Weekly Raid #63 - (CP)I don't think we should keep spending
Good Thursday morning traders
We have another news-packed day today, mostly with inflation-related information. Let’s jump in and see what we have in store.
News of the day
First up this morning is the regular and core inflation rate. Both of these obviously measure the “official” inflation rate. That is put in quotes because if you look at prices and the government’s rate, they are not even close. These are important for very obvious reasons, spending is through the roof, saving is at a recent low, and people are more multiple jobs at a rate not seen in decades.
One of the things that should concern everyone is that the core rate on the year is higher than the blended. This means staples are still rising faster than they should be, even faster than gas and food. These are just some things to watch.
In the same vein as inflation, this morning are the CPI numbers. These usually get the headline, but they really tell a very similar story. Again nothing new here is expected, with all of the spending in the previous weeks, I can see these numbers really start to blow up in the coming months.
Finally, we have unemployment out today. These numbers I personally don’t really believe anymore. They have messed with the formula a few times over the past decade, and they also don’t give an accurate measure of economic health. They assume everyone who does not have a job applies for benefits. Just from personal experience, that is not the case.
Let’s talk debt and inflation again today, not personal debt but governmental. Politics aside, I think most people can now agree that spending has gotten way out of hand. if you need further proof, see the below tweet.
Another $40 billion in debt today.
Our national debt has jumped by $550 billion in the past 3 weeks. What is going on? This is WAY above the pace of $2 trillion per year expected by the government.
We were are $31.4 trillion just 4 months ago. We have increased by $2.1… twitter.com/i/web/status/1…
That should actually scare everyone, what that means is that our prices for everything else aren’t coming down any time soon. There are a few things that control the inflation beast, its usually the following three things: Rates, supply, and capital/demand.
Rates have been destroyed by our hapless Fed, they have artificially manipulated the market for so long that this one doesn’t have the same power it used to. Sure we feel the squeeze on our wallets, but it stopped doing anything to really curve inflation when they kept rates at basically 0 for so long.
Next up we have supply, obviously, the fewer goods that exist the higher the premium is on them. But there is another part to this that goes beyond just the number of goods on the shelves, and that is the logistics inputs. Let’s assume factories overseas are back to full production (which many are), the hidden cost no one really talked about until recently was fuel. The higher gas prices remain the more it costs to get goods shipped out. This cost is ALWAYS passed onto the consumer.
An explosion in printed capital
Finally, there is demand/capital. Similar to rates this has been bastardized by the Fed. At a certain point, there is market saturation, where everyone has enough capital to buy what they need and mostly what they want. The constant printing of fresh capital will constantly send prices higher because there will always be fresh money for purchasing. This ties into the debt argument because that money comes from debt (printing) and goes to debt (consumer credit cards via lower rates).
So now that this circle is complete, how do we actually get out of it? Well, the way the Fed is attempting to do it will work if you get rates high enough for long enough. But really the rate tool is no longer useful at this level of debt and delusion. It would be equivalent to cutting your grass with a chainsaw, would it work? Sure. But why not just use a lawn mower?
The best thing they could do now is to focus on energy prices. Fossil Fuels are going nowhere for the time being, so the best thing possible it make energy as abundant and cheap as possible through a mix of fossil, renewable, and nuclear sources. If you bring energy prices down you will slowly start to course-correct the economy.
Let’s take a look at a few less popular names today:
TSCO (Tractor Supply) is up first. This is one of my favorite stores as they have everything I need for both the house and the garden. It is consolidating under its VAL for the year. Watch for a break in either direction and play it that way. Sometimes trading is just that simple.
DKNG is a gambling name, but with US football season now well underway, I could see this stock getting a bit of a sympathy bump. It is used a lot in both fantasy and betting. It looks to be forming a bit of a wedge on the daily, so I would look for a break out over the current top or bottom trend lines.
Finally, there is CCJ. This is a nuclear name that was discussed before. This has dropped back to its 50 DMA. I am looking to use this as support and will be looking to initiate a credit spread on the name to take it back to highs.
As always trade well and Good Luck
As always this is all for educational purposes only. You are solely responsible for your trades as I am for mine. Nothing in here should be construed as financial advice, but only educational content about the markets and my particular trading style.