we end up in a recession, and we may end up with financial instability. So there’s a lot at stake here. And that’s why slowly easing your foot off the accelerator is a much better outcome than having to slam on the brakes.

Ryssdal: Let’s translate here for a second. When you say “slam on the brakes,” you mean raise interest rates precipitously, which will then drive the economy into recession and markets will go haywire.

El-Erian: Correct. And the last thing we need right now is to derail the recovery and to derail what I think is a significant economic policy shift by the [Joe] Biden administration.

Ryssdal: So what are you looking at to let you know when this might not be transitory? I mean, Treasury Secretary [Janet] Yellen said this weekend she’s looking at expectations, right, what people are thinking about inflation. Also low-wage earners and their pay increases. What are your tells here?

El-Erian: So first, I’m looking at the fact that from the aggregate data, we have completely missed the surge in both CPI inflation and what’s called [personal consumption expenditures] inflation. Second, I listen very carefully to what companies tell us on their quarterly earnings and then look at the functioning of the labor market. How do you explain that booming demand is not resulting in higher jobs being created? How do you explain the fact that we have over 8 million openings that are not being filled? So I look —

Ryssdal: Well, sorry to jump in. But you look at the pay of these jobs. You look at the fact that people are still being scared of catching a disease. And then also, as you know, in this country, there’s the whole discussion about federal [unemployment insurance] benefits. I mean, there’s a lot of factors here.

El-Erian: Correct. And over the next few months, some of them should be reversed. So the UI argument we will know by the end of September. We will also get a better feel for how worried people are about going back to work. We will also get a better feel for what happens when you open schools. But I do think child care is important. I do think that we are having skill mismatches. There’s simply too many uncertainties. The alternative of just repeating over and over again, that it’s transitory inflation suggests that you have conviction when there’s little foundation for that view.”

Chuck again… I know that was a long snippet, but well worth it, right?  El-Erian said that he feared the Fed had painted itself into a corner, and that reminded me of a slide that former boss and good friend, Frank Trotter us to show in his presentations, of a man with a paint can and brush, standing in a corner with the rest of the room’s floor painted…

Market prices 6/10/2021: American Style: A$ .7741,  kiwi .7188,  C$ .8260, euro 1.2160, sterling 1.4097, Swiss $1,1164, European Style: rand 13.6530, krone 8.3235, SEK 8.2737,  forint 284.37,  zloty 3.6847,  koruna 20.8660, RUB 72.19, yen 109.48, sing 1.3246, HKD 7.7594, INR 73.00, China 6.3889, peso 19.73, BRL 5.0467,  BBDXY 1,118.56,  Dollar Index 90.18,  Oil $70.01, 10-year 1.50%, Silver $27.73, Platinum $1,146.00, Palladium $2,847.00, Copper $4.42, and Gold… $1,879.20

That’s it for today… Pretty wordy today, but that should hold you through the weekend and through Monday too, as I explained yesterday, there will be no Pfennig on Monday… My last weekend of batching it. HA! Darling daughter Dawn, as been here each night this week teaching swim lessons to little swimmers… Those little kids are so cute when they learning to swim, and when they finally “get it”, the smiles on their respective faces… Just so cute! I can’t wait for little Evie to start swim lessons… Now that will be priceless! Monday will be Flag Day… Don’t forget to fly your Flag!  Well, we’re going from spring weather that was back and forth, to hot summer days this weekend! As the heat index will be 102!  I’m sure the grandkids will be over to swim! I think I’ll go to the butcher today after I get my new eye, and buy a Pork Butt, and smoke it it in my Big Green Egg for when the kids and grandkids come over… I can almost taste some tender pulled pork, with BBQ sauce and Cole slaw already! YUM! Ok… I get a double shot of Neil Young today, and Neil Young and Crazy Horse (his band) take us to the finish line with a song from their Live at the Filmore album titled: Cowgirl In The Sand… I hope you have a Tum Thumpin’ Thursday, and Please! Be Good To Yourself!

Chuck Butler