The Secret Hidden Inside Today’s Hotter-Than-Expected PPI Number — Don’s Daily Brief

by | Dec 9, 2022

The Producers Price Index (PPI) came in hotter than expected.

But it wasn’t the typically volatile components — food or energy — that contributed to the PPI number.

It was the services component, which tells me that inflation is starting to set in.

When providers of services are having to raise their prices, inflation is becoming endemic.

The problem with inflation is that it creates a disincentive to save and an incentive to spend. (money is worth more now than it will be later)

And we’re starting to see the results of that with savings collapsing and credit on the rise.

For most of the last several years, the majority of the money the Fed printed sat as reserves on banks’ balances sheets. ($4 Trillion of the $6 Trillion that the Fed printed.)

Now that inflation is setting in, there’s an incentive to lend, borrow and spend — That money is starting to work its ways into the system.

Paradoxically, the Fed’s interest rate hikes could be causing more inflation. That’ll be an interesting thing to keep an eye on.

In any case, I don’t think there’s any way the Fed can ease this, which is going to just send markets lower.

► So with that in mind, today I’m recommending that you short the NASDAQ.

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