As our title suggests, just being there has Paid. As our friend Nigel Martin used to say,"It's the only business in the world that pays you for just showing up". True then, True now. We've just experienced the longest stretch in History without a 1% intraday move. 40 Days and 40 Nights.If one had sat on the sidelines one would now have an almost 25% hurdle to get back to Index. And it hasn't mattered. Everything's going up. No one left behind. Has anyone seen anything of this magnitude before?
The PPI was just released at +0.6% for January. That's twice the expected rate.The biggest jump since 2012. The core rate was+0.2%.The last twelve month PPI is up +1.6%. That sounds OK until one realises that a year ago it was negative. The price of oil is the reason (in part). In 2015 it was going down. In 2016 it was going up. Raw Goods and Work in Process were well up. That signals that the PPI will continue higher for the beginning of 2017.Because of food prices, Inflation in China is running at +2.5%. A 3-year record high. Their PPI was up +6.3%.
The Hedgies have lowered their Long Oil by 12mm bbls. They increased their Shorts by 21 mm bbls. In total it was down 33mm bbls to 852 mm bbls. The largest decline since November. US Shale production is supposed to rise by 80K bbl Pd in March. Most of the US production increase is in Shale.
This Inflation report adds interest to what Yellen will be saying at 10 AM. We expect she will defend her policy.Will anyone ask about the FED Balance sheet? St. Louis' Bullard pointed out that balance Sheet mechanism can be used to "Normalise". Even if policy rates remain low. However, the market sees it differently. Short rates are moving higher in anticipation of Rate hikes. There's pressure on the long end because of the Balance Sheet and because of the "Twist". Together they are Flattening the yield curve. If they persist, they could invert it. Every market player should know that an Inverted yield curve is the precursor to a Bear market. Is this time different? Cam Hui's insightful piece will probaby get picked up by "Seeking Alpha".
In the BLS release this morning it contains another gem. The Final Demand Index was up 1% in January. Global manufacturing is accelerating into 2017.
Invest the Money.
Edward Pennock CFA, Founding Partner
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