Author Archives: Michael Murphy

Dear New World Investor: This morning’s June Consumer Price Index report showed headline inflation actually fell 0.1% from May and increased only 3.9% from last year. Both numbers were below May (0.0% MoM and 3.3% YoY) and below the consensus estimates for +0.0% MoM and +3.1% YoY. This is the first time since May 2020 that monthly headline CPI came in negative. It’s also the slowest annual gain in prices since March 2021. Click for larger graphic h/t Yahoo Finance The core CPI, which strips out the more volatile costs of food and gas, climbed 0.1% MoM and 3.3% YoY....

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Dear New World Investor: We got the May Personal Consumption Expenditures Index (PCE) report last Friday morning. Year-over-year headline inflation cooled to 2.6%, the lowest in three years. The Fed pays close attention to the core PCE, which excludes volatile food and energy price changes. Core PCE also was up 2.6% year-over-year in May, in line with estimates. The month-over-month core PCE rose 0.1%, also in line with Wall Street’s expectations and slower than the 0.3% increase seen in April. It was a good report. According to the CME FedWatch tool, investors expect the Fed to hold interest rates steady...

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Dear New World Investor: We get the May Personal Consumption Expenditures Index (PCE) report tomorrow morning. Rent is only 19% of the PCE compared to 33% of the Consumer Price Index (CPI). The Fed pays close attention to the core PCE, which excludes volatile food and energy price changes. The Chicago Fed Survey of Economic Conditions (CFSEC) indices for Current Labor Costs and Future Hiring lead the core PCE and are pointing to disinflation. Click for larger graphic h/t @DiMartinoBooth The economy is weakening fast as consumers run out of savings and available credit. US manufacturing already is in a...

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Dear New World Investor: I had an interesting exchange about PayPal with a subscriber who has been in financial services for over 40 years. He wrote: “Usually hedge funds and institutional investors hold stocks for a long period of time. Retail investors like myself do not unless it’s an AAPL, GOOGL, CMG, or MDGL. Holding PYPL for 3 years is ludicrous and I have friends who are partners in hedge funds in Manhattan and I wanted their opinion on PYPL. Not one positive comment. They also don’t care for the new CEO Alex Criss. Now with AAPL in competition and...

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Dear New World Investor: Job openings weakened, manufacturing activity weakened, and the main drivers behind the resilient American consumer – real disposable income and the savings rate – are losing steam at the same time. Real disposable incomes, pinched by ongoing inflation, have risen only modestly over the past year. Click for larger graphic h/t @Bloomberg The saving rate now stands at a 16-month low as households have mostly spent the extra cash they squirreled away during the pandemic. In turn, many Americans are increasingly relying on credit cards and other sources of financing to support their spending. The recent...

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Dear New World Investor: Today’s GDP revisions boosted the December quarter from +3.3% to +3.4%. but reduced the March quarter estimate from +1.6% to +1.3% due to downward revisions to consumer spending. Click for larger graphic h/t Yahoo Finance This does not support my forecast for a small recession starting this year because private domestic sales to domestic purchasers grew 2.5% and June quarter GDP forecasts are in the +3.2% to +3.5% range. My rule of thumb is that it takes three straight months of downward or upward revisions to confirm that the government numbers are lagging reality. So I...

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Dear New World Investor: We’ll get the next Personal Consumption Expenditures Index on May 31 and the next Consumer Price Index at 8:30am on June 12. That same day, at 2:00pm, the Fed issues their next meeting results. Albert Edwards, the Société Générale strategist, wrote: “I believe the Fed is sowing the seeds of yet another policy disaster. Having let the inflation cat out of the ‘transitory’ bag, it now seems determined to regain its credibility by driving CPI inflation all the way back down to its 2% target. This has led to a huge divergence between goods and services...

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Dear New World Investor: The headline Consumer Price Index increased 3.4% year-over-year in April, a tick slower than March’s 3.5% and right on the consensus estimate. The month-over-month change was 0.3%. Year-over-year core inflation, leaving out food and energy, was +3.6% in April, down from +3.8% in March. Monthly core inflation was +0.3%, also a bit lower than March’s +0.4%. Click for larger graphic As usual, the lagging shelter component, 44% of the index, accounted for much of the increase. Inflation is below 2% if the Bureau of Labor Statistics used current rents. Click for larger graphic h/t @dailychartbook The...

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Dear New World Investor: Last Friday’s April jobs report was very weak. The economy added 175,000 jobs, far below the 240,000 estimate. Unemployment ticked up to 3.9%, hiring slowed, the length of the average workweek ticked down, and wages rose less than forecast. Click for larger graphic Also last Friday, we learned that the Institute for Supply Management (ISM) non-manufacturing services sector index fell to 49.4 last month from 51.4 in March, the lowest reading since December 2022. Economists had forecast the index edging up to 52.0. A reading below 50 indicates contraction in the services industry, which accounts for...

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