Producer price inflation comes in lower than expected in February. What does it mean for the policy of the FED going forward and the stock market?
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Join my Patreon to get access to exclusive content and our discord community here: https://www.patreon.com/tomnash
Nothing in this video constitutes tax, legal, financial and/or investment advice, nor does any information in this video constitute an invitation and/or solicitation to invest in a particular security. This video merely expresses the author’s opinion and should be viewed as such. Before proceeding with any investments, you should do your own research and seek advice from an independent licensed professional.
The author of this video does NOT accept liability for any investment decisions, as this video is provided only for educational and entertainment purposes. Although the author has endeavored for the information in this video to be correct and accurate, he does NOT assume liability nor does he guarantee that the data will be updated, correct and/or accurate at all times.
All of Tom's strategies, and news coverage are based on his own opinions alone and are only done for entertainment purposes. If you are watching Tom's videos, please don't take any of this content as guidance for buying or selling any type of investment or security. Tom Nash is not a financial advisor and anything said on this YouTube channel should not be seen as financial advice. Tom is merely sharing his own personal opinion. Your own results in the stock market or with any type of investment may not be typical and may vary from person to person. Please keep in mind that there are a lot of risks associated with investing in the stock market so do your own research and due diligence before making any investment decisions.
Good morning everybody! We just got the new PPI The Producers price index and it's way way better than expected negative point one percent versus the expected positive point three percent. Now what this means for the FED What this means for the interest rate policy: What this means for the stock market? because there's a lot to unpack here and I'm gonna do it in about three minutes max. I'm gonna save you a lot of time this morning. Check this out.
So the Producers price index is essentially. the gauge allows us to know what's going on with the raw goods and raw materials, basically the building blocks of the stuff we buy in the open market. If the producer's price index the PPI is bad. This means CPI usually is going to also be bad.
but if the PPI is good, it means a good sign. for inflation. it's always one step ahead. So the PPI births the CPI and so forth and so forth.
So here's what happened over the past seven days. On the the one hand, we had a massive banking collapse. three Banks fell and absolutely got annihilated. Silvergate, which was more crypto related, but whatever.
But Signature Bank and Svb both collapsed because of a direct result of the interest rate increases. They got caught with bonds that became pretty much worthless because of the interest rate hikes. Now in the case of Svb, there were a lot of problems with the bank or lack of any risk protocols that actually collapsed the bank. but in general terms three Banks went under.
One of the main results was the high interest environment. Now add to this the fact that the CPI yesterday, the Consumer Price Index the main inflation gauge went down to six percent. so we went from 9.1 percent in June Yeah, it was June 2022 to six percent in February Now in January 6.4 So we're dropping on CPI Banks are collapsing and now the producer's price index is showing negative inflation of 0.1 Now this means that there's a high likelihood that the FED is going to combine all the three data points and will say well, look Banks Already having trouble, Inflation is slowing down. Ppi is actually negative I Mean we should not be increasing more aggressively.
In fact, we should either be increasing gently or stopping at all. In fact, this actually puts a realistic option on the table that we will see a certain amount a certain amount I Don't know how much of interest rate decreases by the end of 2023, probably towards October November December not before. but it also puts a real possibility that we will see a pause very very soon. I Still think that that will raise 25 basis points in the next hike, but after that, they might actually pause for a while given the fact that PPI and CPI are doing better and given what already happened with the banks.
because don't forget, when the bank collapses, the impact on the economy is extremely deflationary. I Heard somewhere that they're comparing it to 30 companies when Bank collapsed like 30 big companies collapsing because of all the overlapping things and the cascading effects of that. So just my two cents. I Think it's a good sign for the market as well, because if the FED will actually slow down and be more dovish and more accommodating and we're going to be actually going a little bit back more to less restrictive monetary policy, it is better. For the economy, it is better for the stock market. But I'm going to warn you once again. there is no direct link. It's not like when the FED immediately stopped raising rates or starts reducing rates.
The stock market flies forever. It doesn't work like that. There's no direct correlation, but it is a good sign. but all of this would be dependent on what happens in next few months.
If this is an isolated thing and the PPI goes spiking up again, then everything is said. here is not going to happen if the CPI does like a U-turn goes back up. None of this would matter. This is all assuming things will continue gradually to get better.
Just my two cents. Thank you for joining me today. Hey, see you next time.
Only appears good to some, still very bad, the inflation will be sticky and move to stagflation, they will push stimulus check which will only prolong inflation.Just a short pump imo.
whats stopping producers from getting raw material for cheaper but selling to customer for still high price, more profit for them, look what the gas stations are doing raw oil is as cheap now as before the big "ukraine caused" yeah not at all, thats just the scapegoat, price hike, but price at the pump is still way higher than back then. they see the consumer tolerates high price, still comes to buy so why lower price even if they get material for cheap
I miss the 'Madman' speech… gotta throw that in there!
Bro just a good explanation really appreciate this video 👌
Fed doesn't care about nominal price index figures. They care about core figures.
CPI core monthly increase was higher than expected.
The egg price decrease is 80% why nominal PPI fell. Core PPI was up 0.2 in the month.
PPI in services is what the Fed will watch
So because SVB went under the FED would stop increasing rates to fight inflation? How does SVB going under decrease inflation? They made a huge bet and lost. Yes inflation is on it's way down, but going from 9% to 6% is a whole other game than going from 6% to 3%. FED should absolutely not stop raising rates yet.
Do you mind if I ask you what did you study or what one should study to gain such knowledge? Thank you.
Commenting for support 8)
Un sub. No chance of rate decrease
A collapse multiplicator, interesting idea.
Another great video. Thanks.
With the lag effects of interest rates, I don't doubt that we will see inflation go back up. These numbers are all lagging.
you're looking good Tom! OMAD suits you!
Hey tom we need a video on credit suisse !!!
And yet, the market reaction is to tank. 😥
If there is no correlation, there should be no discussion around any of this.
It's pointless! Talk about what matters to the stock market.
Hey Tom amazing clear and concise. Something occurred to me that I haven not heard discussed. With all the highly educated people working at the SEC, they should and most probably would have known the risk of their historically aggressive rate hikes to banks holding long maturity bonds. Especially if those banks were forced to sell these bonds at below par value which is exactly what happened at SVB for example. But no one is covering this point and everyone acting as if the FED was completely blind to this risk. I think they knew they were going to break things and that was exactly the pain that Chair Powell referred to few months ago in his testimony. Just wanted to point this out. If it ha been covered and I missed it, apologies !
if EZB raises by 50 bps tomorrow, the fed will have to react similarly next wednesday. I'm calling it. bought sqqq yesterday. for better or worse.
Thanks for the reminder on the PPI. If an earthquake hits… head for under a table…only the insiders can navigate this market. The 401K’s are probably all in Treasuries. Could you address the money market sector. How safe is that… it is earning 4%. I have heard it is somewhat vulnerable to the loans given out to countries by the World Bank. But it seems better than a cash account earning 0. ….And it is liquid…
Thanks
Everyone talking about the RL5TE launch best news this year
Why is RL5TE doing so well? That is concerning to me.
biggest market explosion ever is RL5TE
What about RL5TE
RL5TE will change the trajectory of my future investements/trades…. I feel it!
Tom, that's the first time I comment on your videos, this is the best short simple explanation for what happened during the last week .. mad respect for the way you explained it all! 👌