International
Wall Street Reacts To Today’s Huge CPI Miss
Wall Street Reacts To Today’s Huge CPI Miss
“Remember that one month does not make a trend. But also remember that every trend starts with…

“Remember that one month does not make a trend. But also remember that every trend starts with one month.” - Leon Brittan
For a look at just how big of a surprise today's CPI miss (which we said would be a miss in our preview), look no further than the market where it's a sea of red with every asset class soaring (except energy)...
... and where the plight of the shorts - which these days is most hedge funds - can be summarized with one image:
Why this tremendous market reaction, where - when one strips away the rhetoric - all we have seen is one month's drop in energy prices, which will only rise now that the market is starting to anticipate a Fed pivot.
Bloomberg asks a similar question, namely "what’s behind the surprising slowdown in July?" and notes that according to a new Bloomberg Economics model, US inflation decomposes into four factors: supply, demand, energy prices and monetary policy.
The model found that lower energy costs and a slightly tighter Fed stance were the main drivers of the deceleration to 8.5% last month.
At the same time, sizzling demand paired with supply constraints continue to put upward pressure on inflation. With these last two factors harder to contain, Bloomberg writes that "the Fed has a tough task ahead of it and will likely need to be more hawkish then currently expected", or in other words, echoing what we said yesterday when we warned that "a miss will make Powell's life extremely hard."
Why? Well, here is a good thread summary from Dan Alpert:
And the answer is: Headline: ZERO M/M; Core: 0.3%
The end is nigh!
That headline reading was with food UP 1.1% in July, offset by energy falling -4.9% on the month. (Energy commodities -7.6%)
Core commodities (goods) only rises 0.2% on the month as supply chains reopen and production inventories build to backlog. On the services side, the price rise falls to 0.4% driven by a -0.5 decline in transportation services in July.The shelter rise moderates a bit to +0.5% M/M on the back of a 2.7% monthly decline in lodging, which fell for the second straight month after pandemic reopening demand and supply squeezes (this will accelerate into the fall).
Rent and Owners Equivalent Rent of Primary Residences, the primary drivers of core inflation, remain high at 0.7% and 0.6% M/M respectively. But that is lagging data and the housing market has already been thrown into decline by Fed interest rate hikes and building oversupply.
Housing is, these days, the principal channel through which Fed monetary policy operates (the mortgage market). >>
While Fed hikes are not responsible for inflation slowing in this report (the prior inflation itself - "the cure for high prices is high prices", opening supply chains and lower global energy prices were), higher interest rates will have a huge impact on housing (and CPI) soon.
In October of last year, before Omicron and the Ukraine War disturbed pricing metrics around the world, I noted that inflation would be a first half of 2022 story (I said it would subside by Q2, but the foregoing events got in the way).
Yet here we are.
While these M/M sectoral declines will not be repeated every month, we will see housing costs gradually subside for sure, core goods stabilize and consumer purchases driven most by pandemic reopening "revenge spending" see material price retrenchment as inventories rebuild.
The only real wild cards are exogenous (not demand driven) supply risks associated with oil and gas, and their bleed over impact on food (think fertilizer and food transportation) costs.
All in all, this report is as I expected and the trend is reorienting itself.
We are at the point where the annual (Y/Y) CPI figures cease to have meaning. Prices are what they are now, as are wages and incomes. The only issue is where they go in the future. And that is not a function of expectations, it is the discipline of supply and demand.
One last data point FWIW: CPI All Items less Shelter fell by -0.3% in July.
While we are confident that those who don't actually have a corporate charge card will disagree with Dan's cheerful take on today's inflation print, there was another reason for the market's euphoric reaction - the chart below from Bloomberg shows the breadth of inflation. The July reading of 71.8 is saying that 71.8% percent of the CPI basket is increasing in price at more than a 4% on an annualized basis from the MoM data, which represents relief for the Fed after June’s high of 74.8%.
What do other market watchers and strategists think? Below we summarize a handful of hot takes from across Wall Street:
- Peter Tchir, chief strategist at Academy Securities: "Slightly better than expected inflation across the board. Initial reaction lower yields, steeper curves (which I like). Higher stocks/risk assets - expected based on numbers, but 1) not sure number beat the whisper; 2) still high enough Fed not completely out of picture, which may lead us back to fixating on recession, inventories, semiconductors, warnings, etc. So fading this on risk side of the equation"
- Seema Shah, chief strategist at Principal Global Investors: “This is a textbook bear market rally -- technicals and sentiment drove the upturn and momentum is carrying it for now. Markets have become overly optimistic about the Fed outlook and even the economy. But as we get into Q4, earnings growth will show clear signs of struggles and inflation will be easing only slowly, giving markets an important reminder the further rate hikes are absolutely necessary.”
- Peter Boockvar, chief investment officer at Bleakley Financial Group: “We know there is another CPI figure, along with a jobs number before the Fed meets again. I’ll say again that they will be going 50 bps in September and I doubt much past that.”
- Eric Theoret, global macro strategist at Manulife Investment Management: "I'll be watching breakevens, and the challenge from here will be for markets to not celebrate too much and declare victory... Breakevens tend to be well correlated to market sentiment and the price of crude more specifically. A weaker USD and risk on tone would support the price of oil and lift breakevens, pulling them away from target. This is not something that markets or the Fed ultimately want.”
- Neil Dutta, head of US economic at Renaissance Macro: “This data point will fuel talk of a policy pivot. But, for me, the issue really does boil down to the labor market. Short-term inflation expectations and gasoline prices were the story in May and June. That’s not the story now. Wage growth is running red hot and absent a turn around in productivity this will ultimately fuel higher prices.”
- Anna Wong, Bloomberg chief economist: "Both headline and core CPI inflation were surprisingly soft in July, but with recent wage and productivity data signaling prices pressures ahead, the Federal Reserve is unlikely to step back from the inflation fight just yet. Another soft print is likely in August as gasoline prices have continued to decline."
- Ira Jersey, Bloomberg strategist: “Our analysis shows that the lower-volatility (read sticky) components of core CPI may have peaked in July, but the medium-volatility sector continues to jump higher. If the low-volatility cluster stabilizes at this higher level, these combined trends may keep core CPI underpinned and the Fed hawkish.... The better-than-expected core CPI print will be a strong positive for the Treasury market, particularly the long end, so the knee-jerk reaction is unsurprising. The strong steepening of the curve may not last, however, as the better-than-expected core still doesn’t mean it will fall. In fact, although better than expected, the core may be sticker than the market seems to be anticipating.”
- Ellen Zentner, Morgan Stanley economist: "Fed officials are unlikely to see this report as a signal to deviate from their steep tightening path we foresee through the end of this year. That said, this report makes a 50 basis points more likely at the September meeting rather than 75, but a lot will depend on the August CPI release next month.”
- Ian Lyngen, rates strategist at BMO Capital Markets: "post-CPI steepening in 2/10’s to around -40bps is a reentry point to add to a core flattener and expect that the incoming Fed-speak will emphasize the idea that the Fed will need to see more than one month of data for confirmation inflation has, in fact, peaked.”
- Ellen Gaske, G10 economist at PGIM Fixed Income: “The weaker-than-expected CPI print suggests the Fed could adopt a more cautious pace of tightening going forward.”
- Dennis DeBusschere, founder of 22V Research: "the report is obviously very positive for markets on the day -- rates are lower, rate-hike expectations are lower and worries about a too-hot CPI with very strong employment reduced.”
- Michael Pond, head of inflation strategy at Barclays: “This is a necessary print for the Fed, but it’s not sufficient. We need to see a lot more. You can think about this print sort of like the weather: it’s better today than it has been over the past few days. But it’s still summer. There’s still a lot of humidity.”
- Matt Maley, chief market strategist at Miller Tabak: “Some people were starting to think that we could get a 75 basis point hike in September or even a mid-meeting hike. This weaker than expected CPI number takes that off the table. In fact, it might even cause some people to look for a pause from the Fed.”
- Victoria Greene, chief investment officer at G Squared: “While this is to be celebrated, 8.5% inflation is still well above what the Fed wants to see. 50-75bps are still on the table for September, and more data will come in by that point."
- Jim Paulsen, chief investment strategist at the Leuthold Group: “Wow, finally the anecdotal evidence that inflation was easing has finally showed up in a mainstream inflation report. The Fed is rapidly losing its case for further tightening and this report reinforces for investors that either a new easing cycle has already begun or we are getting very close to one.”
- Han Hatzius, Goldman Sachs chief economist: "July core CPI rose by 0.31% month-over-month, below expectations and the slowest monthly pace since September. Declines in airfares and used car prices contributed to the slowdown, and we also note a sequentially slower but still elevated pace of shelter inflation."
Government
Fauci And The CIA: A New Explanation Emerges
Fauci And The CIA: A New Explanation Emerges
Authored by Jeffrey A. Tucker via Brownstone Institute,
Jeremy Farrar’s book from August 2021…

Authored by Jeffrey A. Tucker via Brownstone Institute,
Jeremy Farrar’s book from August 2021 is relatively more candid than most accounts of the initial decision to lock down in the US and UK. “It’s hard to come off nocturnal calls about the possibility of a lab leak and go back to bed,” he wrote of the clandestine phone calls he was getting from January 27-31, 2020. They had already alerted the FBI and MI5.
“I’d never had trouble sleeping before, something that comes from spending a career working as a doctor in critical care and medicine. But the situation with this new virus and the dark question marks over its origins felt emotionally overwhelming. None of us knew what was going to happen but things had already escalated into an international emergency. On top of that, just a few of us – Eddie [Holmes], Kristian [Anderson], Tony [Fauci] and I – were now privy to sensitive information that, if proved to be true, might set off a whole series of events that would be far bigger than any of us. It felt as if a storm was gathering, of forces beyond anything I had experienced and over which none of us had any control.”
At that point in the trajectory of events, intelligence services on both sides of the Atlantic had been put on notice. Anthony Fauci also received confirmation that money from the National Institutes of Health had been channeled to the offending lab in Wuhan, which meant that his career was on the line. Working at a furious pace, the famed “Proximal Origin” paper was produced in record time. It concluded that there was no lab leak.
In a remarkable series of revelations this week, we’ve learned that the CIA was involved in trying to make payments to those authors (thank you whistleblower), plus it appears that Fauci made visits to the CIA’s headquarters, most likely around the same time.
Suddenly we get some possible clarity in what has otherwise been a very blurry picture. The anomaly that has heretofore cried out for explanation is how it is that Fauci changed his mind so dramatically and precisely on the merit of lockdowns for the virus. One day he was counseling calm because this was flu-like, and the next day he was drumming up awareness of the coming lockdown. That day was February 27, 2020, the same day that the New York Times joined with alarmist propaganda from its lead virus reporter Donald G. McNeil.
On February 26, Fauci was writing: “Do not let the fear of the unknown… distort your evaluation of the risk of the pandemic to you relative to the risks that you face every day… do not yield to unreasonable fear.”
The next day, February 27, Fauci wrote actress Morgan Fairchild – likely the most high-profile influencer he knew from the firmament – that “be prepared to mitigate an outbreak in this country by measures that include social distancing, teleworking, temporary closure of schools, etc.”
To be sure, twenty-plus days had passed between the time Fauci alerted intelligence and when he decided to become the voice for lockdowns. We don’t know the exact date of the meetings with the CIA. But generally until now, most of February 2020 has been a blur in terms of the timeline. Something was going on but we hadn’t known just what.
Let’s distinguish between a proximate and distal cause of the lockdowns.
The proximate cause is the fear of a lab leak and an aping of the Wuhan strategy of keeping everyone in their homes to stop the spread. They might have believed this would work, based on the legend of how SARS-1 was controlled. The CIA had dealings with Wuhan and so did Fauci. They both had an interest in denying the lab leak and stopping the spread. The WHO gave them cover.
The distal reasons are more complicated. What stands out here is the possibility of a quid pro quo. The CIA pays scientists to say there was no lab leak and otherwise instructs its kept media sources (New York Times) to call the lab leak a conspiracy theory of the far right. Every measure would be deployed to keep Fauci off the hot seat for his funding of the Wuhan lab. But this cooperation would need to come at a price. Fauci would need to participate in a real-life version of the germ games (Event 201 and Crimson Contagion).
It would be the biggest role of Fauci’s long career. He would need to throw out his principles and medical knowledge of, for example, natural immunity and standard epidemiology concerning the spread of viruses and mitigation strategies. The old pandemic playbook would need to be shredded in favor of lockdown theory as invented in 2005 and then tried in Wuhan. The WHO could be relied upon to say that this strategy worked.
Fauci would need to be on TV daily to somehow persuade Americans to give up their precious rights and liberties. This would need to go on for a long time, maybe all the way to the election, however implausible this sounds. He would need to push the vaccine for which he had already made a deal with Moderna in late January.
Above all else, he would need to convince Trump to go along. That was the hardest part. They considered Trump’s weaknesses. He was a germaphobe so that’s good. He hated Chinese imports so it was merely a matter of describing the virus this way. But he also has a well-known weakness for deferring to highly competent and articulate professional women. That’s where the highly reliable Deborah Birx comes in: Fauci would be her wingman to convince Trump to green-light the lockdowns.
What does the CIA get out of this? The vast intelligence community would have to be put in charge of the pandemic response as the rule maker, the lead agency. Its outposts such as CISA would handle labor-related issues and use its contacts in social media to curate the public mind. This would allow the intelligence community finally to crack down on information flows that had begun 20 years earlier that they had heretofore failed to manage.
The CIA would hobble and hamstring the US president, whom they hated. And importantly, there was his China problem. He had wrecked relations through his tariff wars. So far as they were concerned, this was treason because he did it all on his own. This man was completely out of control. He needed to be put in his place. To convince the president to destroy the US economy with his own hand would be the ultimate coup de grace for the CIA.
A lockdown would restart trade with China. It did in fact achieve that.
How would Fauci and the CIA convince Trump to lock down and restart trade with China? By exploiting these weaknesses and others too: his vulnerability to flattery, his desire for presidential aggrandizement, and his longing for Xi-like powers over all to turn off and then turn on a whole country. Then they would push Trump to buy the much-needed personal protective equipment from China.
They finally got their way: somewhere between March 10 or possibly as late as March 14, Trump gave the go ahead. The press conference of March 16, especially those magical 70 seconds in which Fauci read the words mandating lockdowns because Birx turned out to be too squeamish, was the great turning point. A few days later, Trump was on the phone with Xi asking for equipment.
In addition, such a lockdown would greatly please the digital tech industry, which would experience a huge boost in demand, plus large corporations like Amazon and WalMart, which would stay open as their competitors were closed. Finally, it would be a massive subsidy to pharma and especially the mRNA platform technology itself, which would enjoy the credit for ending the pandemic.
If this whole scenario is true, it means that all along Fauci was merely playing a role, a front man for much deeper interests and priorities in the CIA-led intelligence community. This broad outline makes sense of why Fauci changed his mind on lockdowns, including the timing of the change. There are still many more details to know, but these new fragments of new information take our understanding in a new and more coherent direction.
Jeffrey A. Tucker is Founder and President of the Brownstone Institute. He is also Senior Economics Columnist for Epoch Times, author of 10 books, including Liberty or Lockdown, and thousands of articles in the scholarly and popular press. He speaks widely on topics of economics, technology, social philosophy, and culture.
International
North Korea Enshrines “Permanent” Nuclear Power Status In Constitution
North Korea Enshrines "Permanent" Nuclear Power Status In Constitution
On Thursday North Korean state media quoted leader Kim Jong Un as saying…

On Thursday North Korean state media quoted leader Kim Jong Un as saying more advanced atomic weapons are needed to counter the threat from the United States.
This signals the death knell for Washington's long stated policy goal of denuclearization of the Korean peninsula, given that the remarks came as Kim enshrined the DPRK's status as a permanent nuclear power in its constitution.
North Korea's "nuclear force-building policy has been made permanent as the basic law of the state, which no one is allowed to flout," Kim told the State People's Assembly, according to state-run KCNA.
Starting last year he declared the north as an "irreversible" nuclear weapons state, and has in the last couple months ramped up ballistic missile tests in response to intermittent, ongoing joint US military drills with the south. This has already been a record year in terms of the number of Pyongyang's missile tests.
The north's rubber-stamp parliament, which met Tuesday and Wednesday, has approved the nuclear update to the constitution. Kim described that this was necessary as the United States has "maximized its nuclear war threats to our Republic by resuming the large-scale nuclear war joint drills with clear aggressive nature and putting the deployment of its strategic nuclear assets near the Korean peninsula on a permanent basis."
In July, the nuclear-armed USS Kentucky Navy ballistic missile submarine made a port call in South Korea, which marked a first in decades. It has stayed there since, enraging Pyongyang.
Kim in his Thursday address also blasted growing defense cooperation between Washington, Seoul and Tokyo as the "worst actual threat," saying that as a result "it is very important for the DPRK to accelerate the modernization of nuclear weapons in order to hold the definite edge of strategic deterrence."
A similar message was delivered in New York on Tuesday by Kim Song, North Korea's representative at the UN, who said in an address to the UN General Assembly that the region is close to the "brink of a nuclear war".
NEW: North Korea’s ambassador to the U.N. issued a stark warning that the Korean Peninsula has reached a “hair-trigger situation with imminent danger of nuclear war breakout,” delivering a speech at the 78th U.N. General Assembly in New York on Tuesday. https://t.co/Rwtxf37wkW
— NK NEWS (@nknewsorg) September 27, 2023
"Owing to the reckless and continued hysteria of nuclear showdown on the part of the US and its following forces, the year 2023 has been recorded as an extremely dangerous year that the military security situation in and around the Korean peninsula was driven closer to the brink of a nuclear war," he said.
"Due to [Seoul’s] sycophantic and humiliating policy of depending on outside forces, the Korean peninsula is in a hair-trigger situation with imminent danger of nuclear war," the ambassador continued. He further blasted the US for attempting to erect an "Asian NATO" that will bring a "new Cold War structure to northeast Asia."
International
Tesla rival Polestar reveals production plans for electric SUV
The Sweden-based electric vehicle maker completes key testing before launching production of its new SUV.

Tesla's Model Y crossover, the best-selling vehicle globally, is the standard that electric vehicle makers strive to compete with. The Austin, Texas, automaker sold about 267,200 Model Y vehicles in the first three months of the year and continued leading the pack well into the second quarter.
It's no wonder that the Model Y is leading all vehicles in sales as it retails for about $39,390 after tax credits and estimated gas savings. Ford (F) - Get Free Report hopes to compete with the Model Y about a year from now when it rolls out the new Ford Explorer SUV that is expected to start at $49,150.
Related: Honda unveils surprising electric vehicles to compete with Tesla
Plenty of competition in electric SUV space
Mercedes-Benz (MBG) however, has a Tesla rival model with its EQB all-electric compact sports utility vehicle with an estimated 245 mile range on a charge with 70.5 kWh battery capacity, 0-60 mph acceleration in 8 seconds and the lowest price of its EVs at a $52,750 manufacturers suggested retail price.
Tesla's Model X SUV has a starting price of about $88,490, while the Model X full-size SUV starts at $98,490 with a range of 348 miles. BMW's (BMWYY) - Get Free Report xDrive50 SUV has a starting price of about $87,000, a range up to 311 miles and accelerates 0-60 miles per hour in 4.4 seconds.
Polestar (PSNY) - Get Free Report plans to have a lineup of five EVs by 2026. The latest model that will begin production in the first quarter of 2024 is the Polestar 3 electric SUV, which is completing its development. The vehicle just finished two weeks of testing in extreme hot weather of up to 122 degrees in the desert of the United Arab Emirates to fine tune its climate system. The testing was completed in urban cities and the deserts around Dubai and Abu Dhabi.
“The Polestar 3 development and testing program is progressing well, and I expect production to start in Q1 2024. Polestar 3 is at the start of its journey and customers can now visit our retail locations around the world to see its great proportions and sit in its exclusive and innovative interior,” Polestar CEO Thomas Ingenlath said in a statement.
Polestar
Polestar plans 4 new electric vehicles
Polestar 3, which will compete with Tesla's Model X, Model Y, BMW's iX xDrive50 and Mercedes-Benz, has a starting manufacturer's suggested retail price of $83,000, a range up to 300 miles and a charging time of 30 minutes. The company has further plans for the Polestar 4, an SUV coupé that will launch in phases in late 2023 and 2024, as well as a Polestar 5 electric four-door GT and a Polestar 6 electric roadster that the company says "are coming soon."
The Swedish automaker's lone all-electric model on the market today is the Polestar 2 fastback, which has a manufacturer's suggested retail price of $49,900, a range up to 320 miles and a charging time of 28 minutes. The vehicle accelerates from 0-60 miles per hour in 4.1 seconds. Polestar 2 was unveiled in 2019 and delivered in Europe in July 2020 and the U.S. in December 2020.
Polestar 1, the company's first vehicle, was a plug-in hybrid that went into production in 2019 and was discontinued in late 2021, according to the Polestar website.
The Gothenburg, Sweden, company was established in 1996 and was sold to Geely affiliate Volvo in 2015.
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