The DC Today - Tuesday, June 13, 2023
The Dividend Cafe
The Dividend Cafe - The Bahnsen Group
4.9 • 572 Ratings
🗓️ 13 June 2023
⏱️ 7 minutes
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Summary
Today's Post - https://bahnsen.co/3N5Vy0n
So the month of May CPI report came out this morning, and xxxxxxx
Those who continue to be “frustrated” by the reasonable resilience of the economy in the face of the Fed’s desire to break it are up against a few different things.
(1) The utter weirdness of believing an economy must be broken to beat inflation. It is not true, and it has never been true.
(2) The extent to which many corporate borrowers (both high yield and investment grade) extended the maturities of their borrowings during the COVID zero-interest rate period. This means companies are not impacted by higher rates where they don’t have loans resetting at higher rates. Of course, this is not true for all but it has been true for many.
(3) How incredibly unnecessary it is to use high rates to defeat inflation when monetary policy was not the primary cause of the inflation to begin with. The issues that primarily caused the inflation of 2021/22 were rectified in the natural course of events (supply chain, labor shortage, reopening, etc.) and no the cause and effect mechanisms are all off in the way the Fed is approaching this.
Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com
Transcript
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| 0:00.0 | Welcome to the DC Today, your daily market synopsis of the Dividing Cafe, brought to you every Monday through Thursday to bring you up-to-date information and perspective on financial markets. |
| 0:13.9 | Hello and welcome to the Tuesday, D.C. today. We had an exciting day in markets. markets started early this morning with the monthly report |
| 0:24.0 | of the consumer price index i do think on monday i accidentally said it was coming on wednesday |
| 0:31.8 | and the correct day for cpi is always tuesday so forgive me for the error. But the CPI number that came this morning was |
| 0:41.3 | 0.01% month over month in consumer inflation. And that means a 4% year over year over year, down from 4.9 the month prior. |
| 0:56.3 | And this 4% year over year is now the lowest that we have seen since March of 2021. |
| 1:04.7 | So in 27 months. |
| 1:08.3 | And even with that said, the owner's equivalent rent was coming in at 8% year |
| 1:16.7 | over year with current monthly rents coming in at 8.6%. And that number is likely much closer to 2% in real life. |
| 1:30.7 | So I have calculated that of the 4% inflation, at a 34% waiting for shelter, |
| 1:40.6 | that roughly 2.16% of it is coming from a shelter number that I think ought to be much less. |
| 1:48.5 | So look, you can turn the knobs a little bit one way or the other, but I do believe you're |
| 1:53.9 | somewhere around a 2% CPI year-over-year number if you were properly waiting shelter. |
| 2:02.8 | And so the markets did rally on the news. |
| 2:07.8 | The Fed is at this point in the futures market, well over 90% probability of just a pause tomorrow. |
| 2:15.4 | Yet the number in July is up to a 65% implied probability of a |
| 2:22.1 | rate hike next month, but no rate hike tomorrow on Fed Day. So the Dow today was up 145 points, |
| 2:31.0 | which was, you know, close to half a percent. S&P was up about 0.6.65 percent, |
| 2:37.4 | and NASDAQ was up 0.83 percent. But the leading sector today was materials, which were up |
| 2:44.9 | a whopping 2.33 percent on the day. And then I always love the days when every sector is up, but technically |
| 2:52.2 | utilities were down by six basis points. So really close to the flat line, but nevertheless, |
| 2:58.7 | the one sector on the day that was technically in the red. In terms of oil prices, |
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