Cramer Bullish on Inverse Cramer
Icahn is under federal investigation, Google is doing more stuff with AI, and Robinhood traders can now lose money 24/7.
Alex Davis & Litquidity Capital
May 11, 2023
Together with
Good afternoon,
The economy in one word: good.
The economy in two words: not good.
It’s been a week of utter shockers so far. Icahn is under federal investigation, Google is doing more stuff with AI, and Robinhood traders can now lose money 24/7. All just as surprising as yesterday’s news that inflation isn’t fixed.
Let’s dive in.
Economy Heat Check
As of 5/10/2023 market close, unless otherwise stated.
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Expectations Reset: US and China CPI
US Inflation
BBC
The CPI rose 4.9% in April from a year earlier, the BLS released Wednesday. That’s down an entire, champagne-popping 0.1% from March’s 5% increase. In other words, same story, different words so journalists can bump those billables. Inflation is still declining slowly from its June 2022 peak of 9.1%, but remains historically high.
The report also revealed that core prices, which conveniently exclude volatile food and energy items, rose by 5.5% from a year earlier. Because, you know, food and energy are such insignificant parts of our daily lives that we might as well ignore them when calculating inflation.
Yahoo
But don't worry, housing costs came to the rescue by driving up the prices in April. Apparently, economists expect this trend to cool down in the coming months, probably because they ran out of creative ways to get us to pay even more for a mattress in a 7-story West Village walk-up.
In a stunning display of their ability to state the obvious, the Fed seems content to keep interest rates on hold as inflation edges slightly lower. But fear not, because even though inflation remains historically high, the Fed believes that price pressures aren't getting worse. It’s the kind of groundbreaking analysis that keeps economists up at night.
ZeroHedge
Despite these meager signs of a slowdown in price gains, the Fed still finds solace in the fact that wages are rising faster, with average hourly wages growing by 4.4% in April. Who needs affordable goods and services when you can enjoy the thrill of higher labor costs? The Fed is eagerly waiting for signs of stronger-than-expected growth, hiring, and inflation before they can continue raising rates.
The key to watch for will be whether signs of cooling inflation can mount over the summer. Ideally, that happens without lending conditions tightening to the point that the economy gets tipped into a recession. In a worst-case scenario, an economic downturn hits while inflation is too high. We won’t use the r-word yet, but that’s what Twitter’s for.
China CPI and PPI
SCMP
China's producer price index (PPI) took a dive faster than an analyst leaving the office on a protected weekend. It’s been plummeting at that pace for some time, marking its seventh consecutive month of decline. The economy, desperate to rev up after COVID curbs were lifted, seems to be stuck in first gear.
Meanwhile, the Chinese government, in a stroke of genius, set a target of 3% growth for 2023. As if wishful thinking alone could magically inflate prices.
SCMP
As if that wasn't enough, the consumer price index (CPI) decided to join the party and fell by a meager 0.1% in April. The drop was met with little astonishment, given economists had predicted a flat reading. Apparently, the market supply was "generally adequate." It’s a fancy way of saying that nobody wants to buy anything.
But fear not, core CPI (excluding food and energy prices) managed to muster a 0.7% growth. So, about as predictable as Aaron Rodgers starting a venture fund less than a week after moving to NY. Who needs actual growth when you can just exclude the things people actually buy, right?
Still to Come: US Consumer Sentiment
Michigan’s Consumer Sentiment survey drops Friday, and most anticipate a corresponding drop in sentiment.
VettaFi
A complementary indicator, the NY Fed’s consumer confidence report, revealed last Friday that short-term (one-year) inflation expectations are slightly decreasing, yet longer-term (three- and five-year) expectations are only increasing. According to the New York Fed's April survey, consumers are concerned about long-term inflationary pressures and the risk of unemployment.
Median inflation expectations for the next year decreased to 4.4%, but expectations for inflation at the three- and five-year horizons increased slightly. Meanwhile, the probability of a higher jobless rate in the next year rose, and expected growth in household incomes declined. Consumers also expressed higher probabilities of job loss and voluntary job changes.
Bloomberg
In terms of housing, expectations of elevated prices reached a high point, particularly in states east of the Mississippi River. Consumers anticipated some softening in food prices, but were less optimistic about gasoline, medical care and rent costs.
Meanwhile, the Mortgage Bankers Association (MBA) noted that even with a slight decline in lending rates, affordability in the housing market has been impacted. Basically, it’s pessimism broadly across the board.
Last month, Michigan’s Consumer Sentiment fell for the first time in four months (March). Though 85% of the surveys were completed before the bank headlines began, one can only expect sentiment has gotten worse since then. The silver lining, though, is that inflation expectations have also fallen since then.
Meme Bank
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