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The Morning Call--Rising Inflation Expectations

Dec. 10, 2020 9:21 AM ETCSCO, XOM
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The Morning Call


The Market


Wednesday in the charts.

DASH Double Trashes Tech; Dollar Bid Sparks Bullion & Bitcoin Breakdown

Uptrends everywhere.

Uptrends, uptrends everywhere



The Economy


Weekly jobless claims were 853,000 versus consensus of 725,000.

Initial Jobless Claims Jump Most Since March As Lockdowns Strike

October wholesale sales rose 1.1% versus expectations of up 0.9%; sales rose faster lowering the inventory to sales ratio.

The October JOLTS (job openings) report showed 6.652 million jobs available versus predictions of 6.3 million.

Job Openings & Labor Turnover: October 2020 Update

November CPI came in at +0.2% versus estimates of +0.1%.

CPI Comes In Hotter Than Expected On Hotel, Airline Fares; Used Car Prices Drop


The October UK trade balance was -L1.7 billion versus projections of +L0.5 billion; industrial production was up 1.3% versus +0.3%; manufacturing production was up 1.7% versus +0.3%; GDP growth was +0.4%, in line.

November Japanese PPI was flat, in line.


ECB keeps its version of QEInfinity/Forever on track.

ECB Boosts QE By €500BN, Euro Jumps On Lack Of Dovish Surprises

The coronavirus

Update on the coronavirus stats.

Political Calculations: Nine Months of the Coronavirus Pandemic in the U.S.

Free market vaccines.

Free Market Vaccines


Tensions continue to rise.

China Slaps Sanctions, Travel Restrictions On US Officials As Feud Over Hong Kong Intensifies

Falling behind.

America Surrenders To China?

Bottom line. Rising inflation expectations.


I have noted in our discussions about the bond market that a gradually rising rate of inflation (interest rates) has historically been a good thing for the stock Market because it generally denotes an improving economy (corporate profitability) but without significant wage or raw material price pressures. A spiking inflation rate usually indicates the aforementioned price pressures; and that has not proven to be a plus for equities Given the pin action in bonds, the dollar, commodities and gold, it appears that investors believe that an increase in inflation may be in the offing. If that proves to be the case, then investors will soon (may have already) begin to deal with the initial rate of increase; and then, if it is thankfully low, the timing of any acceleration in the rate of increase.

If we are lucky enough for inflation to behave tamely, then all will remain well in stock land (all other things being equal); though there could be a brief period of uncertainty until it is clear that inflation is under control. However, if the alternative scenario develops, it could very well initiate the mean reversion process that I harp on repeatedly. And I want to emphasize that such a reversion would NOT be an overvalued Market in an otherwise stable economy but rather an overvalued Market in an economy whose growth has been for the last decade, is and will continue to be throttled by too much debt (see below) and a grossly irresponsible monetary policy. In short, a mean reversion to a faltering mean.

I am not saying that this is imminent. Indeed, as long as the Fed pumps in liquidity and the Markets believe that is a positive---meaning bond markets remain stable---then QE will remain the key determinant of stock price direction. But if inflation (interest rates) continues to increase, it will likely mark the beginning of the end. How long ‘the end’ lasts is unknowable right now. But rapidly rising inflation coupled with loss of faith in the Fed would likely trigger the end of the end.

Drowning in debt.


JP Morgan doubles down on bitcoin.


News on Stocks in Our Portfolios

Exxon surges after DE Shaw goes activist.


Cisco (NASDAQ:CSCO) declares $0.36/share quarterly dividend, in line with previous.

What I am reading today

Linguistic inflation.


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Analyst's Disclosure: I am/we are long csco, XOM.

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