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Commentary: Paul Ebeling on Wall Street

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“Investors will monitor economic reports schedule this wk leading up to the long Christmas Holiday weekend”–Paul Ebeling 

The US stock market will be closed all day Friday in observation of Christmas Day.

The US bond market will close Thursday at 2p EST, and close Friday too. 

Between now and then, inflation data will be the Key focus. This will especially be so following the Federal Reserve’s latest monetary policy decision and updated economic and interest rate outlooks, which showed it now sees the potential for 3 interest rate hikes in Y 2022, based on its Summary of Economic Projections.

This wk’s inflation data is expected to come in hot again. The Bureau of Economic Analysis will release its latest report on PCE Thursday, this serves as a Key gauge of price changes in the economy. PCE is expected to climb at a 0.6% month-over-month rate in November, according to consensus, thus marking an 11th monthly running increase. And on a year-over-year basis, PCE is anticipated to increase 5.7%, or the fastest pace since Y 1982. 

Core PCE, which excludes more volatile food and energy prices, is expected to jump at a 0.4% monthly rate to match October’s month-on-month increase. But on a year-over-year basis, core PCE is expected to accelerate to a 4.5% rate, or the fastest since Y 1991. 

These multi-decade high prints on inflation would be consistent with others that have come out recently.

The headline Consumer Price Index (CPI) for November showed the fastest increase in consumer prices in 39 yrs. And wholesale prices, as measured by the Producer Price Index (PPI), rose by the most on record last month at a 9.6% pace. 

I believe that the Fed’s forecasts are very supportive to the markets over the near term. Not only is the hiking cycle late, slow and shallow, the economy looks really good.

Inflation is real.

I believe it is the #1 focal point from the business community, as it should be. and it will continues to get worse. I do not see it getting any better any time soon. And I think consumers are going to have some real challenges on making decisions on where they want to spend their money as more and more dollars get taken out of their pockets from just pure inflation with gas, groceries, et cetera.

The Big Q: Is the government telling us the truth?

The Big A: The government may be trying to make changes to the way it calculates inflation, the effect of which could be to tamp down inflation rate figures right as they are climbing at near record pace.

Manipulation of economic statistics is not new. In the US, inflation figures have been particularly subject to manipulation, for various reasons.

On the 1 hand, lower inflation rates mean lower COLA (cost of living adjustments) for Social Security and other government benefit programs.

On the other hand, lower inflation rates also keep the public in the dark about just how bad inflation really is. There are 2 primary ways the government can manipulate inflation rates to make them seem lower than they actually are.

The 1st way the government can manipulate inflation rates is to change the basket of goods and services that make up the official inflation rate. In this way, price rises in some sectors of the economy that would otherwise drive up inflation rates can be mitigated. The problem with this is that inflation rates end up becoming less a measure of actual inflation and more a measure of how consumers respond to inflation.

The 2nd are the hedonic adjustments that the government periodically makes to its inflation figures. A hedonic adjustment is supposed to be made to account for changing consumer tastes. It is most important when it comes to purchases of technology.

The reality of inflation is that if we are paying the same amount of money for an inferior product, our standard of living is worse off. If you have to work 2-3 jobs to pay for things that previously required only working 1 job, 1 is worse off due to inflation. But the government’s official figures will try to tell you that everything is fine and that inflation is not a problem, thanks to hedonic adjustments.

There is no better time than now to start protecting your assets against inflation. And as experts we are ready to help you.

Have a happy, healthy, prosperous Christmas week. Keep the Faith!

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Paul A. Ebeling, a polymath, excels, in diverse fields of knowledge Including Pattern Recognition Analysis in Equities, Commodities and Foreign Exchange, and he is the author of "The Red Roadmaster's Technical Report on the US Major Market Indices, a highly regarded, weekly financial market commentary. He is a philosopher, issuing insights on a wide range of subjects to over a million cohorts. An international audience of opinion makers, business leaders, and global organizations recognize Ebeling as an expert.