Inflation is about to EXPLODE [Serious Warning].

we gotta talk about CPI inflation and

the projections for what CPI is going to

look like going forward the next CPI

report is on February 14th and boy oh

boy the numbers for the projected CPI

are not good and that's because some of

the data that we're starting to get is

coming in hot again including what's

going on in the car market and boy it is

weird but it actually sets us up for a

dangerous Middle Ground now that sounds

interesting like politically being in

the middle is often deemed like neutral

right this is not a neutral middle

ground this is a hell of a middle ground

and I'm gonna reveal that middle ground

to you so first let's hit the

projections and we got to talk about

that hellish middle ground because that

hellish Middle Ground is a big problem

it is not the middle ground that you

think it is all right so what do we have

first on projections well first on

projections CPI month over month and the

last report was negative point one

percent what is the CPI projection for

this month over month report point five

point five

that's huge point five represents an

annualized inflation rate of six percent

it is a way too hot now I don't know if

the Market's gonna sell off right before

the CPI print or what but that CPI

number is scary high on the

month-over-month basis if you strip out

food and energy because we know food

costs and uh like eggs for example even

though eggs have recently Fallen around

50 they're still way more expensive than

they were a year ago substantially I

mean you're paying like a buck more uh

which from the egg point of view on

dozen eggs is is like basically almost

paying double uh for a dozen eggs it's

insane but anyway even if you strip out

the more volatile food and energy

component you're still looking at point

four percent month over month projected

now that's uh slightly up from the point

three percent we had last month but

still that's four point eight percent

annualized inflation that's bad on the

month over month read sure the headline

number goes from 6.5 to 6.2 but because

that core number is staying strong it

kind of doesn't imply that we're gonna

get this rapid disinflation continuing

the way we hope now that creates some

nervousness in the market and what we

want to do is try to understand why why

is there this this hole in CPI

projections uh to where all of a sudden

we think CPI will rise again well one of

the reasons has to do with a surprise in

used vehicle prices last month adding to

well not only car buyer frustrations

because prices are starting to go up

again for used cars rather than down but

the magnitude was pretty large not only

have used car prices now gone up for two

months in a row but between December and

January used car prices jumped month

over month 2.5

and I hate to say it but you could do

some very simple math here if you do

simple math and you take 2.5 percent and

then you weight it weight like like an

anchor right like a an anchor weight you

weight it by four and a half percent so

0.025 uh at times 0.045 you're going to

see that you could actually see the

month-over-month inflation numbers move

up

1.1 percentage points on the

month-over-month basis or or I should

say 0.11 percentage points on a month

over month basis solely from used cars

solely from one thing used cars and

those prices are skyrocketing I'm going

to draw that out for you because I

understand it's going to sound a little

complicated when you start talking about

all these small numbers I'm usually used

to talking about big numbers around here

uh and when we start talking about like

micro things it's it's it's a lot harder

to grasp and I understand I think all

all the the meet Kevin Watchers are a

fan of big numbers too but anyway

looking at small numbers okay the last

month over month read was Point uh one

percent on a month over month uh change

well used car prices alone if we start

at zero used car prices alone are are

going to bump that Zero by

0.11 percent

so in other words solely because of one

part of the CPI read you're going to see

the month over month CPI read go up by

0.1 solely because of carbs

now we expect the month over month core

read which does include those core

prices or used car prices to be

0.4 percent

0.11 of that alone is used cars which

only makes up 4.5 percent so that means

0.11 is coming and you still have over

95 of the report to go that's not great

the used car numbers are a problem and

not only are they an issue but according

to the car dealership guy they're

actually potentially getting worse this

isn't great now I've said before I

encourage you to follow this guy I think

he's great hopefully you'll follow me on

Twitter as well at realme Kevin uh but

anyway he says this I can't stress this

enough the pace at which used car prices

are rising at dealer auctions right now

is absolutely baffling as of this

morning auction prices were much higher

than January well that's not good I

don't want to hear that how do we get

out of the cycle low Supply leads to

higher prices higher prices lead to

lower sales forecasts which lowers the

production of the cycle goes on

so he's a little bearish on the idea

that used car prices could actually go

back down but the problem with this is

if car prices are still rising and Amar

the market is hotter than in previous

years and it's only re-accelerating and

the official numbers will come out in

two or three weeks and he's sort of

given us this sort of like his he runs a

car dealership right that's why his name

is car dealership anyway if his

impression is that the numbers are

getting worse and so far the official

numbers over the last two months have

been worse it's a problem now it is

potentially possible that we could look

at this and say look that's the nature

of a soft Landing you have some increase

in demand

people are excited again that maybe

we're not going to go through a house

hellish recession so they were getting

their themselves a used car again so

you're getting volatility that's one way

if you wanted to put on the the bullish

hat

you look at this and you call it

volatility if you were a bear you look

at this and go disinflation what

disinflation

and so the truth is probably somewhere

in the middle but it's a problem it's a

problem that you have used car prices

popping off and the expectations for the

inflation read are not that fantastic

and you've got the break-even rate of

inflation jumping to levels we haven't

seen since November

so there's some red flags that suggest

this next CPI report could be slightly

painful it also doesn't have help that

the CEO of Hertz

you know the company that went bankrupt

but had this massive amount of used car

inventory that became extremely valuable

which ended up saving the company and

helping bail them out and letting them

reorganize

well anyway they say that the company is

seeing big jumps in the prices over the

last five weeks both at auction and at

cars sold to retail in the used car

markets used car retail sales were up 16

from a sales point of view over December

and 5 from a year ago though used cars

are still about 15 percent less

expensive than they were a year ago so

year over year the numbers are good but

the month over month is concerning and

usually we look at month over month

numbers

now the good news is

uh and and now this could be biased okay

I understand this but there is a White

House Council of economic advisors and

they decided to put together a new wage

series tracking measure to only track

wages that go into Super core prices

super core is what the FED is paying

attention to to see are we actually

going to see disinflation here this is

where we talk about you know Chipotle

seeing lower labor costs many businesses

seeing lower labor costs those are

disinflationary indicators and we know

it takes a lot longer for housing to

disinflate and for uh wage Services

wage-based services to to start

deflating right we know that takes time

well look at what the Council of the the

White House Economic Council of economic

advisors put together they say that this

chart right here is the hourly wages

chart at a three-month annualized change

and you can see it is very nicely full

now don't get me wrong we want to see

people make more money but we don't want

people to be making nine ten percent

more money in hourly wages because that

leads to an inflationary spiral of wage

price spiral and then you have to get

Paul volcker

fortunately even though we have bad news

and I use car data it looks like we're

getting good news in the wage nut now

this brings up the question about the

middle ground okay this Middle Ground is

an interesting thesis and I want you to

think about this because I think it's

very important for your investing

the middle ground

and and keep in mind like I try my best

to provide you value that you don't go

get anywhere else or at least

perspective it doesn't mean I'm right

about everything it's just I try to give

you perspective

so

let's pretend

where uh we are driving down a road okay

and and we're going we're going downhill

okay inflation is is disinflating right

and this disinflation

is driven by Goods disinflation well the

goods disinflation according to

Bloomberg is expected to be over

by June

okay

so we hit a bottom and the the basically

Goods disinflation dragging the markets

down right or dragging inflation down I

should say

well then we expect that at some point

in the future wage inflation and housing

inflation is going to come down right

but before those come down you could be

in this terrible Middle Ground I'll go

ahead and say July

August September let's just call that

the the summer hell and the reason it's

the summer hell is because you don't

actually start seeing housing or Goods

disinflation or a housing or wage

disinflation yet you actually start

seeing inflation popping off again so

now it's kind of like you're getting the

speed bump in the road

and it's actually expected to come back

down you get this sort of temporary

Goods re-inflation

maybe it's driven by China maybe it's

driven by Americans I don't know

and it's not until the second half like

the the actually probably the last

quarter of the year that you end up

getting

past that hump and now it actually

drives down the market uh or inflation

when I say Market I mean inflation what

drives down inflation is housing which

is your sort of level two of

disinflation goods being level one uh

and then wages wage disinflation being

level three

that kind of sucks because it means you

still got another Humpy Dumpy to get

through

top of that you got stuff happening like

earthquakes in Turkey which I understand

people like heaven I understand you're

sad about people losing their lives in

Turkey I know I mentioned it like every

live stream and I it's it's a pisser I I

I'm so devastated by what's going on

over there it is for Children and

Families ah go hug your loved ones okay

anyway

what's happening with turkey well now

there's suggestions uh that Turkish uh

that that uh countries including the

United States rely on uh Imports of

certain metals and we could actually see

steel disruptions due to damages of

ports uh in in the Turkish region for

example while Turkish steel uh accounts

for only about four percent of uh 2022

uh U.S Imports of Steel uh we we import

about seven percent of our long steel

products these are like uh railroads uh

or like uh like railroad tracks or rebar

which we use in construction stuff we

import about almost twice as much about

seven percent of our long products from

Turkey Turkey likes things long

uh and uh and as a global long product

per exporter they make up about 11 of

the global market and so there's an

expectation that a lot of metals uh are

going to be affected uh by these Turkish

disruptions uh and that could increase

input costs producer price costs which

potentially could flow through uh

through consumer prices so all of these

little shocks that we get

they they make the road a lot bumpier

so far unfortunately it doesn't seem

like there are are these these terrible

catalysts that suggest oh my gosh is

this going to be the Black Swan that

destroys everything but it's important I

mean Goldman Sachs had a whole piece on

it the impact of turkey earthquakes are

Global Steel markets

now no notable damage to steel mills

however we highlight likely supply chain

disruptions particularly given damage in

various ports

particular one we talked about some of

the percentages

and the point is

all of the issues that we face in our

economy

and Complicated by the normal

oopsy-doopsies that happen in life

whether it's nature or just normal

oopsy-doopsies and everything is just

going to seem more frustrating in 2023

because everything that happens like

this car information or this turkey

metal information what this ends up

doing is creating uncertainty it creates

fear it creates uncertainty and it just

makes it less clear as to whether or not

we're actually on that path to a soft

Landing so something to keep in mind but

those are the CPI projections I will

obviously be streaming the CPI report at

5 30 a.m uh on February 14th so mark

your calendar for that and I'll see you

there