The BLS released the PPI and CPI data this week and both were troubling.
The Producer Price Index for final demand increased 0.4 percent in September, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. Final demand prices declined 0.2 percent in August and 0.4 percent in July. (See table A.) On an unadjusted basis, the index for final demand advanced 8.5 percent for the 12 months ended in September. The Consumer Price Index for All Urban Consumers (CPI-U) rose 0.4 percent in September on a seasonally adjusted basis after rising 0.1 percent in August, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 8.2 percent before seasonal adjustment. Increases in the shelter, food, and medical care indexes were the largest of many contributors to the monthly seasonally adjusted all items increase. These increases were partly offset by a 4.9-percent decline in the gasoline index. The food index continued to rise, increasing 0.8 percent over the month as the food at home index rose 0.7 percent. The energy index fell 2.1 percent over the month as the gasoline index declined, but the natural gas and electricity indexes increased.
The market reaction today went from doom to boom but all rallies will likely be short lived because it is very clear now that the Fed will need to continue to hike interest rates to contain inflation.
So what are we doing now? We continue to buy short term T-bills including 4 week, 8 week, and 13 week T-bills because the Fed will have one or two more hikes in play for the next two meetings in November and December respectively. We’ll collect 3% yields in short term T-bills until we get a major market correction.
We also continue to buy PUTS on home builder stocks with a target time frame of January 2024.
Stay tuned and stay solvent…