Blowout Inflation is Here

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April CPI came in at 4.2%, a rate not seen since August 2008.

CPI has topped 4.2% only twelve months in the past 30 years, with the bulk of those instances during Jan-Sep 2008 when CPI pushed above 10Y yields.

The Fed has managed (so far) to keep a lid on yields, providing additional evidence that the bond market remains broken and is no longer a valid source of price discovery.The details indicate the actual number should be higher, even by the BLS’ deceptive standards. Gasoline, for instance, is listed as having experienced a 49.6% YoY increase…

…though the actual increase was 62%. Rent has risen 10%, well above the shelter increase of 2.1% cited by the BLS.

The rise in both CPI and gas prices continued the high positive correlation seen over the past several years.

The effect on equities has also been muted so far. As with bonds, it has nothing to do with markets “shrugging off” data.

The bond market’s supposed reaction to the most significant economic data of the past 15 months.

Cue the Fed doves, who will continue to insist that rapidly rising prices are a good thing. Wouldn’t it be nice if, just once, the MSM would ask them to explain how spiking food, gas, rent and used car prices will benefit the average American – you know, the ones they claim to care so much about?

By now, it should be obvious that the billlions being thrown at markets is intended to prop up stocks and keep interest rates from breaking out. Remember…when the 10Y broke above and then failed to hold the red TL in Sep 2018, SPX promptly began a 20% correction.

continued for members…

Rather, the factors we expected to come into play are doing just that — propping up equities the usual way — with the algos that have been so well trained. Our downside targets for ES/SPX remain the same.

I continue to like the SMA200 as a target for NKD.

DJIA is a little trickier, with the SMA200 quite a ways below. Perhaps the SMA50 would be a better initial target and we’ll see how it goes from there.VIX remains pinned under its SMA200.

While CL and RB have ironically rallied on the news. And, USDJPY is heading higher, preparing for a breakout if necessary.

UPDATE: 12:00 PM

VIX has reached our next upside target as ES arrives at the purple midline target. VIX will need to push a little higher if ES is to reach the midline at around 4072.

UPDATE: 12:15 PM