Okay folks, so we got quite a mess on our hands. Check out the timestamps below to see what topics we need to cover, but there's a lot and we need to talk about it right now. But before we get into it, this video is brought to you by the massive Valentine's Day sale on Ziptraderu. If you'd like to lock in lifetime access to our step-by-step lessons, our private chat, our daily morning briefings as well as of course, our full price target list.

Well, you could do that now by typing in coupon code valentine before checkout. But anyways, let's start with the bad news. So the Cpr report was a complete disaster, and that's sugar-coating it. The market expectations were for it to come in super hot at 7.2 percent, which gave it a decent amount of margin for error.

Very few times in history could inflation come in at 7 and also caused the market to breathe a sigh of relief. But no, it beats even that at a 7.5 percent increase overall. In the last 12 months, we knew energy prices were going up, we knew a lot of other prices were heating up, but seriously, this is a lot bigger of a disaster than a lot of people had factored in. Marked with red, you have accelerating fuel oil, energy services, electricity costs, all of which who have accelerated dramatically over December.

We knew that that was going to happen again because the futures market told us that. But you've even got increases in the rate of increases in pricing pressures of services transportation, medical care services Pretty bad. the ones that. are really, really painful are these: food increases.

You jump from 0.5 increase in December to now 0.9 percent increase. Food at home jumped from point four to a whole percent up month over month. Americans trying to save by cooking at home or getting squeezed more and more. The only areas that I could say are optimistic on this report are the ones that I marked in blue.

New vehicles stayed completely flat in price. Month over month you had used cars and trucks decelerate dramatically from 3.3 increase to just under 1.5 or to just 1.5 percent. And shelter costs are a little bit misleading down here. They actually decelerated a point overall and I saw some folks saying oh, at least shelter costs are getting under control, but do not make that mistake.

That's very, very sloppy. I looked at a more detailed breakdown on that category and you could see that while shelter overall went from 0.4 increase to 0.3 increase this month, rent of primary residence went from a 0.4 increase to a 0.5 increase. So rent price increases are actually accelerating and owner's equivalent trend of residence is increasing at the same pace as it was increasing in December. so by no stretch of the imagination or shelter costs starting to slow down.

The reason the average was down I believe is because of lodging expenses which they don't even put on the list here, but the price that people have to pay for shelter is getting out of control. It's also worth mentioning that rental increases tend to go up very, very slowly because even if the market value has gone up a lot, it takes time for lease contracts to expire and to be eligible for rent increases. It takes time for those actual costs to show up in the data. So when you're seeing this tide of rental increases, it indicates that we're probably going to get a lot more down the road.

And keep in mind once housing costs go up, they seldomly go down. maybe in some macro environments that are really really bad for housing, which don't happen that often. but overall, rental costs and housing overall tend to be very, very sticky. And don't forget most people's biggest expense.

besides maybe the tax man is the cost of where they live. You look at the overall trend of Cpi inflation. It's not a pretty line. If this was a stock, I'd say oh, Momentum Trade.

We've unfortunately passed five previous inflationary scare peaks from the last 70 or so years, and you are officially in the territory of some of the most unprecedented inflation we've seen in the modern era. One thing to keep in mind here is that wage spiral effect. When workers realize that their raises aren't outpacing inflation. What happens? Well, they demand more raises and those raises are then attempted to be passed on to the next generation of consumers, which then causes those workers to come back and say, okay, well, we need another raise to pay for this next generation of price increases.

We got a report last week that show wages are going up. Average hourly wages jumped 0.7 percent in January. Year over year, it's up 5.7 percent, but the Cpi data has been hotter than both those metrics. What stops a wage spiral is a slowing down economy where either companies can't afford to pay workers more so they just don't or consumers decide.

You know what? We're not going to pay these increased pricing pressures for goods and services, so they just don't. And then companies have to actually go and lower their prices and we can go back to why. I do think that we're going to see a slowdown in Q2 and Q3, but at the same time, right now in Q1, we're in the middle of a big inflationary environment, and when consumers see that their prices are going up, they're going to demand higher wages. And going back to our conversation on shelter costs.

That's one of the most sensitive items on here. There's nothing quite like shelter costs to motivate salary discussions. For example, I talk to people all the time who are deciding whether to take a job in a different city moving from La to say Austin, Miami, Phoenix, Denver and the topic of discussion is okay. Well, how much is that job going to pay you and then how much does the average apartment or rental cost in that area? So even if you're looking at a job in La that pays 100 000 and that same job in Austin pays 80 000, Well, if the housing costs are like a fifth as much or a half as much, then it might make sense to move.

What they don't ask about are any of the other costs like food, energy, the current price of used cars and trucks. They don't ask about any of that, they're considering the main item which is the shelter cost. And the reason that this is relevant is because people judge the appropriateness of their salary based on how much it costs to have shelter. Just like how cities with more expensive shelter have to pay more to actually get workers to move to the city.

Well, by the same token, economies with rising shelter costs overall have to pay workers more to get them to continue to work for them. Especially when you're in such a tight labor market. As the cost of shelter rises, you're going to have workers consistently demand higher and higher wages. The question in my view, is whether or not the economy is going to be able to support that.

If it supports that, that's good. But then you have that inflationary spiral problem. If it doesn't support that, that's bad because you get an overall slowdown and prices have to come down. People lose jobs, Companies get bludgeoned on their profit margins, so on and so forth.

And the way that you ease in the middle is very, very difficult. And with all this, what is the lip service that we're hearing from Central Bankers today? Central Banker James Bullard said today he now supports raising interest rates by a full percentage point by the start of July, including the first half point hike since 2000 in response to the hottest inflation in four decades. So a full percentage point by July means not only would we get half a percent jump in March at the March Fomc meeting, but there's only two other Fomc meetings before the start of July. We have that March meeting, and then the two other ones are May and June.

If inflation continues to run this hot into May, this escalation of rhetoric really paves the way for not just one half point rate hike, which people were just speculating as a potential action two or three weeks ago, but now, perhaps two half point rate hikes? One half point in March and then another half point in May. Now, theoretically you could do a half point hike in March and then two quarterly points in May and June and you can still hit that one percent target that he is talking about. But reading between the lines on what he says later really paints a different picture between what he actually thinks should go on. He says as a general principle, I see no reason why you can't remove accommodation just as fast as you added accommodation, especially in an environment where you have the highest inflation in 40 years, the Fed opened the floodgates and allowed a tsunami of capital to pour into the economy.

He's suggesting that we should be able to do the same thing on the way out. Extremely aggressive statement that would never go over well with Jerome Powell as the chair, but there's certainly been a very, very quick tide of hawkishness over there at the Fed. He goes on and says there was a time when the committee would have reacted to something like this to having a meeting right now and doing 25 basis points right now in other words, and said a little bit better. He's saying that in the past, if inflation was this hot, the Fed would have an emergency meeting and raised rates immediately without logic, and based on previous reports, he probably thinks that we're not just one rate hike behind.

we're about two or three, and as a result, we're gonna need to play ketchup. Obviously he's a hawkish member of the Fed, but the wave is turning more and more hawkish and the market's looking at this rhetoric and it's saying, damn, this was a Fed that said inflation was transitory just like three or four months ago. Now they're talking about stripping away accommodation just as fast as they put it on. Look, let's be real.

The more that we get hit with this insane inflationary data that is just a disaster, the more these hawkish arguments are going to play out. Hey, look, if you can't get supply chains under control, if you can't get consumers to stop paying increased pricing pressures, well fed tightening is really the only thing you got left If the Fed has to rip the pacifier out of the market's mouth in order to support a longer-term healthier market and economy, than it has to do that. But you know, from my standpoint, I'm looking at a slower Q2 and Q3 one that actually is going to be difficult to pass on pricing pressures to consumers. Obviously, the more hawkish the Fed is, the more they're going to prove that theory right.

But so far, if you look at what companies are trying to do in this current cycle, they're doing what they did in 2021, which is okay. Costs are rising for us. Let's go ahead and pass it on to the consumers. Easy smeasy lemon squeezy.

Except now the lemon squeezy is about three times the price of what it was in 2019. But a lot of these companies reporting earnings are acknowledging that hey, this isn't going to work forever. Kellogg and Coca-cola warn today that company's abilities to keep raising prices may be coming to an end. Both companies, like many peers, have started charging more to cope with supply chain snarls a labor shortage and higher commodity costs.

While consumers haven't balked at the heights as sharply as in the past, Kellogg's Ceo said that benign reaction won't last. He's basically saying inflation hasn't been much of a problem for us because we're just bouncing on those costs to consumers. He goes on to say though, hey, Kellogg is at the bottom of the barrel in terms of things that people are going to cut. You need groceries in order to survive, right? Kellogg's product should also be protected by the fact that consumers tend to cut back on eating out before they're at home purchases during inflationary periods.

So basically he's saying, what's common sense, right? People start cutting out discretionary items. People will cut out restaurants spending before they cut out grocery spending, right? And that is true. throughout the economy, we know we have inflation. We know we have supply chain issues, but we don't know the level of Max Payne for consumer demand.

at which point consumers are going to say, you know what, I'd rather spend less, I'd rather not just keep throwing money at Pay Me's increased prices once consumers are at their pain point. All of a sudden, they start spending less money and companies that are getting less sales in order to move product have to charge lower prices. and then you have a lowering of pricing pressures and then over the long run you get a stabilization. Now, a lot of economists think that there's no end to pricing pressures that can be passed on to consumers, because as prices go up, wages just go up right away, right? But the problem is going back to the data.

Wages have not outpaced inflation, at least according to the Cpi, and a survey taken last month shows that companies are planning on raising wages only 3.4 to 2022. inflation reading this last month was double that annualized, so that's a pay cut, right? Consumers have less purchasing power, not more. and with that purchasing power, they have to spend more and more of that on energy, prices on shelter, prices on food, and less on any other area of the economy, which causes slowdowns in other areas of the economy and causes wages to go down and stagnate more. Other reasons: that consumer demand is on its way out, while stimulus money that's long gone, pent-up demand from 2020 shutdowns that's on its way out.

Huge bounce back in the economy where you get your job back and you get somewhat of a wage growth, at least in number. Well, that's also on its way out. Easy money policies near record lows that's on its way out as well if prices continue going up faster than wages, and the Fed increases the cost of debt, which further lowers the purchasing power that consumers can access. Well, it does slow down the ability for businesses to continue charging more and more.

In a situation where you get higher wage increases in this tight labor pool, which is certainly a possibility. Well, all of a sudden, you just kick the can down the road and the Fed has to be even more aggressive six months or a year from now. But in totality, we are going to be in a shine storm until supply chains heal, until consumer demand drops to the point of equilibrium with supply chains. and it's certainly possible that consumers are going to have to be bludgeoned by the Fed in order to reduce their demand for things.

But I think that overall, once you get past the stage, once that damn pacifier is removed from the baby's mouth and inflation finally goes back down, you're going to have a very, very nice new foundation that has nothing to do with the pandemic anymore to build off of. And then we can move on to the future, which is growth of companies that matter and make a difference in our world. If you are looking to learn how to trade and analyze stocks, we are having our biggest sale since Black Friday coupon Code Valentine will get you a very sizable discount off Ziptraderu Before checkout, make sure to check out the link below and read a little bit about it to learn what you will get lifetime access to. If you do sign up with us before Monday night when that coupon code expires.

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