But for yield-oriented investors: short-term Treasuries yield close to 4%. The six-month CD earns 3.5%, if you shop around.
By Wolf Richter for WOLF STREET.
What I took away from the markets reaction today: Until this morning, they eagerly ignored my discussions of inflation over the past few months, of how CPI inflation s shifted to services – housing, health insurance, car insurance, medical services, etc. – and these fine folks instead focused on the prices of gasoline and plane tickets, which are plunging, and so they expected that inflation to be well on its way out.
The “collapse” of inflation is what Jonathan Golub, managing director of Credit Suisse’s New York office, called ridiculous yesterday morning on CNBC’s Fast Money.
“Every one of us sees when we go to the gas station that the price of gas is down and oil is down. We even see it with food. So it really already shows up in the data. And that’s a very big positive potential,” he said. And stocks are going to skyrocket because inflation is over, and the Fed is going to pivot or whatever. I mean, this stuff is just a hoot.
This phenomenon was all over Wall Street – this crazy idea that because gas prices were plunging, inflation would suddenly disappear on its own. Of course, these people can’t be that stupid; they had a goal, and the goal was to take stocks into the stratosphere, and they did that for days. And it worked.
Then came the CPI release this morning. As I have been pointing out for months, today’s numbers show once again that inflation is becoming more entrenched in large parts of the economy that have little or nothing to do with tangled supply chains and messy commodities, and that inflation is getting worse, that it’s gripped services for the 12th month in a row, and that the Fed will have a hell of a time suppressing that runaway inflation . Here is my analysis and charts of the CPI mess today.
And the markets should take Powell et al. seriously when they’re talking about big new rate hikes, new big rate hikes and higher rates for longer, because this inflation is tearing the economy apart, and they know it, and they’re going to suppress it, and that’s maybe -be too little and far too late, but they are rampant now.
At first glance, markets today started to take Powell et al. a tiny bit more seriously, which sparked a widespread sell-off that, within hours, unraveled most of the six-day rally of hype and hype around “inflation is over” .
Just about everything fell: industrial stocks, blue chips, giant tech stocks, SPAC, IPO stocks, even Apple in large part (-5.9%), and Meta of course (-9.4%), and Nvidia ( -9.5%) and Advanced Micro Devices (-9.0%), and NXP Semiconductors (-8.1%), Boeing (-7.2%) and Eastman Chemical (-11.3%).
The S&P 500 index fell 4.3% and it was a sea of red. Only five stocks in the S&P 500 index were green, including Twitter, the second best performing stock in the index today, which climbed, I mean, rose 0.8% on news that its shareholders approved Elon Musk’s buyout offer, who used to walk on water, but now I don’t feel like doing the buyout, and it’s all a mess for the court to settle.
And of course there’s Cathie Wood, who has argued that ‘deflation’ is the real threat here, and that the Fed is making a ‘mistake’ by cracking down on hot stocks in its funds, I mean on inflation. His Innovation Ark ETF [ARKK] fell 6.8% today and is down 73% from the peak in February. No wonder she’s a little nervous about the Fed’s crackdown on inflation.
Cryptos was also knocked down. Bitcoin has been taken down by around 10% from $22,500 early this morning to $20,150 at the moment. It is down almost 70% from its peak. Ethereum was knocked down around 9%. Cryptos, which had been touted as a hedge against inflation, wane whenever inflation rages.
Gold fell around $30 an ounce on the CPI news this morning. Gold, a classic and time-tested hedge against long-term inflation, after a huge run-up during the everything bubble, has remained roughly flat since the Fed’s pivot late last year.
But “roughly flat” is great against the Nasdaq Composite, another inflation hedge, which plunged 5.2% today and is down 28% from its November peak.
Half-good news for yield-oriented investors: Treasury yields are approaching 4%.
Among bonds, prices fell and yields jumped. This is good news for yield investors looking to buy bonds and CDs in the future, tempered by the fact that yields have not jumped enough to offset runaway inflation:
The 6-month Treasury yield jumped 19 basis points today to 3.75%, the highest since November 2007:
The 1-year Treasury yield jumped 22 basis points today to 3.92%, the highest since October 2007:
The 2-year Treasury yield jumped 17 basis points today to 3.75%, the highest since October 2007:
The 10-year Treasury yield rose 5 basis points today, to 3.42%, almost returning to its mid-June multi-year high of 3.49%:
Yields on many “traded CDs” are well over 3%.
For your amusement, I just checked with my broker tonight. It offered FDIC-insured CDs from various banks with these maturities and yields:
- 3 month CD: 3.0%
- CD 6 months: 3.5%
- CD 1 year: 3.7%
- CD 2 years: 3.75%
Banks do not want to pay interest to their existing customers. But to attract new liquidity via deposits, they offer CDs through brokers – “traded CDs” – to investors who are not already bank depositors, which, for bank funding, is somewhat sort of speculative money.
To your delight tonight, in my brokerage account, under the bonds and CDs tab, of course, I found a 6 month CD from my very current bank, offering an interest rate of 3 .5%.
And for your viewing pleasure tonight, I have logged into my account with my very current bank, and the best 6 month CD he is offering me and his other existing customers, directly through his site Web, comes with an insulting interest rate of 0.2% APR. “LOL”, the bank is written in small print at the bottom.
Savers must therefore shop around. Your own bank doesn’t have your best interest in mind. He just wants to borrow from you, his existing customer, as cheaply as possible while keeping your money hopefully close to 0% when he’s willing to pay a lot more for new money from no -customers by selling traded CDs.
All those yields below 4% mean yield investors are still getting ripped off by runaway inflation – currently at 8.3%. But those higher yields mitigate some of the damage caused by inflation, and they exist, but people may have to shop around for them.
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