When the government revealed its inflationary report for July, it set a lot of things in motion. The market bulls took courage. Presdent Biden stroked his declining approval numbers. He had many reasons to smile. He got good legislation with the Chips Act. He bullshitted the Inflation Reduction Act by declaring it lowers our national debt. How can you reduce debt when you spend in the trillions and reduce in the billions? The Federal Reserve pointed to their policy with a self-pat on the back. Biden added that gasoline declined from over $5 per gallon to less then $4. Oh yeah, after the inflation report, the government said the unemployment rate dropped to 3.5%. Like George Harrison sung, "Give me peace..."
The Way We See It
The market rally is already running out of steam. Up volume is declining rapidly. Just like there were no more sellers in the decline, now, there are no more buyers. Since the market mirrors our economy on many levels, investors are getting second thoughts as data slowly paints a picture of a declining economy. The unemployment claims rose another 14,000 to 262K. Keep in mind that hundreds of jobs like a waitress, realtor, any self-employed and people working off the books are never counted. This runs into the millions!
Previously, we indicated the market could touch 34,000 in the Dow. It did. However, the turn is developing. The government controls the media and it is spooning positive developments in the economy. I think everyone heard the gas news? This is allowing the Federal Reserve to change its tune on inflation. It should read "toon" because the Fed is a cartoon joke except we are the "punch"-line.
We already told you that we believe the Fed will blink. The first sign appeared last week. Fed members were saying, inflation will drop to 4% by the end of the year. There is no need for another three-quarter rate hike. At best, maybe one-half and possibly only one-quarter? Dear Reader, when inflation emerges, it comes in cycles. Generally, there are three or four.
Why, you ask? Because the price increase has to effect your business. If labor rises like it did after COVID, your costs go up. If you are dependent on short-term loans and rates rise, your costs just went up. In some cases, you might end up closing your doors. Last week, our piece informed you of the many firms cutting back or closing locations. These events get very little to no national coverage. The next inflation cycle has already made its presence. You may think that when gasoline declines, it is good for everyone. Not true due to the many other uses that oil is transformed.
Deisel
I never want to follow a deisel vehicle on the road. The pollution is unbearable. However, until society can develop technology that has the strength to carry large loads, run big machinery and do it economically, we are stuck with deisel. With that said, deisel is the quiet locomotive in our economy. Long and short haul drivers depend on it. Almost every piece of farm equipment runs on it. Many factories still use it. Shippers still use it. Quess what? There is not enough deisel fuel to go around. All of the above are paying $5.13 per gallon. Granted, the price was even higher, but that is just a little relief. All of the above are paying $1.62 a gallon more this year than last. This should tell you that inflation isn't going anywhere soon. The war in Europe and its dangers are not helping the situation.
Velocity of money? How About the Velocity of Inflation? Effects?
Everything eventually ends up on a truck. The price increase for fuel will be contagious to all businesses. Last week, many companies announced lower forecasts due to costs like chip leader, Nvidia to the retail king, Walmart. Amazon reported lower income, but the market has yet to punish its share-price. The media does from time-to-time offer tidbits in regards to inflation. A little blurb said the average new car costs rose to $62,000. We already mentioned the new Ford F-150 will run you a mortgage at $97,000! Ouch! No! Double ouch!! When harvest time comes, farmers will feel the whammy again. They got a taste when they planted. The real problem for consumers is the middle-man. He will raise prices to which the supermarket will follow. The Fed calls for 4% inflation by the end of the year is just another proof that they do not know anything. Blowing up a bridge does not make you an engineer. And yet, guys who never had to work for a living, think that they can engineer an economy. It is like their previous call on inflation. It is just "transitory". Idiots! Get Real! Inflation will touch 10%. This is another example why we should End the Fed! Peace.
