U.S. Stocks Plummet Amid Worse Than Expected Inflation Data

Again, it’s difficult to say with a high degree of certainty, but stock investors will likely experience a bumpy ride over the next 6-12 months. The timing is possibly the most uncertain element here. Higher interest rates and a smaller money supply will reduce loan growth and economic activity. No question on that. However, will the Fed go too far and push the economy into recession?

Globally, most of the world’s central banks are on a similar path as the U.S. Federal Reserve. For example, Europe, the U.K., and India are all raising interest rates. China, however, is not. Europe is facing a potentially serious energy crisis when the weather turns cold. This is because Europe only produces about 42% of its energy needs (CY 2020) and imports 58%. A significant amount of Europe’s energy need was supplied by Russia. Since Russia has closed the Nord Stream 1 Pipeline, Europe is forced to replace this lost energy. All of this argues for a more severe recession in the EU region.

The market has overreacted to the last two consumer price index (CPI) reports. We had an overdone rally in response to the July report that was much cooler than expected, and today we had an overdone selloff in response to a hot report for August. There seems to be some noise in the CPI data lately, which usually has smoother trends up and down. If you average the last two months of CPI data, you get monthly core inflation of 0.45%, or about 5.5% annualized inflation. So we’re not exactly in hyperinflation territory, and commodities like crude oil are moving down on sluggish demand.

It appears likely that there were a lot of sales in July to prepare for the Fall Christmas shopping season and clear out inventories that build up in the first half of the year, such as sales on summer apparel, consumer electronics, car tires, and car batteries. Then prices may have bounced back up from July sale prices in August. This happens every year but there may have been an unusually large amount of merchandise on sale in July this year. Trading volume was not that heavy today compared to big down days in the first half of the year, so this was more of a buyers’ strike today. This selloff could stop quickly if the Producer Price Index report is close to expected numbers tomorrow. It looks like large institutions were expecting some downward volatility in September and were positioned with large hedges to offset a substantial part of this downward move. There’s no sign of panic today, just a September buyers’ strike.

Yes. there is. Gold (and silver) are considered “assets” and not alt money. Until that changes, precious metals will sell off with equities. Once people begin to fundamentally distrust the dollar and look for alternative currencies, then I look for crypto and gold silver to boom. Not till then.

The key to look for, btw, will be the collapse of the US Treausury market.

If you average the last two months of CPI data, you get monthly core inflation of 0.45%, or about 5.5% annualized inflation.

Uh, I think you need too check your math.

commodities like crude oil are moving down on sluggish demand.

No, theprice of oil is moving down because the US glutted market with the Strategic Reserves, which are almost empty. Do whatever you like and believe what you like, but I would find more reliable sources of data if I were you.

Just checked my math and it is correct. Here’s the CPI report for August, released today:

http://globalbasic.econoday.com/byshoweventfull.aspx?fid=541684&cust=global-basic&year=2022&lid=0&prev=/byweek.asp#top

The Ex-Food & Energy-M/M line is the core CPI rate for one month only. Actual = 0.6%, Prior = 0.3%. July is the prior month. The average for the last two months is 0.45%. Now compound that out over 12 months to get the annualized rate: that’s 1.0045 to the 12th power. Result is 1.055, which is 5.5% annualized core inflation. The core rate was lower for the PCE index in July (PCE index is another consumer inflation index from US government using different methodology).

Release of oil from the SPR have had a significant effect on oil prices. But the SPR isn’t a major source of supply, when you look at the numbers. Total global demand for crude oil is around 100 million barrels per day, while SPR releases last week were 7.5 million barrels, or about 1 million barrels per day. That affects oil prices for sure, in the finely balanced oil market, which doesn’t have much storage compared to daily demand. But we haven’t really glutted the market...we’ve just cooled off an overheated market.

Gasoline demand has been very sluggish over the last few months. Last week, demand was down to 8.7 million barrels per day from 9.6 million last year. This is just personal observation from Arizona, but I’ve noticed people are driving slower overall on the highways and more people are using the air compressors at gas stations to inflate their tires. People start using less gas when the price gets up around $4 per gallon.

The SPR is not close to empty, and was at 442.5 million barrels last week. I expect to see more politically-motivated releases from the SPR into the mid-term election.
I stay out of the oil market, which is really the Wild West of the trading business. Here’s the last oil status report:

https://ir.eia.gov/wpsr/overview.pdf

"Release of oil from the SPR have had a significant effect on oil prices. But the SPR isn’t a major source of supply, when you look at the numbers. Total global demand for crude oil is around 100 million barrels per day, while SPR releases last week were 7.5 million barrels, or about 1 million barrels per day. That affects oil prices for sure, in the finely balanced oil market, which doesn’t have much storage compared to daily demand. But we haven’t really glutted the market...we’ve just cooled off an overheated market.

Gasoline demand has been very sluggish over the last few months. Last week, demand was down to 8.7 million barrels per day from 9.6 million last year. This is just personal observation from Arizona, but I’ve noticed people are driving slower overall on the highways and more people are using the air compressors at gas stations to inflate their tires. People start using less gas when the price gets up around $4 per gallon.

The SPR is not close to empty, and was at 442.5 million barrels last week. I expect to see more politically-motivated releases from the SPR into the mid-term election. I stay out of the oil market, which is really the Wild West of the trading business. Here’s the last oil status report:

https://ir.eia.gov/wpsr/overview.pdf"

Thanks for the reply.

It is true that the SPR is not a major source of oil. That is not the point though. When you are dealing with large amounts of a commodity, you know that it is the prices ON THE MARGINS that matter. You dont' have to be 25% of the market to have a really dramatic effect on prices

also re: "The SPR is not close to empty, and was at 442.5 million barrels last week." How much we have is not the issue. It is how much we have vs how much we are letting go, and what "critical levels" are considered to be. I don't think anyone expects us to sell down to zero.

Just for the record, I think the SPR is a terrible idea. Armies run on oil, I get that. However, I am in favor of making it so difficult and expensive to send our army out to another country that we would just say "ahhhhhhhh, not worth it" to about 80% of our expeditionary forays. That is just me, though.

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