June CPI was released today, with the index registering at an increase of 0.7% for the month versus 0.1% in May with a 17% increase in gasoline costs as the primary driver of the broad sequential increase.  Make no mistake; this is having an impact on the consumer: gas prices and interest rates are up, confidence is down and that is the reality of our current situation.

Regardless of reality, year-over-year numbers are where we need to remain focused because that is where it becomes a "political" football and will ultimately impact the market.  The CPI was reported down 1.4% Y/Y today -a modest sequential rise from last month when we saw the worst number since 1955. Reality vs. politics:  what would be an increasing inflationary measure on an absolute or monthly basis becomes a deflationary figure when measured year-over-year basis and that means that rates will stay at zero for the foreseeable future as Bernanke & Co. keep the free money train rolling. 

We have been making the call that the CPI numbers will go positive in Q4, and that that will represent a return of true inflation which it looks increasingly likely that the Fed will not be prepared for. Right now we are experiencing REFLATION which is just taking us from one point to the next.  As I look at my screen right now the REFLATION trade is alive and well; the Dollar is down and the best performing sectors are Financials (XLF), Energy (XLE) and Materials (XLB). 

We are still looking at a "politicized" short end of the yield curve.  The FED right now has no choice but to be the "deflation fighter."  Next week, when Chairman Bernanke is in front of the politicians, he can't very well tell them that he sees inflation coming in Q4.  

What does all of this mean?

  • (1) We will have an inspirational yield curve - the FED will keep rates at ZERO longer!
  • (2) Rates are not going to stay there forever!

Howard Penney

Managing Director


Who's Right? The Stock Market or the Bond Market?

"As I see it, bonds look like they have further to fall, while stocks look tenuous at these levels," writes Peter Atwater, founder of Financial Insyghts.

read more

Poll of the Day: If You Could Have Lunch with One Fed Chair...

What do you think? Cast your vote. Let us know.

read more

Are Millennials Actually Lazy, Narcissists? An Interview with Neil Howe (Part 2)

An interview with Neil Howe on why Boomers and Xers get it all wrong.

read more

6 Charts: The French Election, Nasdaq All-Time Highs & An Earnings Scorecard

We've been telling investors for some time that global growth is picking up, get long stocks.

read more

Another French Revolution?

"Don't be complacent," writes Hedgeye Managing Director Neil Howe. "Tectonic shifts are underway in France. Is there the prospect of the new Sixth Republic? C'est vraiment possible."

read more

Cartoon of the Day: The Trend is Your Friend

"All of the key trending macro data suggests the U.S. economy is accelerating," Hedgeye CEO Keith McCullough says.

read more

A Sneak Peek At Hedgeye's 2017 GDP Estimates

Here's an inside look at our GDP estimates versus Wall Street consensus.

read more

Cartoon of the Day: Green Thumb

So far, 64 of 498 companies in the S&P 500 have reported aggregate sales and earnings growth of 6.1% and 16.8% respectively.

read more

Europe's Battles Against Apple, Google, Innovation & Jobs

"“I am very concerned the E.U. maintains a battle against the American giants while doing everything possible to sustain so-called national champions," writes economist Daniel Lacalle. "Attacking innovation doesn’t create jobs.”

read more

An Open Letter to Pandora Management...

"Please stop leaking information to the press," writes Hedgeye Internet & Media analyst Hesham Shaaban. "You are getting in your own way, and blowing up your shareholders in the process."

read more

A 'Toxic Cocktail' Brewing for A Best Idea Short

The first quarter earnings pre-announcement today is not the end of the story for Mednax (MD). Rising labor costs and slowing volume is a toxic cocktail...

read more

Energy Stocks: Time to Buy? Here's What You Need to Know

If you're heavily-invested in Energy stocks it's been a heck of a year. Energy is the worst-performing sector in the S&P 500 year-to-date and value investors are now hunting for bargains in the oil patch. Before you buy, here's what you need to know.

read more