Good Morning on this fantastic Wednesday and best day of the week,

With Mr. Powell testifying to congress this week and sharing his prepared statements early, on which were very dovish on inflation and continued asset purchases (which we want for lower rates although maybe not for future economic growth), bonds are showing impressive resiliency despite a very hot PPI number. The 10-yr is back to 1.36% and mortgage bonds have recouped all of yesterday’s losses. While it is true that traders do not care much about PPI, which is the wholesale rate of inflation, it is surprising that bonds are not worried that the number came in twice its expectation. It seems now that most traders have moved into my camp which is to believe that inflation is indeed going to be short lived and the economy has nothing solid to show us now that the stimulus checks are running out. On Friday we will get a read on June’s retail sales which are expected to show signs of weakening. Whether this shows up on Friday or not is anyone’s guess, but I am confident in the next 1-2 months we will see retail sales falter.

Speaking of inflation (I am a dog on this bone), below is a great analysis/dissection from the WSJ:

For Now or For Keeps?

There are four main trends underlying the June inflation report. First are the items where prices fell sharply at the start of the pandemic and that are now returning to their pre-pandemic levels. Airfares and hotel prices collapsed in the spring of 2020. Now that vaccination rates are rising, people are booking summer trips, and business travel is picking up. But prices for both items remain below where they were before the start of the pandemic, suggesting they still have room to rise in the months ahead, David Harrison reports.

Second are items where prices have temporarily risen above their pre-pandemic levels due to supply constraints and could come down once those constraints ease.

Third are items where prices are likely settling at a permanently higher level. Restaurants face a shortage of labor. In response, businesses are boosting wages—potentially cementing in place higher costs.

Finally, there are items where stronger price increases are likely still to come. Increases in owners’ equivalent rents—the Labor Department’s estimate of what homeowners would have to pay each month if they were renting their own home—could pick up, in part due to rapid increases in home prices.

One of the unspoken consequences of the pandemic is coming to the forefront. The Wall Street Journal sadly shared that drug-overdose deaths in the U.S. surged nearly 30% in 2020, the tragic result of a deadlier supply and the destabilizing effects of the Covid-19 pandemic, according to preliminary federal data and public health officials. The estimated 93,331 deaths from drug overdoses last year, a record high, represent the sharpest annual increase in at least three decades, and compare with an estimated toll of 72,151 deaths in 2019, according to provisional overdose-drug data released Wednesday by the Centers for Disease Control and Prevention.

Please remain safe and healthy, make today great.