Not That The Markets Don't Matter At All, But This Matters a Whole Lot More

While markets do matter, there's something that matters a lot more: inflation. First, let's scope out markets.

Most of the chatter in financial media - as usual - focused on the markets this past week. And most of that - as usual - on the stock market. Did anything of real significance happen? Not really. The stock market continues to be negative in August, after a strong run-up since last October. But the downward pressure by no means has resulted in a serious correction - yet.

As for bonds, there's always some chatter (although there really should be a lot more). And this past week we saw a continuation of higher yields across the board. So bonds continued to sink. The bigger picture: Is this the start of a long-term serious Bear Market, one that will mirror the stupendous Bull Market in bonds that began in the early 1980s. We think it is, but maybe the Bull has a last gasp before the inevitable turn. We'll soon find out.

As for precious metals, gold continues to sputter, not spark. It's been sinking a bit. But its action really isn't anything to counter a long-term Bull Market argument, which we think is unfurling, although, again, maybe we're wrong. And, as with bonds, we'll soon find out.

With all that, not much has happened lately. And sandwiched in the summer doldrums as we are (see our last post), no one should be surprised. 

But what of inflation? Well, Powell did make hawkish noises this week. And you might have thought stocks would have reacted negatively to the prospect of more interest rate hikes. But for perhaps two, maybe three reasons, it didn't.

First, with machines doing most of the trading, perhaps the algos just pushed stocks up in the face of the Fed's hints at more increases than previously thought. Second, perhaps the market had already priced in those potential hikes. Third, and maybe of most substance, stocks typically face their biggest demise once the Fed begins cutting rates, not when they're hiking them. Rather the opposite of the common chatter.

But what of it. As mentioned above, what matters more is inflation. And the prospect of higher inflation was the reason Powell gave for hinting at further increases. This despite the chatter about inflation cooling - even perhaps conquered - some of the nonsense belched from certain interests on Wall Street, in Washington, and, of course, in the major media.

So why do so many Americans apparently "feel" that inflation continue to threaten their financial well-being? Well, if this article is correct, here's why. (And we can't vouch for these numbers, but the original article does link to its sources and spot check shows that the number seem legit.)

"...it's impossible to get a sense of the real damage from inflation without looking at the cumulative inflation in necessities (the goods and services that people are required to purchase on a regular basis to live day to day). If we throw out the CPI distraction and look at common necessities since 2020, the economic picture is far more bleak.

Overall food prices have soared by 25%-30% in only three years (again, this means that you are now paying 30% more this year for food than you were paying at the beginning of 2020). Chicken is up from $3 per pound to $4 per pound. Beef is upfrom $3.50 to $6 per pound. Corn is up from $3.50 per pound to $4.70 per pound. Wheat is up from $5 per pound to $7 per pound. In 2019 the average American household was spending $8100 on food annually; with a 30% increase, in 2023 Americans will be spending at least $10,500 per household.

By the end of 2019, the average rental price of a single family home was around $1450 per month. This year the price is around $2000 per month. At the beginning of 2020, the median cost of a home was $320,000; by 2023 the price skyrocketed to an average of $416,000.

For gasoline, the price in early 2020 was around $2.50 per gallon. The price has fluctuated dramatically due to Biden's manipulation of the market using strategic reserves, but still remains high today at $3.80 per gallon.

The cost of electricity has risen swiftly, holding steady around .13 cents per kilowatt hour for a decade, then spiking to at least .17 cents per kilowatt hour by 2023.

Remember, most of these costs are static and are difficult to reduce through household spending cuts. These are not items that are easily removed from a monthly budget and the expenditures add up to considerable pressure on consumer accounts. This is probably why around 74% of the public in polls say that the economy is getting worse, not better. It's because government statistics are not highlighting the true inflationary crisis.

When we look at the cumulative climb of prices in necessities since before the inflation crisis officially began, the truth is that Americans now have to increase their wages by at least 25%-30% on average to maintain the same standard of living they had three years ago. This is a disaster not seen since the stagflationary event of the 1970s and early 1980s. If you have a strange feeling like your bank account is being rapidly drained in recent months, that's because it is."

If you're feeling as described above, you've got some reasons here that tell you you're not just grousing. Seems about right.