Another month, another shock CPI reading…
It seems the US’s inflation woes aren’t over just yet.
Headline inflation once again beat estimates, coming in at 8.2% rather than 8.1%. The more worrying stat was core inflation, which jumped to a 40-year high of 6.6%.
Naturally, that deluged US stocks with selling pressure at the open. All the major indices collapsed 2% or more at the opening of trading.
But, just a few hours later, those losses had been reversed…
In a strange, whipsawing market, US stocks actually ended the day up 2%!
It is one of the biggest one-day reversals in market history — just another oddity in a trading environment that continues to deliver surprise after surprise.
The real concern is what happens next.
One day of shock gains in the face of bad news is not enough to end this bear market. Inflation is still high, and the Fed has shown it will not waver in its aggressive hiking until it shows improvement.
For that reason, don’t be surprised if we see some heavy selling in the coming days.
But, if you’re looking for silver linings, there is one that most people seem to be overlooking…
Supply chain reprieve
Remember last year when everyone was obsessed with the supply chain chaos?
Just over 12 months ago, the cost to ship a standard 40-foot container from China to the US would set you back roughly US$20,000, compared to the pre-pandemic average of US$1,200–1,500. You can understand just how broken things were in the shipping industry.
Why this is so important is because it directly feeds into the inflation issue.
The IMF has found — through historical data — that when shipping costs double, inflation rises by 0.7%. So, the fact that shipping costs increased upwards of 10-times at their peak, their influence on inflation is likely to be a major factor for the current surge in prices.
The good news is that these supply chain pressures are easing. And they’re easing fast…
|
|
| Source: Harper Petersen & Co |
The chart above shows the Harper Petersen Charter Rates Index or HARPEX for short. It is a measure of worldwide prices for chartered container ships. And, as you can see, the price has fallen off a cliff since early September.
From roughly US$4,300 a few weeks ago, the HARPEX has dropped all the way down to US$1,750!
That is a monumental shift in a relatively short time frame. It’s just one example of many that are contributing to easing supply chain pressures. Because as the Fed’s data shows, things are improving on the supply side of things:
|
|
| Source: New York Federal Reserve |
Costs in the supply chain are finally returning to the ‘normal’ levels we once saw. So, given inflation is a lagging indicator, perhaps markets have good reason to be optimistic at the moment.
Overreactions and overreach
Despite this data, don’t expect Jerome Powell or his colleagues to change their minds anytime soon.
At this point, the Fed has to keep raising rates until inflation data budges just to save face. They can’t afford the PR disaster of another error like Powell’s ‘transitory’ call on inflation last year.
For that reason, investors need to prepare for more Fed hikes in the months to come. They are going to push the US into recession and drag global markets down with them.
Whether they will take things too far, only time will tell. I certainly believe the Fed is going down a dangerous path, however. This bizarre era of monetary policy could lead to a lot of unwanted and unforeseen consequences.
Currency exchange, in particular, is something worth keeping an eye on. Because as the UK recently showed, when fiat goes bad, it can threaten entire economies.
That’s why we mention and discuss cryptocurrencies so frequently here at Money Morning.
Few assets other than gold and crypto offer a relatively safe haven for investor wealth. And while crypto is certainly more volatile than gold, it also has much more potential for higher returns.
Indeed, our own crypto expert, Ryan Dinse, believes that bitcoin could be worth US$1,000,000 by 2030. It’s a bold prediction to make right now, but one that he is willing to back up with evidence. You can hear all about this opportunity and how to get involved right here.
After all, with how all over the place stock markets are right now, crypto volatility isn’t looking all that bad.
Regards,
 |
Ryan Clarkson-Ledward,
Editor, Money Morning
Ryan is also co-editor of Exponential Stock Investor, a stock tipping newsletter that hunts down promising small-cap stocks. For information on how to subscribe and see what Ryan’s telling subscribers right now, click here.
