A Note From Steven Brooks on CPI

** Over the weekend, I will personally be sending more emails on this very topic so look out for an email or two from me specifically regarding CPI and inflation. Hey Steven Brooks here. Yesterday was a crazy day for the market which saw the market tank after the CPI report only to rip higher by 4% in the first hour of the trading day. As of writing this email to you, the market has already given back half the gains it made yesterday. Crazy. I wanted to send an email to you today to give you my personal opinion on the CPI number from yesterday. Yes, CPI is not at the highs it was a few months ago, but it is also not meaningfully coming down at all. The question is, why? Now, what I am about to say it not fact, but is based on my personal opinion. The Fed has tightening financial conditions at a more rapid pace than any time in history, including during the 1970's. Presumably, the tightening of financial conditions especially when considering the speed and magnitude of the tightening, has decreased demand. Demand for oil is down 1,000,000 barrels a day compared to the same time last year. I personally believe that yes, the insane tightening of financial conditions has crushed demand. Housing is down, stocks are down, commodities are down. The population is "worth less" than they were to start the year. Demand is down. Yet CPI is not budging. Why? Again, this is my opinion. My opinion is that the Fed, via tightening, has destroyed demand. The Fed has "done its job". The problem is, what is left, is supply. Basically, I am of the belief that the only inflation that is left is supply related. This, in my opinion, creates a massive problem. Who fixes the supply related inflation? Can the Fed print more oil? Can the Fed drop sanctions? Can the Fed legislate to stop trying to remove fertilizer? The answer to these questions is no. So all demand inflation has been taken out, but supply inflation still remains, which is also the part of the inflation formula that the Fed has zero impact on. And sadly, there is only one entity that can "fix" or "improve" supply related inflation...government. Need more supply of oil? Okay. Drill more. Need more supply of energy? Okay. Drop the sanctions. Need more food? Okay. Stop trying to get rid of fertilizer. The challenge I see moving forward is not reducing inflation, but reducing inflation back to 2%. In my opinion, there is a 0% chance that happens as long as supply is either purposely or non-purposely reduced. So, if we assume for a second governments don't do what is simple, cheap, and hugely impactful to reduce supply side inflation, what happens? Higher rates for a long, long time, which at best leads to stagflation and at worst leads to a full on depression. A recession in this case would be very welcome as the outcomes are likely far worse than a recession. What am I saying? We are in a recession right now! lol If we assume for a second governments do do what is simple, cheap, and hugely impactful to reduce supply side inflation, what happens? Rates normalize nearly overnight, supply for energy and commodities increases almost instantly calibrating and equalizing supply/demand, which likely leads to continued economic growth for years and years to come. Literally, if government came out and said, "Hey guys look, we wanted to get rid of oil and gas by the end of the year but realize it will take a century to accomplish that, so as of now, we will go back to relying on oil and gas and over the next century get off of it", (like myself, Elon Musk, and Jamie Dimon have all been saying) you would see the price and the pump crater and supply side inflation will just vanish like a thing of the past. Literally, it would be like something in the news cycle. Here today, forgotten by tomorrow. I do not believe for a single second the market will bottom until the Fed pivots. Never has the market bottomed while the Fed is raising rates. Never has the market bottomed while the 2-year yield is rising. Never has the market bottomed while the money supply is decreasing. And unless governments are able to do what is so simple, cheap, and effective, I feel we are not nearly as close as many hope we are to a Fed pivot. Who even knows what the Fed is really looking at? Are they just making it up as they go? Are the "looking at" CPI to measure inflation because it gives them the justification they need to keep on tightening in order to save whatever last shred of credibility they have? Who knows. Sadly, if I am right, and demand destruction has happened and all that is left is supply side inflation, this nastiness in markets can last for many years to come. ** Over the weekend, I will personally be sending more emails on this very topic so look out for an email or two from me specifically regarding CPI and inflation. Stay small and win more trades, Steven [image] [image] If you no longer wish to receive our marketing emails,[just click here]( and you'll hear no more about it. [Unsubscribe]( Stonybrooksecurities LLC 508 Stony Brook Lane Wyckoff, New Jersey 07481 United States