Liar, Liar, Shelter’s On Fire
In this issue of the peel:
Market Snapshot
Banana Bits
Top Card Offering 0% Interest until Nearly 2026
This credit card gives more cash back than any other card in the category & will match all the cash back you earned at the end of your first year.
Macro Monkey Says
The Bad Apple
Just like how we can’t drink & drive or bring a rocket launcher onto a plane anymore, one bad apple really can spoil the whole bunch.
Alright, in those examples, maybe a few bad apples spoiled the bunch—or the whole damn orchard. But you get what I mean.
However, with regard to inflation in the U.S., it really is just one bad apple killing the vibe for everyone else.
Let’s get into it.
The Numbers
According to yesterday’s Consumer Price Index (CPI) release from the Bureau of Labor Statistics (BLS), prices grew 0.2% last month.
That’s the 4th month in a row of 0.2% inflation, a streak longer than I’ve ever been able to hold a job.
Anyway, it may look flat, but monthly inflation has actually been on a nearly constant increase since June.?
The Fed’s ideal monthly inflation rate is 0.165% (which obviously rounds to 0.2%), as that’s equivalent to an annualized rate of 2%. Last month, inflation grew from 0.179% in September to 0.244% in October.
So that’s the bad news. But the good news is that consensus expectations called for another 0.2% rise last month. Core CPI, which excludes food and energy prices, increased 0.3% (or 0.28%, a slight decline from September’s 0.31%), as expected.
Annual inflation increased last month as well.
Since October 2023, prices have increased by 2.6% per the CPI. That’s the first increase in the annual rate we’ve seen since March.
Meanwhile, annual core CPI increased 3.3%, in line with September and 0.1% above August’s 3.2% rate.
Markets, especially in fixed income, seem to have already anticipated this inflationary uptick as equities barely reacted to the print while treasury yields—especially for short-dated bills—decreased.
The decrease likely reflects the bond market’s view that, despite October’s rise, inflation hasn’t created enough problems to stop the Fed from cutting in December.
And if we look deeper into the report, we can see exactly why—the usual suspects are back at it.
Shelter costs continue to dominate. Last month, shelter costs made up 68% of the annual CPI increase, but because of the baby-brained methodology and ancient technology the BLS uses to ascertain this data, it’s not entirely accurate.
In the first chart above, we can see the CPI’s shelter index in blue, clocking in at 4.9% in October. The red line shows the median sale price of homes in the U.S. (albeit on a quarterly basis), which has been in decline since early 2023.
Next, we can see that according to Redfin’s rental tracker based on real-time listings, the median U.S. rent rose 0.2% annually and declined 0.6% for the month. Moreover, asking rents per square foot declined 1.1% since October 2023.
In other words, we’re once again calling bullsh*t on this CPI due to the artificially inflated (no pun intended) weight of shelter prices.
If mortgage rates, home prices, and rents are all flat or declining, it’s not reasonable for that to translate into 4.9% annual growth.?
But, since the BLS gets part of this data by calling landline phones around the U.S. and asking, “Hey, how much would you rent your house for?” it’s not hard to understand how this can lose all meaning pretty quickly.
The Takeaway?
Yes, inflation technically did increase, but it’s kinda like sea levels. They’re on the rise, but call me when it’s a real problem.
As the above image shows, yesterday’s print—despite increasing—only bolstered the outlook for rate cuts to come in December.
We’ll get a PPI, PCE, updated GDP, November jobs report, and more before the FOMC’s next policy meeting on December 18th. One piece of data could throw the whole narrative off, so stay tuned.
Career Corner
Question
Focusing on my TMAY + 7 stories over the weekend—given I have two different working experiences (3 years of experience), should my stories solely focus on my current job? Is it fair to bring up stories from school at this point?
Answer
I would focus just on work unless it’s really a lights-out / best-ever type of story.
Head Mentor, WSO Academy
What's Ripe
Spotify (SPOT) 11.44%
Flutter Entertainment (FLUT) 6.99%
What's Rotten
Spirit Airlines (SAVE) 59.32%
Instacart (CART) 11.01%
Thought Banana
Keeping It Real
Seashells, salt, beaver pelts, cheese, whale teeth, cigarettes (obviously), and even human skulls have all, at some point, been used as money.
There’s no intrinsic reason why this green piece of cotton and linen in my wallet is worth $100 (okay, fine, $1) or any amount more than a whale tooth or seashell. So, what is it that makes money real?
Outpacing inflation, obviously. Let’s dive in.
The Numbers
The BLS was busy yesterday, releasing alongside the October CPI a report detailing real wages for the month.
According to the BLS, real average hourly earnings for all employees in the U.S. increased by 0.1% in October. That’s derived from a 0.37% monthly increase in average hourly wages minus the 0.24% increase in CPI.
The average hours worked remained flat, meaning that employees didn’t earn more simply by showing up more, but actual pay increased across the economy.
In October, the average American worked 34.3hrs… which really makes me wish I didn’t major in finance.
Anyway, real average weekly earnings were also up 0.1% monthly. Both real average weekly and hourly earnings increased a fat 4.0% from October 2023.
Kicking management out of the conversation, we can see below that the earnings of production and nonsupervisory employees also increased 0.1% in October.
That was due to a 0.4% increase in average hourly wages and a 0.3% decrease in average hours worked.
Annually, real hourly wages jumped 4.1% while real weekly earnings increased 3.8% due to the same 0.3% decrease in hours worked from October of last year.
The Takeaway?
Two words: Hell yeah.
This data, along with October’s CPI and Bank of America’s Consumer Checkpoint (discussed yesterday) paints a pretty picture for consumer spending heading into the Holiday season.?
As consumers make up 66-70% of GDP in any given period, this is a great sign for the economy.
They say money doesn’t buy happiness. And while I’m severely lacking in both, I can’t imagine that making a lot of money is a top reason to see a therapist.
The Big Question: Will real wages continue to increase through the Holiday season to support consumer spending? Are your wages keeping up?
Banana Brain Teaser
Previous
The points R, T, and U lie on a circle that has a radius of 4. If the length of arc RTU is (4π/3), what is the length of line segment RU?
Answer: 4
Today
If x is to be chosen at random from the set {1,2,3,4} and y is to be chosen at random from the set {5,6,7}, what is the probability that xy will be even?
Send your guesses to [email protected]
?
Investment success doesn’t come from ‘buying good things,’ but rather from ‘buying things well.’
Howard Marks
How Would You Rate Today's Peel?
?? Meh
?? Rotten AF
Happy Investing,
David, Vyom, Ankit & Patrick