Inflation is Surging Again

The CPI inflation report was released today, and I'm not going to lie, the results came in pretty ugly. You could be the judge. So for the month of May, the report shows that the rate of inflation came in at 4.2%. So that is the hottest rate of inflation for the past 3 years. Now, I want to show you why this is so concerning. It's because of how quickly the rate of inflation is accelerating. Now, for the month of February, down here, which I've circled in red, the rate of inflation was at 2.4%. And then of course the war broke out, and we're experiencing a supply shock to energy. So energy prices are going up, and that's causing the rate of inflation to go up, which we're clearly seeing. So for February, the rate of inflation was at 2.4%, March went up to 3.3%, April 3.8%, and then May, the most recent one that was released today, at 4.2%. So I want you to think about it. Okay, so we're 10 days into June. June's going to be released in July. If we're at 4.2%, what is it going to go up to for June? 4.5%, 4.6%, 4.7%? That is so far, if you think about it, from the goal of 2.0%. Now, when President Trump was asked about whether he was worried about the accelerating rate of inflation, he tried to spin this into a victory. President Trump responded with, I love the inflation. The numbers were great. So Trump said that the rate of inflation would drop like a rock once the Iran war is over, possibly in two, three days. But of course, the big question is, will the rate of inflation start to come down? Have we reached the peak, basically? So to answer that, I guess it really depends on whether Trump's peace deal is still in motion. Although, as of this morning, we've been sending off friendship missiles, and it doesn't seem like there's de-escalation around the corner. So maybe there will be a peace deal in two to three days. Who knows? That's what President Trump keeps saying, and maybe energy flows will normalize and prices will come down. But listen, I just want you to know that the war doesn't even have to escalate in order for energy prices and inflation to continue going up. As long as this whole situation, especially in the Strait of Hormuz, as long as it's just in a state of limbo and nobody's doing anything, which is apparently the case, if nobody's going to do anything and oil is not flowing properly, then energy prices are going to keep going up and inflation is going to keep going up. Because right now, there's not enough oil supply to satisfy demands at this price point for oil, which is around $93 a barrel. But if there's escalation and they're blowing up each other's energy infrastructure, then of course energy prices are going to go up even faster, and then the rate of inflation is going to go up even faster. Because there's still a few million barrels escaping through alternative routes and pipelines bypassing the Strait of Hormuz. Okay, now I want to bring this to your attention. I thought this was strange, but you can let me know what you think. So the Federal Reserve is saying that in June, they expect the rate of inflation to come down from the current 4.2% in May, and they're expecting it to come down to 4.1% for June. So I'm sure, okay, we're talking about the CPI prints. If they play with the numbers enough, I'm sure they can get it down to 4.1% on paper, but I would be skeptical with real-life prices, with real-life inflation. That's just my opinion. But again, we have 20 days left in June, so let's see what happens. Now, let's take a look at what the market believes will happen. So this is according to the CME FedWatch tool. So the situation is that inflation is running hot at 4.2% and it's rising. The labor market, according to the government, is doing great. So the Federal Reserve has no reason to cut interest rates at their next meeting on June 17th. But listen, I want you to think about it. Why would they cut interest rates? They have no reason to. So they're supposed to cut interest rates when the labor market is suffering or if inflation is low. If inflation is low, then they can afford to cut interest rates because cutting interest rates is inflationary. But if it's low, then they can do it. But neither of those are happening right now. So they don't have an excuse to cut interest rates. In reality, if you think about it, the only real reason to cut interest rates would be to please President Trump. But I'll tell you this, it looks like President Trump is going to play the play it cool card and he's not going to belittle Walsh or criminally investigate him for not listening to his demands for lower interest rates. At least not yet. So it looks like for June, there's not going to be an interest rate cut and Walsh is going to be given a pass like President Trump is going to let it slide for this month. There's a 96.2% chance that Walsh does not change interest rates next week. If you want to see the probabilities for an interest rate cut in July, then take a look. It's still mixed expectations. So the next meeting after June is on July 29th. An 84.3% chance that the Federal Reserve does not change interest rates at that meeting. A 3.3% chance that they cut interest rates and a 12.3% chance that they raise interest rates. So listen, it's most likely that nothing changes in June. The interest rate is going to be the same and then there's going to be a risk of an interest rate hike. That would be devastating to the markets and of course the economy. But we're talking about that risk starts elevating in July and onward. But we're just talking about a possibility of a quarter point rate increase. But more importantly, it's the expectation of higher interest rates for longer that's really going to upset the markets and of course the economy as well. And I want you to take a look at this. This is a look into how interest rates will be by the end of the year. There's a 68% chance that interest rates will be higher by the end of the year. There's a 30.8% chance that interest rates stay the same by the end of the year. And there's only a 1.2% chance that interest rates are lower by the end of the year. So listen, I want you to understand this so that you know how it works. When inflation is coming in hot, the markets are not going to like that. Most likely the markets are going to be down. That's because if inflation is hot, then the Federal Reserve is less likely to cut interest rates. And that means less cheap and easy money to fuel the stock markets. And then when the labor market data is published, like we're talking about the jobs report, that's an example. I'll just say it's funny because if we get a strong and good jobs report, then the market generally goes down. And if we get a bad jobs report, then the market goes up. Why is that? That's because a good or strong jobs report means that the labor market is fine and dandy, like the labor market is strong, and it's less likely that the Federal Reserve will cut interest rates. And if the jobs report comes in terrible, then the market goes up because it gives the Federal Reserve a reason to cut interest rates. Because the Federal Reserve has a dual mandate, stable prices and maximum employment. So it's pretty wacky how that works, right? But that's just the way it is. Because what's fueling this artificial rise in the stock markets? It's financial asset inflation. It's just cheap and easy money, like ever since 2008. But listen, I just want to say that my stance, my position remains the same. I'm long-term bullish but short-term bearish. I don't like being bearish, but it's the energy crisis, of course, that's got me concerned. But as you know, I've appropriately hedged. But the way I see it, we're in an everything bubble. Long term, it's all just going to go up. So just don't mess around with margin debts. Buy the dip, diversify, and you're going to come out ahead. We don't have to make this whole thing complicated. And I encourage you to join our investing community, along with thousands of other investors. I'm going to leave a link for you down below. Thank you for the support, and I wish you a very nice day. Take care.