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The Bond Market Is Calling The Fed’s Bluff On Inflation · HPK Provident Advisors: The Weekly Bull

• 0:04
  SPEAKER_02: Welcome to Friday Live.
• 0:05
  SPEAKER_02: Every Friday, the partners of HPK Provenant get together and discuss what we're seeing going on in the markets, the economy, and some financial planning topics.
• 0:12
  SPEAKER_02: So with me today, Mr.
• 0:13
  SPEAKER_02: David Harper.
• 0:14
  SPEAKER_01: David, how's the week going?
• 0:17
  SPEAKER_01: It's great to be here.
• 0:18
  SPEAKER_01: And um, we had a nice trip up to Pennsylvania, saw quite a light show on Thursday night on top of Mount Washington with all those severe thunderstorms.
• 0:29
  SPEAKER_01: Holy cow! And then um Friday night, we uh we enjoyed uh the fireworks and our wild things um event, and I got to see a many of you, okay, and looking forward to um seeing more of you guys.
• 0:46
  SPEAKER_01: It was it was a good trip.
• 0:49
  SPEAKER_02: Well, would you like to start with the Marcus today?
• 0:52
  SPEAKER_02: Or I'm I'm thinking the economy.
• 0:54
  SPEAKER_02: Yep, yep.
• 0:56
  SPEAKER_02: So the highlight of the week was certainly the inflation data.
• 0:59
  SPEAKER_02: Uh, we got the PPI numbers and the CPI numbers.
• 1:02
  SPEAKER_02: PPI uh came in a little lighter on the core reading, 0.2%, but uh did tick up quite a bit from last month on an annualized basis at 4.6 percent.
• 1:12
  SPEAKER_02: Uh the headline number, 0.4 on the month on the high side, but in line with consensus, last month was 0.1%.
• 1:19
  SPEAKER_02: So that reading is actually at 5.4 on an annualized basis.
• 1:23
  SPEAKER_02: We did get the core numbers today.
• 1:26
  SPEAKER_02: Um core CPI came in at a tenth higher than consensus at 0.3%.
• 1:31
  SPEAKER_02: Um, that wasn't surprising.
• 1:33
  SPEAKER_02: So annualized 2.4%.
• 1:36
  SPEAKER_02: You know, slightly that still ticked down a tenth from last month's uh annualized reading, but um you know, there's some components in there that flagged uh some potential risk, and um certainly higher energy prices is gonna feed into that uh for next month.
• 1:55
  SPEAKER_02: On a headline basis, it came in at 0.4% on the month and 3.4% on an annualized basis.
• 2:02
  SPEAKER_02: Um, so the futures markets are pricing in, I think I want to say 87% chance of a rate hike next week.
• 2:11
  SPEAKER_02: And I mean, I was talking to you about this a few days ago before we got this inflation data.
• 2:16
  SPEAKER_02: And as you know, I think um the Fed chair is kind of putting himself into a corner where you know inflation's a choice.
• 2:23
  SPEAKER_02: We're getting back down to 2%.
• 2:25
  SPEAKER_02: So I think his hands are tied, and the bond market certainly was calling him out on that with the 10-year rising uh yesterday and today close to 5%, and then the 30 years sitting at 5.32, I think.
• 2:40
  SPEAKER_02: So um I think that's certain, you know.
• 2:44
  SPEAKER_02: I'm I'm gonna go out on the limb here, but I I think if we get a 25 or 50.
• 2:52
  SPEAKER_02: I don't even know if I want to put that in the atmosphere, but I think that we could see a decline in the 10-year because the 10-year treasury yield is certainly concerned about inflation at this point.
• 3:03
  SPEAKER_01: Well, that's uh I mean that that's what's servicing our national debt.
• 3:08
  SPEAKER_02: And yeah, the interest payments are incredible.
• 3:12
  SPEAKER_01: And just uh the the change of the of the uh of the treasury um will if you don't if you don't uh bring that down, the cost of servicing that debt's just going to increase terribly.
• 3:27
  SPEAKER_02: Yeah, take a look at the spike we've had in the 10-year wow.
• 3:30
  SPEAKER_02: I mean, we barely got, I think we got just about to the 5% level during uh 2022.
• 3:37
  SPEAKER_02: So this is certainly signaling that the bond market is calling them out and wanting them to take care of inflation.
• 3:44
  SPEAKER_02: The two years also risk substantially, though.
• 3:47
  SPEAKER_02: So on the short end, they're pricing in rate hikes.
• 3:51
  SPEAKER_02: So that I I see those as conflicting a little bit, but um between that and crude oil prices getting above a hundred dollars yesterday, slightly below today, which is probably causing the market to rally because it's certainly not the the CPI data, even though on a three-month annualized basis, I mean, we are below two percent on the core reading, but you know, with energy at this high of a level, uh I you know, it's certainly that and treasury yields are making me a little nervous.
• 4:23
  SPEAKER_01: Mike, tell me what what are my gas prices at the pump gonna go down?
• 4:28
  SPEAKER_02: Well, uh, you know, they might come down a little bit with a resolution.
• 4:34
  SPEAKER_02: They are talking about trying to get a temporary opening of the straight or moose, but the unfortunate side is the refiners are so backed up that it's gonna take some time to actually get oil prices down.
• 4:46
  SPEAKER_02: I think uh diesel hit six dollars a gallon for the first time.
• 4:50
  SPEAKER_02: Um, and that's certainly gonna seep into the inflation readings in the in the coming years.
• 4:56
  SPEAKER_01: I mean, there's still a lot of a lot of goods transported across the United States um by semi-trucks.
• 5:04
  SPEAKER_01: Um so I I liked our one client who he's he factored in the how good the economy was by how many trucks he saw on I-95.
• 5:17
  SPEAKER_02: You know, yeah, I like that one.
• 5:20
  SPEAKER_02: That was a new one for me.
• 5:23
  SPEAKER_01: Well, it's uh it's like uh well, the old um uh what they said about uh when how many babies were gonna be born in a year based on how many storks built their nest on the roofs of the of the during the winter there in Holland.
• 5:39
  SPEAKER_01: Well, it was a it was a colleary effect.
• 5:42
  SPEAKER_01: Yeah, if it's so cold that the storks have to build their nests on the roofs uh to warm themselves, then their people were spending a whole lot more time inside.
• 5:52
  SPEAKER_01: So I sort of look at that semi-truck traffic on I-95 and that kind of light.
• 6:00
  SPEAKER_02: And then one more inflation data point I want to point out that uh came out this morning was the University of Michigan's uh survey sentiment was below consensus, but the real uh concerning thing was and these surveys are heavily influenced by the price of oil.
• 6:17
  SPEAKER_02: So um, but the one-year look-ahead inflation numbers ticked up from 4% to 4.6%, so a massive jump.
• 6:25
  SPEAKER_02: Um, long-term inflation expectations ticked up a tenth, uh, but that's that's not as alarming as the six tenths.
• 6:34
  SPEAKER_02: But you know, if oil prices come down, so will that number.
• 6:37
  SPEAKER_02: Um it's a pretty volatile reading.
• 6:39
  SPEAKER_02: Um, outside of that economic data, the only thing that really uh pointed out to me was consumer credit jumped to 18.1 billion.
• 6:50
  SPEAKER_02: Uh that's up from the prior month of 4.14.7 billion, and consensus was looking for 10.8 billion.
• 6:58
  SPEAKER_02: So people are certainly using those credit cards, and my I think my credit card balances are up quite a bit too.
• 7:04
  SPEAKER_01: So uh well, I uh that's what uh what our partner used to always say with Brian, you know, uh there's a reason why you have cash uh set aside for emergency purposes.
• 7:22
  SPEAKER_01: So yeah, uh so hopefully um hopefully we've been good at communicating that.
• 7:30
  SPEAKER_01: And I think for the most part our clients have a safety net.
• 7:34
  SPEAKER_01: Uh now it's never too late to start a safety net.
• 7:38
  SPEAKER_01: So it's spend less, get through this, and then make a plan to raise that emergency piece that to have be able to have money on the side that you can uh live off if things get a little bit crazy.
• 7:54
  SPEAKER_02: Yeah.
• 7:55
  SPEAKER_02: Um turning to the markets, um, it's been a down week, down about 1%, even with today's uh 0.85% gain.
• 8:03
  SPEAKER_02: We did dip below this 50-day moving average, um, but today we bounced back above.
• 8:08
  SPEAKER_02: I'm I'm a little hesitant that we're gonna remain as strong as we are today, but um, like you were saying earlier, there's a lot of training trading hours left in the day.
• 8:18
  SPEAKER_02: Um momentum has certainly waned.
• 8:21
  SPEAKER_02: Uh, we're now slightly below that buy threshold on RSI.
• 8:26
  SPEAKER_02: And going back to this previous high we had right here, you see the RSI numbers really diverging from that.
• 8:32
  SPEAKER_02: We call that a bearish divergence, showing that momentum is not really keeping up with the price action.
• 8:36
  SPEAKER_02: So that's always a potential red flag.
• 8:39
  SPEAKER_02: Um, but I think we're just kind of in a period of, you know, let's watch the chart, let's see what happens, whether we hold this 50-day moving average or not.
• 8:47
  SPEAKER_02: Um, certainly next week's gonna be a volatile one with uh, you know, the Fed meeting Tuesday and the Wednesday, we'll get that announcement on Wednesday.
• 8:55
  SPEAKER_02: Whether they most likely increase rates and whether that's a 25 basis point hike.
• 9:02
  SPEAKER_02: Um, I haven't really heard anyone talking about a 50, so hopefully we're in the clear from that.
• 9:07
  SPEAKER_02: But typically these things aren't just a one increase and done.
• 9:10
  SPEAKER_02: So is this the start of a hiking cycle?
• 9:13
  SPEAKER_02: I I don't know if the economy can.
• 9:16
  SPEAKER_02: I mean, the last jobs number was was pretty strong, but it's been a little volatile, and we have seen some weakness there, some weakness in retail sales, which we will get another reading next week, uh, I think Tuesday, if I'm correct.
• 9:30
  SPEAKER_02: Um, so that's supposed to tick back up into positive territory.
• 9:34
  SPEAKER_02: But um, I haven't seen the consensus if you strip out oil and gasoline.
• 9:38
  SPEAKER_02: So that's certainly going to be.
• 9:40
  SPEAKER_02: I think the headline numbers uh uh calling for a 0.75% increase.
• 9:44
  SPEAKER_02: But if you strip out energy, uh, you know, we might be a little closer to the flat line on that.
• 9:50
  SPEAKER_02: So I'm particularly interested in watching that.
• 9:53
  SPEAKER_02: Um, and what the new Fed chair says next Wednesday.
• 9:58
  SPEAKER_02: Can't wait.
• 10:03
  SPEAKER_02: Turning to our blog post for the week, I think uh I think we start with the Thursday post here.
• 10:10
  SPEAKER_02: Um talks about the fear and greed index.
• 10:14
  SPEAKER_02: You know, summer tends to have some volatility, and you know, investors were feeling that this year with the fear reading of 43.
• 10:22
  SPEAKER_02: Um, but with the Fed meeting going on and all these geopolitical geopolitical stuff.
• 10:29
  SPEAKER_02: Thank you.
• 10:29
  SPEAKER_02: I can't talk right now.
• 10:31
  SPEAKER_02: Midterm elections just around the corner.
• 10:34
  SPEAKER_02: September in a midterm year in the second half of the month tends to be a pretty weak period.
• 10:39
  SPEAKER_02: Um, so with all that and the Fed meeting, we want to point out from the great Charlie Munger the big money is not in buying and selling, but in waiting.
• 10:49
  SPEAKER_01: And Charlie Munger was is basically known as Warren Buffett's business partner, and Mike, to your end, uh Warren Buffett, his your favorite quote from Warren Buffett is be fearful when others are greedy, and greedy when others are fearful.
• 11:11
  SPEAKER_01: So do you think investing in the US is a good idea?
• 11:17
  SPEAKER_01: Yes.
• 11:19
  SPEAKER_01: Okay.
• 11:19
  SPEAKER_01: Um do you think that the market the the US companies are gonna be further ahead five years from now than they are now?
• 11:30
  SPEAKER_01: Yes, do you think 10 years from now?
• 11:33
  SPEAKER_01: So imagine so I mean Warren Buffett has that thing, you invest in good companies and you hold them for a while, okay?
• 11:43
  SPEAKER_01: And you let them do let them do their work and become a become an owner, not a not a loaner.
• 11:53
  SPEAKER_01: Uh sometimes if you loan your money to you loan your money to the bank, you'll get your money back and a little bit of interest.
• 12:01
  SPEAKER_01: But if you own the bank, you get to put to work other people's money.
• 12:07
  SPEAKER_01: That's all you're looking for in stock, is being an ownership of of the fortunes of a company going and you know, going forward.
• 12:16
  SPEAKER_01: Okay not a bad way to grow money, and you certainly don't want it in one stock.
• 12:25
  SPEAKER_01: Uh diversify, spread your risk.
• 12:28
  SPEAKER_02: And Buffett was tremendous at finding val companies at good valuations, and um that goes along with our earnings post.
• 12:37
  SPEAKER_02: Although we've had this incredible run in the stock market, um, you know, we're only trading at 18.4 times forward earnings.
• 12:45
  SPEAKER_02: Um, right now estimates are for 413 for uh December of 2027.
• 12:51
  SPEAKER_02: Yeah, that's higher than the 40-year average, but um you know, we were in a range of 20.
• 12:58
  SPEAKER_01: What's the highest trading average that you've that you've encountered in the last 15 years?
• 13:03
  SPEAKER_02: Um, I mean, a few years ago we got to uh 22.
• 13:08
  SPEAKER_02: I I forget if it got as high as 23, but you would hear the justification for that from everyone.
• 13:15
  SPEAKER_02: Uh, you know, the composites made up differently now.
• 13:18
  SPEAKER_02: There's more technology stocks with higher valuations, earnings growth are good, these companies aren't as reliant on debt, so all that components, but yeah, 18.4.
• 13:29
  SPEAKER_02: Um, I'm I'm I'm comfortable with that level.
• 13:34
  SPEAKER_01: I'm happy with that.
• 13:35
  SPEAKER_01: Yeah, and I I see it as a buy-in opportunity.
• 13:40
  SPEAKER_01: Make sure you have your make sure you have your uh your safety net, but excess, time to put it to work.
• 13:50
  SPEAKER_02: Well, with being only two percent off the highs, I'm gonna be a little patient with deploying any additional cash we have in the portfolios, but yes, yes, yes.
• 14:01
  SPEAKER_02: But from a long-term perspective, yes.
• 14:05
  SPEAKER_01: Yeah.
• 14:06
  SPEAKER_02: And then with midterms just around the corner, you know, it it's there's so much investor psychology in the markets.
• 14:14
  SPEAKER_02: Like it's just unbelievable to see the different perception, and and we see this through every every presidential cycle, whether the current one with the Republican in the administration, Republicans feel a lot better than the about the economy than Democrats.
• 14:28
  SPEAKER_02: And on the flip side, and and this goes along with inflation expectations too, but on the flip side, it was completely opposite under the prior administration.
• 14:36
  SPEAKER_02: So, you know, I I like to just be fact-driven, you know, politics will be politics.
• 14:43
  SPEAKER_02: There's always different makeups of the executive branch and the House, the Senate, and that all has effects on you know what policies are likely to get pushed through or you know, not get pushed through.
• 14:57
  SPEAKER_02: And that does have an impact on the economy, but you know, historically it really doesn't make a whole lot of difference.
• 15:04
  SPEAKER_02: You know, stock market has done good under Democrats, stock market has done good under Republicans.
• 15:11
  SPEAKER_01: Oh, and we've had dips, whether you're wearing a red hat or a blue hat, both both have experienced dips.
• 15:20
  SPEAKER_01: Uh but the great thing about it is that it didn't stay in the dip for either one.
• 15:25
  SPEAKER_01: It has progressed.
• 15:27
  SPEAKER_02: Yeah, the longest recent stretch was that 2022 bear market, which felt like forever.
• 15:34
  SPEAKER_02: But besides that, we've had a lot of V-shaped recoveries, meaning quick down, quick up.
• 15:41
  SPEAKER_02: I don't have a problem with that.
• 15:43
  SPEAKER_02: I like V-shaped recoveries.
• 15:47
  SPEAKER_01: Well, Mike, uh, thanks so much for your insight.
• 15:50
  SPEAKER_01: Very valuable, very timely.
• 15:53
  SPEAKER_02: And we'll have a lot to talk about on next Friday live between retail sales and the Fed meeting.
• 15:58
  SPEAKER_02: So make sure you tune in.
• 16:00
  SPEAKER_02: I'm looking forward to discussing that and really getting in depth on what the new Fed chair is thinking.
• 16:08
  SPEAKER_02: David, anything else to add before we hop out?
• 16:11
  SPEAKER_01: Uh no.
• 16:13
  SPEAKER_01: Uh enjoy life because it's the only one we have.
• 16:18
  unknown: Okay.
• 16:18
  SPEAKER_02: Yeah, and it is September 11th.
• 16:20
  SPEAKER_02: So remember that the all those that died on that day and following that day back go into war to make sure that didn't happen again.
• 16:30
  SPEAKER_02: So take a moment to remember and happy birthday to your wife Patty.
• 16:38
  SPEAKER_01: Yes, we don't really celebrate it on September 11th anymore.
• 16:42
  SPEAKER_01: Um, but um we understand and thank you for all the sacrifices that have been made, as you said, uh to get the life that we have.
• 16:52
  SPEAKER_01: Enjoy your families, enjoy your loved ones, and be kind to one another.
• 16:59
  SPEAKER_01: Um, because we're all in the same race, the human race.
• 17:03
  SPEAKER_01: Right?
• 17:04
  SPEAKER_01: So uh take care of yourselves.
• 17:07
  SPEAKER_02: Thank you for you next Friday.
• 17:09
  SPEAKER_02: Everyone have a nice weekend.
• 17:10
  SPEAKER_00: See ya.
• 17:11
  SPEAKER_00: Bye-bye.
• 17:11
  SPEAKER_00: It's offered through LPL Financial LLC, member FINRA and SIPC.org.
• 17:16
  SPEAKER_00: Advisory services offered through LPL Financial LLC, a registered investment advisor.
• 17:22
  SPEAKER_00: Brian Peluso, Michael Kutch, and David Harper are registered representatives of LPL Financial LLC.
• 17:28
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