1. Inflation is still trending higher. Inventory to sales reflects supply to demand. The everything shortage and price hikes mechanism is in full flow. This should be characterized as trending inflation. Check out the details from the Fed’s Beige Book.

“We need lower consumer demand to give supply chains time to catch up… recover efficiency… and break this vicious circle”: CEO of Maersk’s APM Terminals, one of the largest container port operators.

Today’s release of the Fed’s “Beige Book“ – an informal narrative of the economy as told by small and large companies in the 12 Federal Reserve districts – listed “shortage” 77 times, up from 19 times in January.

https://wolfstreet.com/2021/09/08/the-everything-shortage-price-hikes-plastered-all-over-feds-beige-book/

2. The CPI has broken out to multi decade highs, but it still underestimates inflation in its single largest item.

“Those, like the Fed, betting on “transitory” inflation, should be careful. If either OER or Rental prices show some correlation to reality, CPI could not only continue to run hot but could rise from elevated levels.”

https://realinvestmentadvice.com/bls-housing-inflation-measure-is-bull 

3. The Producer prices index also shows further price increases are in the pipeline.

“Producer prices that are input prices for consumer-facing industries are red-hot. But further up the production chain, prices are white-hot.”

https://wolfstreet.com/2021/09/10/up-the-price-pipeline-inflation-rages-at-20/

4. Deglobalization Will Steepen Inflation. Then what would happen if the Fed ended up increasing QE?

“In our analysis, the Fed will have no choice but to substantially increase its planned quantitative easing.”

While trading bottlenecks remain intense, budget finance requirements remain unresolved but will likely stay substantial. The chart above shows that the Fed’s QE has a significant and increasing budget financing component.

https://www.youtube.com/watch?v=evWtpSnDpSo

5. The probabilities for an extended stagflationary period have escalated.

The chart above shows that the Covid “stimulus” dwarfed previous packages.

“The scale and speed of this spending explains much, if not most, of the recent GDP growth. Putting an extra $14 trillion on top of normal government spending into a $20 trillion economy is a massive sugar high. It wasn’t a free lunch by any means; the national debt went up accordingly. But it still had a short-term stimulus effect.

The stimulus effect is now ending. The last round of $1,400 payments is either spent or banked. The extended and enhanced unemployment benefits ended this week in the states that hadn’t already canceled them. The small businesses who received payroll support are reaching the end of their rope.

Yes, Congress is considering a pair of infrastructure bills whose price tags, if they pass in the proposed form, will outweigh the prior COVID bills. But passage is increasingly dubious. (More below.) Even if they do, the spending will be spread over many years. It won’t come close to replacing the other programs that have ended, or will end soon.

For all intents and purposes, without more stimulus the economy is back on its own as the fourth quarter approaches—and basically where it was in late 2019. It may even be worse, considering changes to the workforce. Millions have died, become disabled, retired early, or are retraining for career changes. While this may be long-term positive in some cases, it’s not necessarily positive for the next quarter’s GDP.”

https://www.mauldineconomics.com/frontlinethoughts/the-return-of-stagflation

The upside of the stimulus is passing. The current budget deals to come may offset the short term cyclical downside, but the longer term cyclical downturn from the limits to deficit spending and QE distortions is far from resolved.

Educational use Only. The market update published by CB Investment Management, LLC (“CB Investment”)  is intended to be educational in nature and is not intended to be a recommendation for any specific investment product, strategy, plan feature or other purposes. Accordingly, it should not be construed by any consumer and/or prospective client as solicitation to effect, or attempt to effect transactions in securities, or the rendering of personalized investment advice for compensation. 
Advertising and Marketing. Communications such as this are not impartial and are provided in connection with advertising and marketing. This material is not suggesting a specific course of action or any action at all. Prior to making any investment or financial decisions, an investor should seek individualized advice from a personal financial, insurance, legal or tax professional that takes into account all of the particular facts and circumstances of an investor’s own situation. No person associated with CB Investment is a licensed attorney or tax professional and the information contained herein should not be considered tax  or  legal advice. 
Links to Third Party Content. This Market Update contains links to articles or other information maintained by unrelated third parties. You acknowledge and agree to the following: All such information is provided solely for convenience purposes only because we believe that it may provide useful content and all users thereof should be guided accordingly. We disclaim any responsibility for the link’s performance or interaction with your computer, its security and privacy policies and practices, and any consequences that may result from visiting it.  We do not control the content published by the third-party; we do not guarantee any claims made on it, nor do we endorse its sponsor or any of the content, policies, activities, products or services offered by any advertiser on the site. CB Investment assumes no liability for any inaccuracies, errors or omissions in or from any data or other information provided by the third party and inclusion or reference by CB Investment to any third party link should not be construed by any consumer and/or prospective client as a solicitation to effect, or attempt to effect transactions in securities, or the rendering of personalized investment advice for compensation, over the Internet. 
Important Information regarding Registration Investment advice is offered through CB Investment Management, LLC (“CB Investment”), 8231 Crestwood Heights Drive, Mclean VA 22102 an investment adviser registered with the states of Virginia and Maryland. Registration with the states of Virginia and Maryland should not be construed to imply that the SEC has approved or endorsed qualifications or the services offered, or that or its personnel possess a particular level of skill, expertise or training. Important information and disclosures related to CB Investment are available at https://old-site.chris-belchamber.com.