U.S. Consumer Price Index (CPI) Rose 0.2% in July, Up 2.9% Compared to This Time Last Year… A modest, but steady rise in consumer prices in all categories has made its way into the economy.
What it means – Looking under the hood we find a 0.3% monthly rise in the shelter prices (up 3.5% for the year), which was responsible for nearly 60% of the bump in the total index.
The Bureau of Labor Statistics weights the categories in the CPI to roughly match our spending patterns. As such, shelter holds a hefty weighting at 33%. So, any big moves in that category will push the total index around. The endless march up of home prices and rents have made their way into the CPI.
Core CPI, which strips out the volatile food and energy categories rose 0.2% in July, but 2.4% for year. That’s the highest percent of annual growth since September 2008.
Inflation is here.
Consumer Credit Expanded by $10.2 Billion in June… After jumping more than $24 billion in May, credit missed the expected increase of $16 billion.
What it means – Auto loans and student loans are on autopilot. Much of the variation in consumer credit comes from how much people use their credit cards. After burning up the plastic in May, consumers actually paid off a little revolving debt in June. Because consumer spending is such a big part of GDP, if consumers are more reluctant to spend on credit then it could lead to modest economic gains in the third quarter.
Weaker GDP with rising inflation would make the Fed’s job more difficult. The central bankers would most likely raise rates four times this year anyway, but then hold off in 2019 until they saw more growth.
Oil Inventory Fell 1.4 Million Barrels, While Gasoline Inventory Rose 2.9 Million Barrels… The small inventory contraction was much less than expected. Oil prices dropped on the news.
What it means – Gasoline refiners are having the time of their lives. Companies like Marathon Oil and Valero are minting money because of increased oil production in shale country. With so much oil sloshing around that can’t get to market due to transportation bottlenecks, oil prices in West Texas are $17 below the price in Oklahoma. Refiners can buy their raw material on the cheap and are running at more than 96% of their capacity.
But Venezuela and Iran still loom. If we get supply shocks from those two countries, expect prices to rebound sharply.
Tesla Founder and CEO Elon Musk Muses on Twitter About Taking Company Private at More Than 20% Premium… Musk noted that he might take Tesla private at $420 per share, and has the financing lined up.
What it means – Did Musk break any securities laws? It doesn’t seem right that the CEO and Founder, who also owns 20% of the shares, can put that information out there without any ramification. Buy hey, he’s Elon Musk, so maybe he can. While Tesla shareholders rejoiced as the shares zoomed higher, those betting against the company cried in their beers. Tesla is the most shorted stock, so there are plenty of people feeling the pain.
Can he really take it private? Who knows. Does he even want to? Again, no one knows. But there’s no doubt he enjoys giving the short sellers indigestion.
No matter what Musk says or does, the company remains heavily indebted and is facing tremendous competition in the months and years ahead. It’s a great story stock, but that doesn’t mean the tale will end well.
Data supplied by Dent Research/Delray Beach Publishing
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What do you do, sir?” ~ John Maynard Keynes
Our plan is “the plan will change.”
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