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Inflationary Thursday – CPI Keeps Going Up

What inflation?

That's what the Fed says when confronted with the facts, which showed the CPI over 4% last month and that number is a drastically low estimate of inflation since it says things like "Netflix was $13 last month and this month it's $15 but, since they added 10% more shows (in Turkish), we're only going to count that at an 0.70 price increase."  

These are called Quality Adjustments and that's why, if your computer costs 10% more than your last model but it has 10% more memory and 10% more processing power – it's considered to be the same price – even if you have no desire for the extra memory or power.  Think about your IPhone, the original ones has 256 Megabytes of memory – now they have 256 Gigabytes of memory – that's 1,000 times more so your phone is 1,000 times less expensive than you think it is – less than $2 in 2007 prices.  The fact that you actually pay $1,200 for it is simply a mathematical inconvenience ignored by the Government.

 According to the BLS, the price of computers is only 39% of what it was in 2007. Are consumers really paying 60% less for computers today than they did in 2007? Of course not. Track any computer that has remined in production for the last 12 years, and you’ll see that none of them have gone down in price. The only reason why BLS argues that computer prices have declined 61% since 2007 is because today, you can get a $400 computer as fast as the $1000 computer in 2007. 

According to CPI, inflation in new cars and trucks is 47% since 1982. At the same time, according to the industry analysts at Kelly Blue Book, the average transaction price for a new light vehicle is $37,185 in May 2019. Yet in early 1980s, the price of a Porsche 911 Super Carrera was only $20,775. The price of a mid-trim Honda Accord was only $8,549.  $37,185/1.47 = $25,295.  If I had $25,295 in 1982, I could purchase almost any car on the market outside of top tier flagships and supercars.  How is it, that the average price of a car today, deflated to 1982 levels, would allow me to buy almost anything from a Porsche, Mercedes-Benz or Cadillac dealer?

In 2010, Ford’s V6 Mustang made ~200hp, and the Mustang GT made ~300hp. The v6 coupe sold for $21,395, while the GT coupe sold for $28,395. In 2011, Ford updated the engines in the Mustang lineup. The old crappy “boat anchor” v6 disappeared, while the new v6 made ~300hp and the new GT made ~400hp. In 2011 the v6 Mustang sold for $22,145 while the GT sold for $29,645.  In this example, consumers would understand it as the price of the Mustang went up.  However, when calculating CPI, the BLS would argue that the price of the Mustang went down.  After all, now you can get the same amount of power out of a $22,145 v6 Mustang as you previously did out of the $28,395 GT!

This is all complete and utter BS and these are vitally important numbers.  The CPI is used to determine how large your Social Security check should be or Disability Payments or Unemployment payments but it's also used to calculate our GDP and the lower CPI gives us a higher GDP so the system feeds in on itself to completely distort the image of our economy and that then affects investing decisions, long-term planning, Government Spending, etc.  

8:30 Update:  Consmer Prices were indeed up 5% in May (year over year) but that hasn't stopped the market from flying higher.  The action is summed up here:

“As long as we’ve got cheap money, we’ve got a savings glut, not just in the West but in Asia. I think there is decent support for stocks,” said Jane Foley, head of foreign-exchange strategy at Rabobank. “I don’t imagine there is going to be a really serious downturn.”

Inflation is not INITIALLY bad for the market but it becomes an issue if it's persistent and the Fed insists all this inflation is "transitory" but we have a 30-year Bond Auction at 1pm and we'll see how transitory the bond investors think inflation is.  30-year notes pay 2.395%, not even 1/2 the current rate of actual inflation – even as incorrectly measured as our CPI data.  What will be more interesting is tomorrow's Consumer Confidence Report (10am) – we'll see if the average consumer is concerned about inflation yet.

Another issue about to hit the news cycle is Climate Change, which we talked about yesterday.  Biden is in Europe to attend the G7 Summit and a lot of expensive items are going to be discussed like fighting Corona Globally (yes, it's still a thing) and committing Trillions of Dollars to combating Climate Change – and where is that money going to come from? 

Oil (/CL) is back at $70.50 this morning, that's a good line to short ($72.50 on Brent (/BZ)) and S&P (/ES) 4,250 is not likely to hold either.


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  1. Good Morning.

  2. Here is the replay of yesterday's webinar.


  3. Good morning!

    I have to go get my hair cut soon ahead of the TD thing at 1pm, back around 11:45.

    /CL shortable below $70.50 and /ES shortable below 4,250 – there's no good reason for these pops.





  4. biodiesel   I have a question.

    How can Gemini offer 7.4% return on their coin?  Is that sustainable, in your opinion?

  5. Indexes pulling back a bit, wheeee! on Oil.  I'll be back in an hour.

  6. Damn, just missed the bottom on oil there.  $70.25 is the stop.

    /ES I'll hang on to though up $2,000+ at 4,228 is pretty good (2 contracts). 

    Did not get my hair cut either, the guy didn't show and I didn't have time to wait.

  7. Phil/DISCA

    Im sold 5 of the Jan 23 $40 puts for $11. Hurting a bit but anything worth adjusting here Phil or just stay the course?

  8. Phil,  

    curious on the concept of relative strength.  I know you're not a TA guy but i often watch stocks ignore the indexes on the way up and then join them on the ride down.  Or sometimes the inverse. What does this usually say about an underlying asset? 



  9. MonkMan – I use a portion of my portfolio for swing trading with shorter duration options, targeting a 1-3 month timeline. For these trades I often look for stocks which show relative stregnth. Even better to look for stocks showing relative strength in areas of the market that are themselves outperforming on a shorter/intermediate term basis. So, for example, from an ETI perspective I've been swing trading XLE up as it continues its march higher. But, you could target relative stregnth names in financials or energy at this point, I think. That said – these say things about short term asset allocation and money flows more than about long term fundementals…. although some of them have fundemental underpinnings. Just my 2 cents. 

  10. DISCA/Swamp – As long as $30 holds, I'm not worried.  Your net is $29 so hopefully you REALLY want to own them for that price.  Your puts are $14 now and the $30 puts are $7 so that's not really worth a 2x roll so better off waiting for 2024s to come out if you want to roll.  

    Relative Strength/Monk – The indexes are like the broad river and, in general, things will move along with them in a general direction, then there are sectors within an index and they may go off in slightly different directions (influencing the individual stocks within them) but they too will be pulled along by the stronger current.  And then there's the individual ducks – they generally go along with the current but they are capable of going off on their own if they make the effort.  

    TA assumes all these things are equal but, fundamentally, it's more like physics and, while you can't very accurately determine the direction of any given particle, you can very accurately predict the actions of large groups of them.  You have to give the appropriate weight to the indicators your looking at – there's no single factor that's going to tell you what's going to happen.

    For example:



    • U.S. retail sales are forecast to rise 5.5% ex-auto and gas during the back-to-school shopping period of July 15 to September 1, according to Mastercard SpendingPulse. Back-to-school sales are seen rising 6.7% compared to the 2019 level.
    • "This back-to-school season will be defined by choice as online sales remain robust, brick and mortar browsing regains momentum and strong promotions help retailers compete for shoppers' wallet," says Mastercard advisor Steve Sadove.
    • The mall sector is expected to do well with the return of brick-and-mortar traffic. Apparel sales are forecast to rise 78% and sales generated from department stores are seen rising 25% (+9.5% from two years ago).
    • Sector watch: TJX Companies (NYSE:TJX), Ross Stores (NASDAQ:ROST), Burlington Stores (NYSE:BURL), L Brands (NYSE:LB), Gap (NYSE:GPS), American Eagle Outfitters (NYSE:AEO), Urban Outfitters (NASDAQ:URBN), Boot Barn (NYSE:BOOT), Buckle (NYSE:BKE), Guess (NYSE:GES), Zumiez (NASDAQ:ZUMZ), Kohl's (NYSE:KSS), Dillard's (NYSE:DDS), Nordstrom (NYSE:JWN) and Macy's (NYSE:M).
    • Seeking Alpha Quant Ratings on mall retailers have been on the rise.

    There's a premise that says retail should do well into the fall.  XRT, however, is already toppy:

    So they might do well but will they do THAT well?  So we don't just pick random crap because it's in retail but we do like LB,for example so they are nice and now we have a catalyst that could push them higher so we check them out.  FL we already have and a case could be made for GES going forward.  That's how we BEGIN to look at something:  Index is positive, Sector is interesting, there's a clear Catalyst, Individual Stocks have a reason to go higher.

  11. Monk-RSI- I am not a TA practitioner either but follow it a bit as I find it useful for short term trading. I believe what you are seeing is called divergence. When RSI is going down and the stock price is going up, it is a signal for a possible reversal and vise versa. Other factors come in to play so RSI is just another chart line to consider.

  12. great insight, thanks

  13. also, i haven't been around here for a year or so… what happened to StJLuc? 

  14. StJ/Monk – He got taken up by other projects he was working on.  

  15. stockbern – Gemini earn, here are the risks

  16. Andy/tech/admin,

    Re the webinar replay, there used to be an index with subjects and times included with the replay link which made it easy to listen to specific subjects of interest. I would be grateful if you would provide such a listing.


  17. Hi 8800: Are you referring to this post ? That one is about Phil's Thursday (today) interview with TD Bank and just finished a little while ago. We're working on the Wednesday webinar post now, to make the subject/time line to go with the video. ~ Ilene 

    Gonna try to link to it again:

  18. Another generally nothing day.  Hope the whole summer isn't like this.

  19. Ilene

    Thanks for the timely reply. Nope, I was referencing Phil's weekly Wednesday webinars which used to have an index showing approx times for each subject which really helped members. If you can make that happen I will place your name in nomination for Ambassador to France.