Morning Report: No relief on the inflation front

Stocks are lower this morning after the consumer price index (a measure of inflation) came in higher than expected. Bonds and MBS are down.

The consumer price index rose 0.1% in August, which was higher than expected. The Street was looking for 0.1% decrease as energy prices have been falling. On a year-over-year basis, prices rose 8.3%.

If you strip out food and energy, prices rose 0.6% MOM and 6.3% YOY. These were both higher than expected. Energy prices fell 5% MOM while food increased 0.8%. Higher prices for motor vehicles put upward pressure on the index.

The reaction in the markets was swift and severe. The S&P 500 futures went from a 0.75% increase for the day to a 2% decrease. In the bond market, the reaction was even more dramatic with the 10 year yield rising from 3.29% to 3.45%. The two-year spiked from 3.51% to 3.75%.

The Fed Funds futures were already predicting a 75 basis point increase at next week’s Fed meeting, and are now pricing in a 18% chance of a 100 basis point hike. The November futures are now pricing in a 75 basis point hike as well. The December futures now see a better-than-70% chance for a 4 handle on the Fed funds rate at the end of the year.

Needless to say, this report is highly bearish and raises the chance of a hard landing in the US economy. We are conceivably talking about 400 basis points in hikes over the course of 9 months, which is comparable to the rate hikes in the early 1980s in terms of magnitude.

Given that we started the year with negative GDP growth, and we haven’t begun to feel the effects of the summer rate hikes, I think a recession is inevitable, though the NBER will pull out all the stops trying to prevent itself from declaring one.

Notwithstanding the CPI print, the National Federation of Independent Businesses sees inflation beginning to moderate. The NFIB Small Business Optimism index improved in August as the outlook brightened. That said, we are coming from pretty depressed levels.

Mortgage credit availability declined for the sixth straight month in August, according to the MBA. “Mortgage credit availability declined slightly in August, as investors reduced their offerings of ARM and non-QM loan programs,” said Joel Kan, MBA Associate Vice President of Economic and Industry Forecasting. “As overall origination volume is expected to shrink in 2022, some lenders continue to streamline their operations by dropping certain loan programs to simplify their offerings. Additionally, with a worsening economic outlook and signs of cooling in home-price growth, the appetite for riskier loan programs has been reduced.”

As you can see from the chart below, mortgage credit is almost back to the bad old days in the aftermath of the bubble.

31 Responses

  1. Interesting read:

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  2. I have to tell you, as the primary grocery shopper in the family, food costs are absolutely brutal. I’d say that produce and meat protein prices year over year have at least doubled. I honestly don’t know how marginal income people are making it.

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    • a soup and salad at the cafeteria in our building will set you back 18 bucks

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    • McWing:

      I honestly don’t know how marginal income people are making it.

      A small price to pay to “save” the climate. Certainly, at least, one that wealthy bien pensant progressives are willing to pay!

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    • i’m feeling the prices.
      and, yeah, not exactly clipping coupons here.

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    • “I’d say that produce and meat protein prices year over year have at least doubled.”

      Agreed, although I think it’s more for meat than produce.

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      • Maybe but we eat a lot of fresh produce and it has gone up substantially. That said I tend to buy presorted stuff, like a 12 oz steam in bag of green beans or broccoli. Also, avocados have increased hugely due to cartel stuff plus douchebags in Brooklyn. Finally, fresh fruit is fucking brutal.

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    • I’m only marginal income in the sense I have to support three women who mostly feel money is like oxygen, except to complain there isn’t more of it.

      Youngest daughter complained last night that the $2700 mentorship program we’re paying for used Zoom which she couldn’t install on her school Mac Book, so she’d have to use one of the desktop computers or borrow her sisters relatively knew and gently used PC laptop which might involve having to copy some files on a thumb drive at some point. The fact that someone hadn’t already bought her her own MacBook was tantamount to living under a bridge.

      Anyhoo, so my income is only marginal in context. But I’d be up shit creek without credit cards and may eventually be up shit creek with them.

      But no more mean tweets so I guess it’s all worth it!

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      • I’m sorry Kevin, I’ve been there and now the kids are grown and self sufficient so there will be light at the end of the tunnel. That said, I’m cost conscious and I’m shocked at prices and the lack of wage increases and feel for those struggling as I’ve been there and it can feel like being in quicksand. Also, isn’t Zoom and Apple product? How is it not working on a MacBook? I’d love to have a MacBook myself .

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        • School laptop, locked down. Can’t install it and it may be blocked at the network level for all I know. FaceTime is Apple’s version. Zoom kind of sucks on the Mac but also it just kind of sucks period. But that’s not the issue there …

          We use Teams at work but vendors use everything so I use Zoom, Ring, GoogleMeet, WebEx … been awhile but we used to use FreeConferenceCall.com a lot. And there’s something else but the name escapes me.

          Here’s hoping my kids become self-sufficient. Oldest one is going to be too old to be on my insurance before she’s done with college. Youngest one I still have some hope for but I’m looking at 8 years of college there too. Jeeze these kids. I wanted my parents to pay to send me to graduate school and they told me to fuck off with that bullshit. 😃

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        • KW:

          I wanted my parents to pay to send me to graduate school and they told me to fuck off with that bullshit.

          I told all three of my girls as they graduated from high school that I would pay for 4 years at whatever university they could get into and chose to go to, but after that it was on them.

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        • Probably a wiser course for you and for them but I’m a sucker!

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        • Ah, I didn’t know that about it being a school computer. We use Teams mostly at work but I’ve used them all, including Zoom, which isn’t my favorite.

          For me and my sister, we were just, well, feisty I guess and didn’t want our parents help once we were old enough. I couldn’t wait to move out, for example. My parents weren’t cheap or stingy or anything, I guess not feeling dependent runs in the family. It’s not a boast here, it’s hurt us in many ways as well involving attachments. It is what it is. Good luck with the kids, they’ll get it and I know it’s a different time. Even though I paid for school I was on the 5 1/2 year plan and defaulted to a Liberal Arts degree (English Lit) due to really, really shitty grades. I graduated with a 2.5 and the last year was spent taking easy course just to get my GPA up enough to graduate. Then I lied during interviews. Luckily no one checked my transcripts!

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        • Both oldest and youngest want to move out but don’t seem to understand what that involves. I was married and living in my own house by the time I was the old ear’s age—but if I hadn’t been married I certainly would have still lived with my dad. Youngest can’t wait to get away but also doesn’t want to spend any of her own money to accomplish that and I don’t see that changing when she’s through will school.

          Youngest is also a one of those brilliant but also clueless people. Also academically pretty hard-working but also lazy when it comes to taking care of basics. Her bedroom looks like an episode of hoarders. *sigh*

          I thought I’d be a good parent but in retrospect I’m not sure having kids was the best idea. I’m too indulgent, probably didn’t provide enough boundaries, yada yada. Ah well. Eventually reality will impinge.

          Oldest needs to get on with graduate school if she’s going. This has become a two-year gap year and at this point I’d be fine with her starting her actual career (which I’ve encouraged but she likes her comforting, low-paying medical transcription job that I essentially subsidize by her living rent free, plus me picking up all her medical bills (expensive! Type 1 diabetic, insurance only covers so much). Then I gotta cover the car insurance for 4 cars and the car notes for two … phew!

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        • Yikes! And let me tell you having kids is a blessing, regardless of what you’re feeling now. How we treat our kids is often an overcorrection of how we felt we were mistreated as kids… if that makes sense. Being indulgent is part of that, I think. Also, there’s tremendous pressure to provide all sorts of things to kids that, in hind sight, probably aren’t the best for them, but pressure is pressure. Do they actually need an Iphone? No, any cheap smartphone will do but you and I both were kids and get the pressure – it all rolls uphill. Are smarthphones good for kids? God No! But imagine not providing one? It takes a strength almost no one has. The equivalent for our day were the parents who didn’t have TV’s in the house. In the end it served the kids well but it takes freakish strength not to give in. And those TV deprived kids of our generation probably are freakishly attached to tv’s today so… ?

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        • KW:

          I essentially subsidize by her living rent free, plus me picking up all her medical bills (expensive! Type 1 diabetic, insurance only covers so much). Then I gotta cover the car insurance for 4 cars and the car notes for two … phew!

          All three of mine came off the payroll all within a few months of each other earlier this year. No more rent (or rent free living), no more car insurance, no more food. The youngest could still be on my insurance, but got a real job immediately after graduating, and so has her own. They are all still on my phone plan, so I guess not completely off the payroll, but it is way cheaper to keep one plan than to have 4, so I am ok with that.

          I have often noted to my wife that by the time I was my eldest daughters age, I was actually subsidizing my parents in various ways, rather than vice versa. It is a new generation.

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        • “Also, isn’t Zoom and Apple product?”

          No, that’s Facetime.

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        • I moved back in with my parents the first year after college while I was getting a job (I didn’t have one lined up at graduation because I was applying to law school which I got wait listed for and didn’t get into).

          I got a job and a roommate and moved out after one year and that was that. Lived in an apartment for about 4 years then bought a house. The 1990’s were a good time to start a career.

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  3. The comments are… (chef’s kiss)!

    https://www.dailykos.com/stories/2022/9/13/2122592/-Inflation-numbers-are-bullsh-t

    My personal favorite:


    Dirk McQuigley
    steffensj
    Sep 13, 2022 at 11:41:10 AM
    Take the price of gasoline. It always is highest in the summer when demand is at its highest. Moreover, at the peak, the price adjusted for inflation is virtually the same as it was in 1973-74 and ‘79. The reality is we in the US pay far less than the rest of the world does for gas.

    What are people bitching about, it only went as high as the last time gas price shocks cratered the economy! Plus, compared to the rest of the world our gas is cheap. This country keeps failing Joe.

    Maybe Joe is right, open the border so we can dissolve the ungrateful electorate we have and replace it with another!

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    • The left also beleives in the Deep State.


      buffan
      Professor1215
      Sep 13, 2022 at 11:17:43 AM
      The numbers this month seem definitely out of whack and manipulated, probably in the way you suggest to make them artificially high, which seems ludicrous given the steep decline in gas prices. I am paying $2/gallon LESS than in May this year!

      The accurate reporting would be that prices and inflation rate increased only by.1% this month but prices are still hovering at 8.5% higher than this time last year

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    • It used to be that the B.L.S. collected numbers and released a monthly rate of inflation, comparing each month to the previous month. Then that monthly number was multiplied by 12 to create an annualized number.

      No, that isn’t how it was ever done. The CPI is an index. You compare today’s index number with the one a year ago.

      Doing what he suggests is as stupid as taking the daily S&P percentage change and multiplying it by 250 to come up with an annualized number.

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    • “the price adjusted for inflation”

      The circular logic of discounting inflation in a comparison that’s about the impact of inflation on prices.

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  4. Charles is normally insufferable with his environmental preening but in this instance I support him wholeheartedly. If the invitees don’t arrive flying coach on commercial flights and travel is buses, together, then they should be forbidden from entering Westminster.

    Prove your commitment, losers!

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