Calling For A Summer Friday

The fact that we have come down so far, so fast and that it is a Summer Friday make me think we should drift higher today. My only apprehension is that everybody seems to want to short a rally. I will be waiting for a better oversold reading before doing any buying and will pass on playing small bounces for now. 

CPI came in a little high, even with hedonic adjustments. The data doesn't jibe with deflation unless one is looking at the stock market. Retail sales are the most useless economic report as retailers already reported the more accurate data for July. JC Penny lowering estimates might be the more relevant data point.


PJ said...

I believe the deflation thesis will get a lot of support shortly.

In the CPI, most of the inflation was in food and energy. It's commodities based and driven by the EM boom, especially China, which is driven by extreme 2008-2009 stimulus measures. These are expiring and the commodities mini-bubble has at most 3-4 months left before it sinks.

Meanwhile, the idiotic owner's equivalent rent calculation for housing inflation understates inflation when home prices are rising and overstates it when home prices are falling. We're beginning another sharp drop in home prices, so this is a significant factor.

We won't have much overall deflation, since this is the central banks' enemy #1, but there is definitely going to be deflation in expensive credit-funded assets like housing and commercial real estate. These have an outsized influence on stock prices.

Anonymous said...

The higher-education bubble is about to burst big-time, and there'll be massive deflation there once that collapse gets going. College tuition is a tiny component of CPI (about 1.5%) but a big deal for some people.