Good Morning (I think I made it by 1 minute) on this best day of the week Wednesday,
Dan Rawitch had a few pearls of wisdom this am. It is worth he read if you’re looking for direction.
CPI stung like hell this morning! The market was looking for a .04 increase, which would have been double last month, but instead we got a .06% increase. Until the supply chain repairs itself, we will not likely see much easing here. I recently researched past supply chain crisis, there have only been a few in the last 150 years. On average they take about 26 months to repair. We are about a year into this one. This hot CPI number has investors thinking the FED will have to raise rates soon and perhaps more aggressively. So, while the market has priced in price inflation, this number was beyond expectations and bonds are screaming at the Fed. The problem is that the yield curve is getting flatter every month and when the FED does raise rates, he runs the risk of inverting the curve. Each time the yield curve has been inverted, we have been dragged down into recession. I have also done a great deal of research on the history of inflation. Well, it is ALWAYS transitory. It has never remained long enough to destroy the economy. It has however done damage and soon we may begin to feel that damage. I am talking about pain beyond just what you feel in your monthly expenses. I am talking about pain that causes you to change your spending behavior. Once that happens, a recession is not far off. Yes, this all sounds dark but the good news is that this all leads to significantly lower rates. The Feds version of pulling the yoke of the plane out of a nosedive is to stomp on rates until the plane rights itself. Sadly, first the Fed will do what it always does and raise rates. The last several material fed increases have led to recession or near negative growth. This will not last, the economy is still amongst the strongest in the world and I am not worried. Also, housing is a beast that will likely weather the storm, just as it did last time. Stay positive! Mortgage Apps rose 5.5% last week! You are in the right industry.
An early thank you to all of our veterans who have served to protect our lives and the lives of our children.
Please remain safe and healthy, make today great.