Latest / Financial Survival Network / Inflation Explained: PPI, CPI, and What They Mean for Rates - Ted Thatcher #6085

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Inflation Explained: PPI, CPI, and What They Mean for Rates - Ted Thatcher #6085 · Financial Survival Network

• 0:00
  The other thing, I thought that was pretty interesting that Larry said after the
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  last month's reading in the inflation and PPI numbers for the month of April.
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  Was it the way he saw another hike was as likely as a decrease.
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  Now, he was certainly in the minority opinion there, But I think in
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  its truest sense, if the Fed was doing its job just by the analytical
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  data, just by the numbers themselves. You are listening to Carrie Lutz's Financial
• 0:27
  Survival Network, where you get valuable information you just can't find anywhere else to
• 0:33
  thrive in today's trying times. You need the Financial Survival Network now more than
• 0:38
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• 0:44
  Financial Survival Network now more than ever. Ed, Welcome, you are
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  watching and listening to the Financial Survival Network. I'm your host, Carrie Letz.
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  Well, Hey, got PPI numbers out? Inflation is lessening? Perhaps?
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  What does it all mean? What does it mean to rate cuts?
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  What does it mean to Jerome Powell? Ted Thatcher is with us now,
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  and Ted, it's great to have you back on the show. And Ted's
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  site is a brightlinkwealth dot com. Hey, you got a question for Ted
• 1:27
  or myself, shoot me at email kl at Carrie LUTs dot com. So
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  happy days are here again, Ted. I think Jerome Powell was smiling I
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  think maybe behind the press meeting yesterday, coming away from the said meeting,
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  because I think he got the air cover that he wanted. The CPI came
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  in at break even, which was welcomed I think by the said after the
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  real spike that was seen the previous month in April, and then of course
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  this morning we had the PPI numbers come out. There was a large spike
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  in that last month, that being the April print as well, up half
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  a percent. Actually, of course this morning's reading was down negative two tenths
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  of a percent. And so ultimately those things are going hand in hand.
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  They're kind of singing the same tune. And as we've talked about Jerome Powell,
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  I think despite his desire to be in the driver's seat, hasn't been
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  because of the inflation rate very much. I think the inflation rate has been
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  the informant carry on FED policy in the last eighteen months, not the other
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  way around that like of course Jerome Powell would prefer, and going into election
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  season, these are the kind of numbers he's looking for to give him.
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  I think the air cover they're looking for. Who have an excuse to consider
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  a rate reduction sometime later this year. Well, you know, the late
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  great Alan Abelson, chief editor of Barons many years ago, once said,
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  the Fed is doing what it does best, which is re electing a president.
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  That's their intent here. They got to cut sooner rather than later,
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  right, Yeah. So, and the late great Charlie Munger would say,
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  if you show me your incentives, I'll show you your results. And I
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  think from a president's seat, if he can prop up the value of the
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  financial markets and financial assets, that creates an incentive. And I think that
• 3:36
  Jerome Powell, i mean, for better or worse, does feel the political
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  pressure from DC to see some rate cut this year. I think a lot
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  of the smart money right now is betting on that happening sometime in September.
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  But I think the other side of this carry too, is just ultimately how
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  it affects the average American. Because we can see an inflation print that says,
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  hey, you know, we're not seeing additional price in reachys, But
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  that says nothing about the strain that we all feel, you know, in
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  our pocketbooks on a daily, weekly and monthly basis. Yeah, exactly,
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  So they couldn't be more detached from the average person's existence, the average person's
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  reality, right, absolutely, and they don't really care to find out,
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  do they. Well, the way I see it is, there's really been
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  this huge discrepancy between what's happening on Wall Street and what's happening on Main Street,
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  and in my belief, those two things can only be so far apart
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  for so long. You know. I think we have often thought about the
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  changes in the trends of the financial markets, and it's almost like nothing happens,
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  nothing happens, then everything happens all at once, and so we'll see,
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  you know, when those start to come back to earth together. But
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  at the end of the day, you know, costs aren't going down,
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  maybe they're not going up as much exactly, or maybe they're just lying and
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  nothing has changed, right Ted. Isn't that a possibility? I think that
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  there is. And maybe we talked about this the last time we were together,
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  but I've found it very interesting, and that is, you know what
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  Larry Summers has come out now a little bit virally or famously and said Larry,
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  of course, being the previous Perisury Secretary, published a really fascinating thread
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  on Twitter outlining the way he has tracked the way the CPI used to be
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  measured. As we know, the CPI and the way it has been calculated
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  has changed drastically over time. Now it allows for proxies. You know,
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  if the price of steak went up too much, we'll replace it with burger
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  meat, and price of burger meat went up too much, we'll replace it
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  with chicken. And I think now if the price of chicken goes up too
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  much, they might even be replace it with tofu or but spam, yeah,
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  yeah, spam, bam le will they to do? You know,
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  it's all right, you'd like eggs and milk, right, you can live
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  off of the spam. That's what they say, right. But the problem
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  is, of course, is you know that's not what we have sound out
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  how I would measure infleetion if I went to the grocery store as certainly not
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  if you would. And so it comes back to not only these proxies being
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  allowed, but also the way they have changed what even goes into this CPI.
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  Now the CPI does not even include the cost of borrowing, which,
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  as we both know, because of the amount of the average American has,
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  is a tremendous player in you know, what we experience on a month's month
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  basis, just in our standard of living. And so at least the way
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  Larry Summer has calculated it, he anticipated the peak CPI rate not at that
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  still notably high nine percent number, but by his measure, it was closer
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  to twenty percent, if not even potentially a little higher. And so you
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  know, when I see that, I just see, well, that squares
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  a lot more with the conversations I have with folks on a day to day
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  basis. Hey, h see, you know, like there's a lies,
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  damn lies, and then there's statistics, right, So well, I was
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  actually going to say that next, which was at the end of the day.
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  I think that a lot of these statistics, they can measure them in
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  a way where they can tell whatever story ultimately that they want. And I
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  think some of that has happened. You know. Obviously, I think it
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  is simply the case that prices didn't go up so much in the month of
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  May, but that doesn't mean that the average American is in a very different
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  situation than they were in April, and you know, we started to see
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  the cooling in the jobs market, but then we got another roaring jobs report,
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  and so again we could come back to another statistic that they use a
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  lot of different ways of calculating now, of course than they used to.
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  But I still come back to that tale of two cities. What's happening on
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  Wall Street versus what happening what's happening on Main Street? And how far and
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  how long those two can be actually stretched apart before we see something happen.
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  That's a good question. And because of this, if you talk to people
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  on the coastal areas, people in the financial sector, they think everything's fine.
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  And you talk to people in Florida, the economy is booming, they
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  think everything is fine. I don't think many of them really have a glimpse
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  of how precarious things really are here. It's ed. Yeah, it's almost
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  like there's at times that turn it up nose toward what they call the flyover
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  states. Right. I grew up in Indiana. There's nothing but cornfields for
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  miles and miles, and you know, those are the average hardworking American,
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  which I think too often has been overlooked. The last really couple decades,
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  and they're in a tough spot. And just to come back to that point,
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  do statistics the other thing, I thought that was pretty interesting that Larry
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  said after the last month's reading and the inflation and PPI numbers for the month
• 9:09
  of April, was it the way he saw another hike was as likely as
• 9:13
  a decrease. Now, he was certainly in the minority opinion there, But
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  I think in its truest sense, if the Fed was doing its job just
• 9:22
  by the analytical data, just by the numbers themselves, that would really be
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  the conversation talking point, not the I think conversation that is a little bit
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  being driven by the political environment, like we discussed right, and you can
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  never discount the political when you're dealing with government policies. Of course, Hey,
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  so where does this lead us to? What can you do once you
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  realize what they're really up to here? Ted? I think it's a really
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  good question. Ultimately. I think when I look at the financial markets,
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  what I'm thinking is, Okay, well, how much risk can I afford
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  to take right now? My cash is paying me a very reasonable rate of
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  return now. And I say that simply to say when I think about,
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  you know, positions wise, I'm thinking, hey, I want to have
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  a good amount of safe money, mammally cash money market, maybe short term
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  seeds, just because the rates are really good right now. Now. I
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  will say, at the end of the day, the reason we've talked to
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  time and time again about Jerome Powell is because the lever that he has,
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  the sort of weight that he can put on the financial markets, is just
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  so heavy that it's impossible to ignore. And so because I think it is
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  quite likely that the battle in DC will win out as it typically does,
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  it gets what it wants, and I think that for better or worse,
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  it is reasonably likely we'll get some kind of decrease later this year. And
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  I'd be surprised if we didn't see a little bit more of a discrepancy even
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  between what's happening on Molla Street and Main Street. And so if there's a
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  chance to capitalize on that, and you see this some equities go up,
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  maybe specifically even small cap equities, there could be an opportunity there too,
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  all right, So basically your advice is keep your powder dry. Huh.
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  I think that you know there is a good measure to be taken where some
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  powder and some dry powder on the side makes some sense, Yes, sir,
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  okay, Hey, appreciate you coming on and sharing your insights with us.
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  Ted, I tend to agree with you greatly here. I think the
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  situation is much more precarious than anyone cares to think about. All the attention
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  is on, you know, criminal prosecutions of various public figures, the election,
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  the you know war is taking place. Really it's a distraction away from
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  what the real real world is happening. In the word real world tear ted.
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  Hey. So in any event, well, we'll touch base with you
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  probably in another month or so and see what the world is is showing us
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  and when the political situation onlines, which it will keep in November, then
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  we're going to know what's really happening. Everything is sugarcoated and everything is you
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  know raw rah. Well, the cheerleaders are out. So in any of
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  that, we find Ted at Brightlinkwealth dot com. Link is in the show
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  notes, questions comments kl at Carrie LUTs dot com. When you're at the
• 12:31
  site Financial Survival Network dot com, make sure you sign up for your free
• 12:35
  newsletter. Ted always a pleasure. Thanks for stopping by. Thank you sir,
• 12:39
  look forward to next time. Thanks for listening to Carrie Letz's Financial Survival
• 12:45
  Network, your solution to today's trying times. For the latest, go to
• 12:50
  Financial Survivalnetwork dot com. Financial Survival Network now more than ever contro