We have breaking news today, inflation is running hot!
According to the Fed’s favorite inflation indicator, inflation is running at nearly 4.7%!
The above is the Personal Consumption Excpenditures Excluding Food and Energy Index. Fed members, like John Williams the NY Fed President and Fed Chairman Jerome Powell, have stated that this is the Fed’s preferred method of measuring inflation. This could be the reason Powell dropped the ‘transitory’ narrative. The PCE index is showing no signs of slowing down. I believe it will begin to crest soon. After that, we’ll need to take stock of the Fed’s and Congress’s actions. If they are continuing to pump money into the economy, the boom will go on. The reason I believe we’ll see a crest is because we are seeing the Case-Shiller Home Price Index cresting.
This index was posted today. As you can see, it has crested and has drifted ever-so-slightly lower. It is below the July print of 19.7 and August’s print of 19.8. It is still extremely strong. The real estate market has a cycle to it. It is typically very active 8 months out of the year and cools off in the winter months (Nov-Feb). The winter is a difficult time to move. Traveling through winter weather and holiday gatherings lead to fewer buyers are looking to move. I anticipate a few months of lower readings from here until the spring comes around. Once spring hits, if the Fed is still pumping money into the economy, the index could continue to run hot.
All signs currently point the Fed pumping more money into the economy.
The M2 money stock report dropped this morning. The 13-week annualized M2NSA money supply number came in at 12.0%. Here are the readings from the previous 14 weeks:
This is very robust growth, even for this time of the year. This is especially significant for price inflation at the consumer level. There appears to be no slow-down in price inflation coming. Zooming in on the latest data, you can see that the current growth has only been higher in 2020.
In addition, this is the time of the year when there is a boost to the money supply to close out the year. This plays into the Santa rally and January Effect. My worry was that the Fed’s taper plans were going to reduce the money supply growth but this has yet to be seen in the figures. For now the boom is still on, however I’m still a believer that a rotation is coming. Investors are growing weary of the fairy tales of ever greater growth of unprofitable companies. They will soon require companies to make a profit to get their investment dollars.
On top of all this, we have gold and silver. These two have had disappointing returns in 2021. Tomorrow I’ll go over the bull and bear case for both as well as a few value stocks that I have my eye on.