Not much going on in the market so this will be brief. The market is trading higher on the back of the Fed’s interest rate decision and the extremely weak PPI report which reiterates the current policy stance. There is simply no sign of inflation in this market and that gives Mr. Bernanke a fair amount of wiggle room as it pertains to interest rates.
The PPI came in at -0.6% M0M versus expectations of -0.2%. Less food and energy the figure jumped 0.1% which was in-line with expectations. A 7.4% decline in gasoline led the move lower. The markets love this figure as it likely adds to the market’s confidence of an increasingly accommodative Fed and the likelihood for a weak CPI number tomorrow. Of course, as we’ve long argued, the continuing low inflation risks are not a surprise as the private sector remains extremely weak.
In these times of weak employment, low wage growth, low capacity utilization, high output gap and low demand for credit the risk of high inflation remains extremely low. But the Fed is not what investors should fear. China is attempting to keep the inflation genie in the bottle that could eventually result in substantial economic woes in Asia. If this were to occur it would actually compound our own deflationary problems as China’s economy weakens and economic malaise spreads around the globe.
In other news, the mortgage bankers association purchase index fell 2.3% for the week, but commentary from several housing CEO’s in recent days confirms that the Spring buying season is likely to be a good one as investors file for their tax credit.
Lastly, Ben Bernanke speaks before the Committee on Financial Services on “Banking Supervision”. Bank reform has been lobbied to the tunes of billions and the Volcker rule has been killed. What a mess of a political system we live in. You can experience the greatest financial debacle in 80 years and leave with almost no regulatory changes. Incredible does not do that justice….
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.