CPI Inflation Report Worse Than Expected — Stocks Are Falling

[00:00:00] Speaker 1: The CPI Inflation Report was released today, and the rate of inflation came in hotter than expected. And this caused the stock markets, precious metals, and Bitcoin to all fall today. And I want to explain to you what happened and why it happened. The CPI Inflation Reports provided by the government said that for the month of September, the rate of inflation was 3.7%. The expectation was 3.6%. And although that might not sound like a big miss, the concern is how things are trending. So you're looking at the CPI headline inflation in blue, and the other line is CPI core inflation. And as you can see, not only is inflation not coming down, it's actually been trending up, which is, of course, not good. And how did the market react to this hotter than expected inflation reports? Well, the answer is not so good. The stock market fell. The Dow Jones, S&P 500, and NASDAQ, they were all down today. Precious metals went down. Bitcoin went down. So basically, the markets reacted poorly to the higher than expected inflation rates from the CPI reports. Okay, so that's what happened. And that's how the market reacted. And I want to explain to you why the market reacted the way it did. And this is not opinion. This is cause and effect. This is just simply how it works. Okay, so this is the first thing that I want to show you. The next Federal Reserve meeting is on October 28th. Now, before the CPI inflation report, there was a 22% chance that the Federal Reserve will raise interest rates at that October 28th meeting. And then the monthly CPI inflation report was released today. And now, the odds that the Federal Reserve will increase interest rates on October 28th has increased from 22% to 32.7%. So that is a meaningful jump in the odds. So the key takeaway is that higher interest rates or even the threats of higher interest rates are a drag or a headwind for the stock markets. So, in other words, higher interest rates or even the threat of higher interest rates are bad for the stock markets. You know, stocks go up when money is cheap and easily available. And another thing that I want to point out is that when the CPI inflation report was released, it was a bad reaction in the Treasury markets. The yield or the interest rates on the 10-year Treasury notes shot up before coming back down. And this 10-year notes, I mean, I would say that's the most important interest rate for U.S. consumers, as this is most correlated to mortgage interest rates. And it was the same thing. It was a similar action for the 30-year Treasury bonds. The interest rates spiked up, came back down. However, I want you to take a look at the yield. 5.52% on the 30-year bond. That is very high, relatively speaking. Now, you're looking at a five-year chart of the yield or the interest rates on 30-year Treasury bonds. And as you can see, the interest rate is trending up, right? I mean, it doesn't take an analyst to catch that one. Well, as interest rates go higher, that strengthens the U.S. dollar. So today, the dollar strengthens. And you can check the strength of the dollar by looking at the DXY, the Dixie. But you have to understand that this only shows you the strength of the U.S. dollar compared to other fiat currencies. But regardless, as the dollar strengthens, that's a headwind or a drag on commodities, which includes precious metals. And as you can see, the Dixie was up strong today. Okay, now let's go back to interest rates on government debts. And I would best explain this as your country's currency will get stronger when your country's debts pays a higher interest rate. And I want to explain it to you like this. So let's just say that you are a Mexican investor. Okay, and I want to ask you, would you rather lend money to the U.S. government and get compensated a 5.5% interest rate? Or would you rather lend money to Japan and get compensated a 4% interest rate? Okay, well, if you're going to say that you would rather lend money to the U.S. government, then, well, you've got to get some dollars to lend money to the U.S. governments. Like, they're not going to take your pesos. So you have to convert your pesos to dollars, and there's going to be more demand for U.S. dollars. And today, you know, as I showed you, the dollar strengthened, and that's not good for commodities, including precious metals. So listen, the chain reaction was, the CPI inflation report was released today. Inflation came in hotter than expected, and that basically means that we're going to have higher interest rates for longer, and, well, now there's greater odds of higher interest rates. And higher interest rates are not good for stocks or for precious metals, and the stock market and precious metals fell today. So that's basically what happened. All right, now let's get back to the CPI inflation report. What is going on, and what do you need to know? Okay, so inflation is being reported at a rate of 3.7%, and that's a big jump from 3.4% the prior month. Core inflation, and that one ignores energy prices and fuel prices, that's being reported as 2.6%. Now, the biggest culprit in all of this, you know, the rising inflation, is the rising energy prices. And here's the problem. It's not just about gasoline prices, you know, even though those elevated prices, they're very taxing on American consumers. So I would say that the bigger concern is diesel fuel prices. So listen, most of the products that you buy, I mean, just take a look around you, chances are that it took diesel fuel for your product, for that product to get to you. You know, whether it was shipped on a commercial vessel, or whether it was shipped to the store on a truck, or whether it was farmed with a diesel-powered tractor. So if diesel fuel prices keep going up like this, well, of course, yeah, it's going to add substantial cost throughout the supply chain, and prices are going to inflate. And I want you to take a look at diesel fuel prices right now, about $6.30 a gallon. You know, that's the national average. It was at $3.65 a gallon 12 months ago. So as you can see, regular gasoline prices, yeah, they've gone up, but not to record highs like diesel fuel. Okay, but why is that? Like, what's going on with diesel fuel? It's because right now, oil flows are improving in the Strait of Hormuz. However, the flows of refined oil products, you know, such as diesel fuel, they haven't recovered as much. So it's just simply supply and demand that the supply side of diesel is still being suppressed. Now, going back to the stock market, like, I apologize for all the back and forth, but the thing is that all of this is connected. What's going to be the catalyst for the stock market to start going back up to new record highs? And my belief is that it's all going to depend on lower interest rates. And I'm not talking about the Federal Reserve. I'm talking about the 10-year notes and the 30-year bonds. Okay, with that being said, what's going to be the catalyst or catalysts for lower yields? So I would say, well, it's, well, it could be four of these things are a combination. So the first thing is that yields can naturally go down with no catalysts. Like, maybe interest rates overreacted, rates got too high, and a correction is just naturally overdue. Like, that's possible. Now, a second thing that can happen is that the Democrats can win the House and or Senate. So the thing is, if there's gridlock in Congress, then the market's like that. Like, the markets prefer a divided Congress so that there's a smaller chance of abrupt or extreme policy measures. Now, the third thing that can happen that could be a catalyst is improved energy flows in the Middle East. So this could be accomplished cooperatively. It could be accomplished militarily. But this is just what we talked about. If energy becomes cheaper, gasoline, diesel, etc., then there's going to be less inflation being added to the supply chain. And that's going to cause interest, longer duration interest rates to come down. Now, the granddaddy of them all would be if the Federal Reserve comes to the rescue with a greater amount of money printing. So just to clarify, the Federal Reserve is already printing money, and the Treasury is also intervening, but rates are not coming down. Like, you saw the charts, you saw the data. Rates aren't coming down. But if the markets fall too much, like I'm talking about the stock market and also the bond markets, like if bond prices come down too much and yields go too high, then, well, I expect the Federal Reserve to come to their rescue and not the Treasury because they don't have enough firepower because they don't have a money printer. The Federal Reserve does. So in a nutshell, the way I see it, I believe that once yields start going back down meaningfully, it could be one or more catalysts, of course, that the markets will start marching back up higher to new record highs. It's just a, it's literally just a waiting game. Like, patience is going to pay. Anyways, if you enjoy this type of content and analysis, then I encourage you, please come check out our financial community. You can join for free so you can see what I'm investing in. You can get our buy and sell alerts and you can get your questions answered, whether it be through me or through our chat room. Okay. 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