Inflation

The Best Cure for High Commodity Prices

Jun 20, 2022 1 min read paid

In the commodity pits, traders often say: "The best cure for high commodity prices is high commodity prices." That's because when a commodity price soars, it depresses demand for the commodity and stimulates the supply of it. History shows that an even better cure for high commodity prices is a recession. During the late phase of economic expansions, the economy tends to boom. That drives up

Ed Yardeni

Small Business Owners Depressed But Still Hiring

Jun 14, 2022 1 min read

Inflation is depressing, and it is depressing everyone—including consumers, business people, and investors in stocks and bonds. For example, consider May’s survey of small business owners conducted by the National Federation of Independent Business (NFIB): (1) Owners expecting better business conditions over the next six months decreased four points to a net negative 54%, the lowest level recorded in the history of the 48-year-old survey! (2) Inflation was

Ed Yardeni

Uncle Sam Isn’t Santa Claus

Jun 12, 2022 1 min read

Following Friday’s CPI shocker, the financial media seem to have concluded that the Fed will have no choice but to raise the federal funds rate faster than planned to bring inflation down—causing a recession. The Fed is now expected to raise the federal funds rate on Wednesday by 75bps rather than 50bps. The two-year Treasury note soared 23bps on Friday to 3.06%, implying investor expectations that the

Ed Yardeni

Protracted Inflation

Jun 10, 2022 2 min read

Inflation is no longer transitory or persistent. It is protracted. The headline and core CPI inflation rates have yet to peak because rapidly rising energy prices continue to put upward pressure on the headline rate directly and on the core rate indirectly by boosting energy-related costs like transportation. The headline and core rates for May were 8.6% y/y and 6.0% y/y. Here are a few quick

Ed Yardeni

Quantitative Tightening Begins

Jun 5, 2022 1 min read paid

In recent conversations with our accounts, we have been hearing more concern about the Fed’s second round of quantitative tightening (QT2), which started this month. QT1, which lasted from October 1, 2017 to July 31, 2019, pared the Fed’s balance sheet by $675 billion. Under QT2, the Fed will reduce its balance sheet by running off maturing securities. From June through August, that will involve dropping its holdings

Ed Yardeni

Inflation May Be Peaking

May 27, 2022 2 min read paid

The headline and core PCED inflation rates both edged down in April to 6.3% and 4.9%, raising expectations that inflation is peaking. That's consistent with our view that the headline PCED inflation rate should peak between 6%-7% during H1-2022 and fall to 4%-5% during H2-2022, and 3%-4% next year. The FOMC is still likely to raise the federal funds rate by 50bps at

Ed Yardeni

Three Related Signals of a Global Economic Slowdown

May 26, 2022 1 min read

The widely followed proxy for the expected inflation rate in the 10-year TIPS market dropped in recent days from over 3.0% to 2.6%. Is that just volatility? Or, is it signaling a global economic slowdown since it is highly correlated with the nearby futures price of copper, which has also been weak lately? The expected inflation rate is also highly correlated with the Emerging Markets MSCI stock price

Ed Yardeni

Homebuilders Slammed As Sales Fall, Costs Soar

May 24, 2022 1 min read

There's lots of stagflation in the new home market. During April, new home sales (registered when contracts are signed) dropped 16.6% m/m and the months' supply of new homes jumped to 9.0 from 6.9 in March. Here's more: (1) The m/m sales declines were widespread in the South (-19.8%), Midwest (-15.1), West (-13.8), and Northeast (-5.9)

Ed Yardeni

A Stagflationary Day

May 19, 2022 1 min read

Today's batch of economic indicators has been unambiguously stagflationary. Consider the following:

Ed Yardeni

DEEP DIVE: More on Inflation & Stocks

May 13, 2022 4 min read paid

Strategy I: 1987-Style Bear Market? I’ve recently been asked when was the last time we had a P/E-led bear market while earnings continued to increase. Note: The following is an excerpt from a recent YRI Morning Briefing. The obvious answer is 1987. Our monthly Blue Angels framework, which starts in late 1978, shows that the S&P 500 dropped 33.5% from August 25, 1987 through December

Ed Yardeni

DEEP DIVE: Inflation Boosts Earnings & Depresses Valuation

May 12, 2022 3 min read paid

Over the past year, inflation has been having a positive impact on analysts’ consensus forecasts for earnings in 2022 and 2023 but a negative impact on the valuation multiple that investors are willing to pay for those earnings estimates. Needless to say, the former positive effect has been trumped by the latter negative effect. The negative impact reflects the jump in bond yields so far, concerns that bond yields will

Ed Yardeni

DEEP DIVE: Inflation Tends To Be Spikey

May 7, 2022 3 min read paid

Why is the 10-year Treasury bond yield only around 3.00% when the latest headline CPI and PCED inflation rates were 8.5% y/y and 6.6% y/y? Why would bond investors willingly lock in such a painful negative real return?

Ed Yardeni

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