Transcription
Wow. Holy moly. This was not expected by anyone. This is absolutely great news.
Now, it could totally be unwound by what happens tomorrow. Tomorrow we get the consumer price inflation data, which is really what the Federal Reserve cares about. It's really what all of us are worried about is what's going on with inflation and consumer prices. But a component of consumer prices is all the junk that goes into the consumer prices and what goes into it tends to be the producer price inflation index. That is really interesting because the data we just got is insane and it really sets up some crazy implications. As long as we don't get a terrible report tomorrow.
See, usually when it comes to tariffs, you actually think that PPI will usually be higher than CPI. Think about this for a moment, okay? So, so producers have to pay the tariffs. So, you're definitely going to see these producer prices go up. How much of that translates to the consumer is unknown because that depends on a company's pay, their pricing power. Well, if producer prices are going negative, which is freaking great, then it is possible that we actually don't end up seeing moves up in consumer prices that are anything but using the word transitory, which of course then enables the Federal Reserve to go, "Oh, okay. This is actually transitory a lot quicker than we thought. We need to cut 50 or 75 ASAP."
Now, think think about this. All of this excitement today could flip-flop tomorrow. Okay? I want to be clear about that. Everything we're excited about today could flip-flop tomorrow. But if tomorrow's CPI report also shows negative numbers or lower numbers than expected, like what we just got, and I'll read the numbers in just a sec, we're pricing 50 because now the Federal Reserve is going to be able to say, "Oh, all right. Well, the pass through of tariffs aren't that big of a deal. Let's focus on the labor market." And mind you, also, not only are we then seeing that the pass through of tariffs isn't that big of a deal, but PC is going to come in low. The Fed's preferred inflation case.
And if we end up getting courts that say tariffs are illegal, if the Supreme Court comes in and says, "Hey, sorry, Donnie. You know, this was just a little too aggressive. Like, Donnie, we'll give you anything. You want to kill abortion at states, you want to go deploy the National Guard wherever you want, you whatever, right? You want to the whole host of things, what whatever ends up uh we don't want to get political here. You could have anything but you can't have tariffs. Okay? If that happens, this well, we want to talk about this. Talk about this economically. If that happens, where the Supreme Court says, "No, no, no, no. Went too far with tariffs." That's deflation. But you already just got a deflationary PPI report. So imagine if with the tariffs, you're getting low inflation because maybe the economy is slowing down and people just have small PPE. And even with the tariffs, there's a limit to how much we can actually raise prices, which suggests prices would be even more negative if it weren't for tariffs. Well, if courts then turn around and say, "Hey, the Supreme Court says, "No, no, no, no. The tariffs are illegal." Then we're going to go from like low inflation or even deflation like this report suggests to even more deflation because when you rip the tariffs away, prices literally fall. It's is the perfect example of removing attacks and seeing prices fall overnight when you remove tariffs.
So I have always maintained since the beginning of the year, you might remember me saying this. I don't know when the tariffs will go away, but I am almost certain that at some point this decade, the tariffs will go away and we will see deflation as a result of that. Best case scenario, the tariffs are illegal. Will they go away right away? We get deflation fast. Worst case scenario, you got to wait until 2029 and somebody's like, you know what, we're winding this crap back because I think they will. But that's that's just my opinion, right?
So, look at the numbers this morning. Well, I'll read them out to you. So, this morning, we were expecting to get 3 and.3 on the month over month uh the month over month uh x food and energy and then month over month x food and energy and trade. Okay. We got final demand month over month we got not.3 we got negative.1 uh then we got a downward revision of another2 from the last so from 0.9 to 7 if we exclude food and energy we still get.1 and that downward revision of minus2 uh so to.7 still a hot read last month right so we are this is the part where we have to kind of temper some of the enthusiasm we're coming off a really really hot month last month. Last month.7 very very high. It's like it's like that big spike up. So of course if you're comparing this month it's going to be a lot easier to be negative this month. But at least it's not another big growth at that sort of rate. Uh now one that gives a little bit of interestingness is if you go X food energy and trade. So if you remove trade in the producer price index, you're actually at.3. So what does that mean? It means that trade was a big anchor. Like trade went big negative, which is not surprising. The tariffs eventually slow down trade. They eventually slowed down inventory building. They eventually slow down shipping and cargo uh and uh you know trade brokering. So that's largely negative because as people say, you know what, we built up our inventory. It's time to stop importing as much because we don't want to pay these tariff prices. We'll work off our inventory and hope the tariffs go away by January or whatever. That's a hope, right? Uh then then it's not a surprise that trade services end up going through a lull. So it could be that you have some temporary negative reads and that it's way too soon to get excited. It's possible. Again, remember we have the consumer price index tomorrow. Now, know this CPI tomorrow doesn't have trade services and brokering in it. So, you know, those big negatives might not be present in the consumer report tomorrow. Uh, and this is probably why the world interest rate probabilities forecast, which is basically the Federal Reserve, you know, rate cutting forecast, has barely budged. We're at uh 12.4% 4% which is barely down uh compared to um uh you know where we were yesterday which was about a 10% chance.
Now if you go actually look at some of the components here you could see uh let's see let's see let's see let's see here uh uh largest decline since the decline in April August uh okay here it is the August decrease can be traced to a 1.7% uh drop in margins for final demand trade services. Now obviously there's always going to be a little bit of up and down uh in in every component like you got some increases here in final demand transportation and warehousing services up slightly but nowhere near the large decline that you had here on trade services. So the trade services uh as as I described uh potentially because now we've built up a lot of inventory those are what anchored this this down and you could see that in the data as well because if you remove trade services you get the.3 on the inflationary rate. So you're removing a big anchor is the way to think about it. It's always confusing when you look it's like oh PPI has PPI normal PPI X food and energy and PPI X food and energy trade. Remember the first two were negative.1. As soon as you remove trade and you remove the anchor, boom, it's back to.3. So this is a very specific type of deflation, but it's it's enough to get people to raise their eyebrows and go, "Huh, okay. All right, maybe maybe we are justified focusing on the labor market because even though tariffs are going to eventually uh be fully absorbed by the economy as a tax increase and will have either some impact on you know keeping prices elevated versus deflating prices or raising prices a little bit. The dynamics of trade right now suggest inventory buildup has created a lack of a need for as much trade and therefore we get a negative read in August. So again it this is a very very exciting read but it might be like a temporary negative and I hate to say it might only be like a 12-hour celebration or 24-hour celebration because tomorrow we get CPI and you're not going to see trade services there.
Now, if we also get a positive surprise tomorrow on CPI, that would be great. So, really, in order for you to get the Fed to go 50, you also need a negative CPI report tomorrow. But think about this. You just set up the components for it. You got the worst revisions ever for job numbers. You had weak job numbers for August at 22,000, which is terrible, right? Then you have PPI negative. And the year-over-year numbers, just to to get rid of that comparison of month overmonth because we're comparing to such a high month last month, the even the year-over-year numbers came in low. Year-over-year was expected at 3.3 came in at 26. Year-over-year X food energy was expected at 33 came in at 26. Year-over-year Xfood Energy trade no expectation given. Uh but in the last three it was 28 and we got 28. So again, that trade anchor really held that down. But if you now get a a a really soft CPI report tomorrow, that's how you could set up your 50. I don't think you set the 50 up today because again, it could just be this very specific reason of inventory building being completed that we're seeing this sort of decline here in PPI. Uh, but if we do get a negative on CPI, the very first thing before I could even get it out of my mouth tomorrow, I want you to think this is 50. As if we go negative on CPI tomorrow is 50. Because again, bad jobs read for August, which everybody was looking at like, oh, this is a big deal and it comes in terribly low at 22K. Job revisions worst ever. Yes, we saw that coming, but it's still bad. PPI low. And then we get CPI low on top of that 50, baby.
If we get a CPI report that's ad expectations or maybe a little bit hot, which we could tomorrow, you're probably still stuck with 25. But what this is really doing is it's reversing everything that happened yesterday with yields, which is great. Uh I mean, you're seeing uh well, maybe not everything. I mean, you're seeing the 10-year Treasure come down a smidge uh 4.68. the 2-year, let's see here, two-year Treasure actually only down about one basis point. So, very soft. I think a a lot of the bond market might be waiting for uh CPI tomorrow.
But if you look at the stock market, dude, after those oracle numbers, Nvidia is up 3.38%. Holy smokes. Uh I I'm mentioning Nvidia first because I I happen to have found some Nvidia shares in a brokerage I forgot about. Um, I can't let that bias me, but let's just say I'm excited about it now. Uh, anyway, uh, here, Lone Depot, which had a bit of a giveback day yesterday following like a 40% runup the day before. It was like 35 or 40%. A little bit of a give back yesterday, is recovering all of that give back almost today with an 11% increase. Uh, you've got, uh, you know, Open Door tried to pump again a little bit. Still hate the fundamentals of this company, but whatever. Uh, you know, Nphase, a little bit of a rate sense here. You got Robin Hood talking about launching a social media platform which is like kind of cool where you could track trades or whatever which that's that's going to be very interesting. Uh good for them. You know Robin Hood just keeps getting better and better and better. Really proud of them and the Impaler. Uh then uh uh you know Palanteer is getting back into the 170s over here which is great but I mean a broad broadly enthusiastic market which is reasonable given this PPI report. Just know it's it's like I want to be really excited about this because when the tariffs are gone, we're going to be looking at deflation. If the tariffs go away suddenly through a bandage pulloff, we're going to be looking at deflation. But this is a bullish catalyst, right? Like kind of like what the coupon code is over at meetcaven.com. Bullish catalyst. Yes, we did extend that a little bit. It was supposed to expire Friday, but then I'm like I don't know. like something hit me where I'm like I feel like we're gonna have some better uh reads next week and then you know sure enough uh but anyway uh it's it's pretty exciting. Uh so um yeah I I would say that the the thing now is and you can go to meet Kevin.com if for some reason it has a weird redirect. Go go go just use a private browser. Go to meet Kevin.com. Go to meet Kevin.com. Get all eight courses, all the trade alerts, every private liveream, every alpha report. We're going to go set up our trading strategy right now. Right after this live stream, you get all the courses. You could probably write off the courses as a tax write-off. You're going to get the trumpics tax lectures, which are huge on the big beautiful bill coming this month. They're already in progress. I'm already making them and they're great. Uh and um uh we're going to have some new property management lectures as well since we're uh doing a lot more right now with with house hack and renovations. It's one of the reasons I haven't been streaming as much during the day because I like we are having to crank with these properties right now. But anyway, um this is good, but don't get too excited. Again, it all this does is increase the pressure on CPI tomorrow. Okay? So, we could trade well today and today, but know that going into CPI tomorrow is the big deal. And if we go into CPI tomorrow and end up with uh uh you know, a low read, mega bullish catalyst because this is what the market wants. Give the Fed a license to cut.
Now, the problem is, this is the problem. Is it possible, oh, how'd I do that? Uh, sorry about that. Is it possible that the Federal Reserve is going to be too late? Is that possible? And the answer is yes. Even with these crap, you know, crapple uh job numbers, the Federal Reserve realistically could have been cutting a long freaking time ago. So, is it possible that the Federal Reserve is just too late the way Donald Trump says? And this isn't to bow down to Donald Trump. You know, I criticize every politicians because I think they're all slime liars. Maybe maybe one day we'll find a nice politician that we can trust, but today I don't think so. Uh, and so, um, my point of view with all that said is Donald Trump is probably going to be right that do that Mr. Powell will end up being too late because he's too worried about the inflationary effects of tariffs. And that's why his U-turn at Jackson Hole saying that tariffs will not be point transitory, but they'll be over a period of time transitory, which is basically a way saying it's just going to be longer of transitory. That is great news. Absolutely great news. And bringing flexible inflation targeting. Huge. That's awesome. Uh, so anyway, thanks so much and uh we'll see you in the next one, folks. Goodbye. I got to find the off button.