Stocks Surge on CPI Data

Posted by Louis Navellier on 5/14/08 11:46 am

U.S. stocks rebounded today after a key consumer prices report revealed that inflation was less than expected in April.  The Consumer Price Index (CPI) rose 0.2% in April, slightly less than the 0.3% rate expected by economists.  And the more important core rate (consumer prices minus food and energy) edged up just 0.1%, half as much as the 0.2% consensus.  CPI Full Report

Overall, the CPI data are good news, but the Fed will not cut rates further, since the core CPI & PCE are still above the Fed’s “comfort zone” of 1%-2% inflation.  The CPI’s year/year core rate was up 2.3% in April; however, the 3-month annualized rate is down to 1.2%.  The big drop-off in the past three months is due to the economic slowdown.  In fact, some believe it’s indicative of a recession even though we haven’t seen official recession numbers yet.

That could change though.  The Q1 GDP data still have to go through two more revisions.  The first estimate was 0.6%, so there’s not much room on the downside to stay above official recession territory.

Moreover, the May CPI headline number is supposed to be bad, largely due to the big run-up in food and energy prices this month.  But, that doesn’t necessarily mean the food and energy prices will get passed through enough to increase the core rate if the overall economy is still slowing.

In the meantime, we’re still underweight consumer stocks in Vantage, All Cap Core, Fundamental ‘A’, Power Dividend, Dynamic MPT, and our other portfolios, too.

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Are Investment Instruments Creating a Commodity Crisis?

Posted by Patrick O'Connor on 5/13/08 2:49 pm

During the past few years there has been an explosion of new investment instruments that have allowed investors to participate in the commodity markets unlike ever before.  This new source of buying pressure on the long side (about $250 billion) is causing most of the commodity inflation we’re experiencing today, according to the article “The Looming Commodity Crisis” by Jeff Korzenik at MarketWatch.

Here are some quotes from the article:

“The problem is that the investment capital is too large relative to the size of the underlying commodity markets.”

“A recent move by pension giant Calpers to commit to raise their commodity exposure to $7 billion (from less than $400 million) underscores this growing trend.  All this money is directed to roughly two dozen futures contracts.”

Mr. Korzenik suggests that regulatory intervention is needed to fix the imbalance.  I respectfully disagree.  Instead, I think there should be more shorting instruments made available to put downward pressure on many of these commodities.  That’s a solution that would limit much of the one-sided investing that’s going on.

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Rain May Reduce Corn Output and Raise Prices

Posted by Tim Hope on 5/8/08 11:04 am

With ethanol fuel mandates in the news, policymakers should be careful what they wish for in expanding such requirements. Wet fields and cold weather may delay the planting of corn crops and thus could set the stage for reduced crop yield.  While in the past such concerns were generally restricted to those associated with the agricultural community, today crop yields and prices also impact ethanol using fuel consumers.

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First-Quarter Productivity Surprises Economists, Lifts Oil Prices

Posted by Louis Navellier on 5/7/08 9:50 am

First-quarter productivity rose at a 2.2% annual rate, well above the 1.5% consensus.  And unit labor costs rose less than expected, also up 2.2% (2.6% consensus).  As a result, inflation pressures eased, perhaps giving the Fed more leeway to keep rates low longer.  The better-than-expected productivity result could also increase the next Q1 GDP estimate, which is why oil prices climbed to another all-time high today.

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Employment Costs Index Rose 0.7%

Posted by Louis Navellier on 4/30/08 10:42 am

The Employment Costs Index rose 0.7% in the three months to March, one tenth less than expected.  Bad headline, but good components ... the lack of wage inflation in the report helped allow the Fed to cut interest rates today.  What’s more, the Fed should be able to keep rates low for some time.  “As long as wage gains remain depressed – hourly wages have been slowing for more than a year now – the Fed can keep short rates very low without fear of stoking inflation,” said economist Ian Shepherdson at High Frequency Economics.

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Analysts Expect One Last Interest Rate Cut Tomorrow

Posted by Patrick O'Connor on 4/29/08 10:42 am

Most Wall Street analysts expect the Fed to trim short-term interest rates tomorrow by one quarter of one percent (0.25%).  And the majority also believes that such a cut would be the Fed’s final one in this cycle, due to ballooning commodity inflation.  In other words, Wall Street is sensing that the credit crisis is in the rearview mirror, and inflation fighting will now become the Fed’s main focus. That’s why the dollar is rallying and commodity prices are dropping today.

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