Chipping Away At Inflation – by Justin Vaughn

(Justin Vaughn, Editor, Options Trading Report)

Important Inflation information is coming up for release this week, giving investors and traders more to think about. Evidently there was more positive than negative thoughts as Monday’s close was upward. The Dow Jones Industrial Average was up 1.1%, 376 points, as the S&P 500 nudged higher by 43 points. The technology-heavy Nasdaq Composite was positive 136 points, all giving some reassurance that the ‘news’ will be ‘good news.’ The CPI, (Consumer Price Index), is a heavy influencer on the stock market, one that investors and traders closely relate to and react to. “The key thing here is at what level will inflation begin to stabilize,” said Peter Garnry, head of equity strategy at Saxo Bank.

The CPI fell…for January to 6.4%, from Decembers’ 6.5%, a slight, bit lower according to the Labor Department, with energy and foodstuffs showing a slight increase, proving ever stubborn in controlling inflation. For seven months inflation has headed downward after reaching a high point of 9.1% in June of 2022, thawing, reacting to the Federal Reserves’ constant significant rate hikes. Jerome Powell has strongly reaffirmed that, “the job is far from finished.” There Is no reason to believe that the Fed will soften its stance, as inflation remains obstinate, with rate hikes likely to continue well into the year. “The strength of core inflation suggests that the Fed has a lot more work to do to bring down inflation back to 2%,” said Maria Vassalou, co-chief investment officer at Goldman Sachs Asset Management. Stocks had a tough day Thursday as the Producer Price Index for January was released showing an increase of 0.7%, much higher than the 0.4% estimated by analysts and economists. Added to the soft increase in interest rates, and remarks by two Federal Reserve Presidents, both suggesting strong rate increases with Bank of Cleveland President Loretta Mester saying she ‘was open’ to a 0.50% increase this month. Investors and traders have a ‘full plate’ of news that is dragging the market, with Thursday’s market activity quite negative. The S&P 500 slid 1.4%, the Dow Jones sank 1.3% and the tech-minded Nasdaq fell 1.8%, all suffering substantial losses. A couple of bright spots- the dollar index edged a bit higher up 0.09%, trading at $104.02, and the 10-year Treasury was stronger moving up to 3.867%. Crude oil steadied at $78.19 a barrel, as the Russian quagmire seems to be a non-influencer. OIl reserves are building steadily, with oil production worldwide ‘cranking up’ with drilling platforms nearly all spoken for.

The Crypto Crisis…The U.S. Government is moving in on ‘free-wheeling crypto’ with regulators digging in. SEC chairman Gary Gensler has stated that crypto firms’ custody practices might not clear the legal hurdles necessary to keep their customers’ assets safe in the event of bankruptcy. The current business model in crypto exchanges does not meet the qualified custodial standard.” The floodgates have opened since FTX failed, taking down billions. Many platforms doing business in the U.S.have tried to circumvent SEC policies and regulations by arguing that digital tokens that are bought and sold in the virtual markets are not defined as..securities, and don’t qualify to be regulated as stocks. Mr. Gensler totally disagrees with that assumption and vows to fight for strict regulation. As the SEC moves forward with its agenda, a cleaner crypto will emerge….or fall by the wayside.

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Gary Gensler, SEC Chairman, WSJ Speaking about the FTX crisis and the ramifications; “there’s far too much non-compliance in this field.”

Martin Fridson, CFA, chief investment officer of Lehmann Livian Fridson Advisors, Barron’s “As for the current outlook, in December Bloomberg–surveyed forecasters collectively predicted a 0.3% GDP rise in 2023 Last month, they boosted that figure to 0.5%. They could be right. Then again, 2023 could be one of those years when they get it badly wrong.”

Jack Hough, Writer and economist for…..Barron’s “What’s an activist? A corporate raider without the commitment. If you’ve ever been to a Peewee basketball game and heard parents coaching from the stands, picture one of them walking to the bench, sitting down, grabbing the clipboard, and telling Silas to stop chucking from the outside, Jasper to hit the boards, and Henry to go turn his shorts right-side-out. The actual coach would probably welcome that help as much as CEO’s appreciate raiders and activists, the two main types of high finance buttinskys.”

Jurrien Timmer, Director of Global Macro, Fidelity Investments, Barron’s “There was no reason to be an active investor. There is every reason to be an active investor for the next five or 10 years. That’s where the game is going to be.”