Image Source: Unsplash

Inflation Strong

CPI core came in at .5 v last month .4. It's going the wrong way.

When the print hit and we saw the market holding I said to subscribers that this is 'bad' news + good action = bullish.

Fed Lack Of Reaction Bullish Medium Term

You've heard me say often that it's not the inflation number in isolation that affects markets but rather the Fed's reaction to inflation that affects markets.

And guess what, the Fed is now most likely not reacting much which is very bullish.

Why?

The Fed doesn't want to be responsible for a system failure by causing bank runs on unchecked unsafe banks that don't know how to manage their portfolios.

Much like UK Pensions all positioned the wrong way, central banks come to bail out everybody.

There appears to be almost no supervision and for sure not enough supervision.

Everything's turning into 'too big to fail' but nobody's watching these banks governing their portfolio-make-up or stop losses? It's pretty crazy.

But, so what? Caution to the wind and an everything-Fed-backstop is bullish shorter term.

When pensions and banks are incentivized to be careless because of a central bank backstops, you can expect that Risk-On bullishness should ensue.

The point is inflation is high but what's the Fed's reaction? Limited.

A limited reaction to a high inflation number is, drum roll, bullish.

Why? You've heard me say it before. Inflation means prices are moving up. Guess what? Stocks are also prices and in inflationary times, they should also move up. And between you and me I think we'd categorize inflationary stock prices as, another drum roll, bullish, right?

That's where we are.

Bitcoin can run. Stocks can run.

I've said even before Silicon Valley Bank that the Fed was already letting inflation run and that they were already behind the curve.

Now even more so the Fed's letting inflation run.

The Fed, as much as they claim to be hawks are not and that is very bullish in an inflationary time.

They are not prepared to take any pain to do what discipline calls for which is to raise rates enough to stall inflation.

Long Term Fiat Currency Stock Market Risk

The end risk game (which is just a side note for now) is if they are not careful and continue to show a lack of discipline, is that inflation could run rampant which would be a giant risk to the fiat monetary system's stability. Look up hyperinflationary times. Gold is good.

The Fed's caution to the wind is the markets short term gain and medium term gain. We'll watch it, but longer term this creates a giant risk to the value of the currency that they overprint to save everything.

As that currency value drops, the goods it buys can spike in the long term changing the face of the fiat system world we live in. They don't want that but they've proven to be pain averse to avoid that longer term. Very strong words so maybe read this last paragraph again so it sinks in.

Fed Day Next Wednesday

The Fed speaks next Wednesday.

The market is expecting a measly 25bp hike.

I've been calling out that 25bp hikes are like flies on the highway windshield.

This strong economy and this strong inflation are too much for 25bp hikes to tame.

2.6% GDP currently estimated for Q1 by GDP Now + Inflation of 5.5-6% = 8.6% growth.

5% Fed Funds is not high enough to slow almost 9% growth.

CEOs are going to start stepping on the pedal to invest in this economy, buy inventory and it can cycle.

This continues to be a bullish window.

More By This Author:

SPY: Inflation News Bullish Ahead Of Powell's Fed Testimony Tuesday To Congress
Tesla Stock Risk Building After Analyst Day
Bitcoin Coiled Spring, Bullish To 40,000