Markets are set to trade higher this morning, after one fo the highest inflation readings in decades.
For the month of December, inflation rose 0.5%. That puts prices a full 7% above last year’s levels.
Core inflation (which ignores higher food and energy costs) was up 0.6% for the month. For the last year, core prices are now up 5.5%.
Today, you and I are facing the highest inflation readings since 1982. (If you use core inflation, it’s the highest reading since February of 1991.)
Higher inflation makes life tough for savers, retirees, and also hits lower-income families harder. And as we’ve been saying for months, inflation is NOT transitory.
Ironically, higher inflation can help individuals, companies (and especially governments) with a lot of debt. That’s because the high debt levels eventually become less meaningful. Inflation eats away at the “real” value of this debt.
Think about it this way… If you buy a house for $200,000 and borrow $150,000 with a mortgage, your equity is about $50,000.
But if the highest inflation in decades might push that home value up to $300,000 (while your mortgage stays near $150,000). That inflation could add $100,000 of value to your life — tripling your equity thanks to a 50% increase in your home’s value.
Of course I’m not suggesting that it’s a good idea to borrow more during this uncertain economic period. But you can see how the highest inflation in years may actually help some areas of the economy. Heck, higher inflation could even make the U.S. Federal debt level seem like less of a problem.
There’s a lot to unpack with today’s inflation reading. We’ll certainly be looking more carefully at this number and how it affects your investments.
For now, let’s take a look at some of the most important reads for this morning…
Highest Inflation Since 1982
- CNBC: Inflation rises 7% over past year – highest since 1982.
- Last month’s 0.5% CPI increase brought the full year increase to 7.0%.
- Core inflation (ex food and energy) was up 5.5% over last year.
- This is the highest print since June 1982 – or Feb 1991 for core CPI.
- Bloomberg: How different assets perform when inflation picks up.
- If inflation settles between 3% and 6%, even value stocks can be hurt.
- Real assets like oil, base metals, and ag products typically do well.
- Passive index investing is less profitable during inflationary periods.
- FT: Battery costs rise as lithium demand outstrips supply.
- Supplies of lithium and other raw materials hasn’t kept up with demand.
- Cobalt prices doubled since last January, nickel up 15 percent.
- Shortages threaten to curb auto industry’s EV plans.
- NFIB: Number of biz owners worried about inflation highest since 1981.
- Small business optimism increased slightly in December
- Inflation having an overwhelming impact on ability to manage.
- 22% of owners reported inflation as single most important problem.
- Bloomberg: We’ve seen this [interest rate] story before.
- For 20 years, investors have worried higher rates will sink stocks.
- For one reason or another, it never happens.
- Wage data may show that this time inflation will stick.
How Omicron’s Surge Affects the Economy
- Reuters: Omicron surge pushes US hospitalizations toward record high.
- The number of omicron infections has placed a strain on hospitals.
- US covid hospitalizations approached 123,000.
- Deaths remain steady near 1,400 per day — below last year’s peak.
- WSJ: The week America is calling in sick.
- Seven-day average of daily cases reported surpassed 500k.
- More than 5 million Americans could be stuck at home isolating.
- Businesses are struggling to remain open due to staff shortages.
- Fed Reserve of St. Lous: Retirements surge for older workers.
- Older workers have been retiring at a faster clip during covid crisis.
- The age brackets of 66-70 years old and 70+ show largest change.
- Resume Builder: 1 in 4 workers plan to quit in 2022.
- 9 percent of workers have already secured a new job for this year.
- 50% of workers are seeking better pay and benefits.
- Individuals who work from home are most likely to look for new job.
Here’s the Latest for Digital Assets
- CoinDesk: Traders reduce leverage, selling pressure subsides.
- The reduction in leverage could signal healthier market conditions.
- Bitcoin is near a 3-month low, tracking declines in the stock market.
- Reuters: Kazakhstan crackdown hits Bitcoin network power.
- In 2021, Kazakhstan became worlds 2nd largest bitcoin mining center.
- The internet was shut down across Kazakhstan on Wednesday.
- Kazakhstan mining farms are mostly powered by aging coal plants.
- Bloomberg: PayPal explores launch of stablecoin.
- PayPal commits to work closely with relevant regulators.
- Evidence of stablecoin project was discovered in PayPal’s app.
- CoinDesk: Bitcon’s near 40% Slide Weighs on Crytpo Stocks.
- While Bitcoin lost 40%, shares of some miners lost much more.
- Both bitcoin and crypto stocks sensitive to monetary policy tightening.
- Shares of COIN “outperformed” with only a 35% drop.
- CoinDesk: Cryptocurrencies correlation to stocks is rising.
- Bitcoin’s 90-day correlation with the S&P 500 highest in a year.
- Both equity and crypto investors are focused on Fed policy.
- Economic recovery could lead to weak dollar, strong crypto.
Politics and the Global Economy
- ESI: 2022 begins with continued upward push in economic sentiment.
- Sentiment levels have been increasing since late November.
- Confidence in personal finances was the strongest component.
- Housing market confidence also continues to be strong.
- Reuters: Transport disruptions of Kazakh uranium shipments.
- Kazakhstan is the world’s top uranium producer — 40% of supplies.
- Violence in Kazakhstan raises supply and shipment concerns.
- China has been adding to uranium reserves, stockpiling 120k tonnes.