The June 2022 CPI numbers are in.  As it has become a trend, the numbers came in hotter than expected.  The year-over-year CPI now stands at 9.1%.

I can’t emphasize enough that this is bad news for investors.  Or to be clearer, it is bad for investors holding assets like stocks, real estate, and commodities.  If you are short stocks, it may not be bad news.

The price inflation itself represents pain for consumers.  Since we are all consumers, nearly everyone feels some of the pain.  I don’t think Jeff Bezos is bothered much by the rising prices, at least as a consumer.

This means that the Federal Reserve will have to continue to aggressively tighten.  The Fed’s balance sheet will likely go down, but very slowly.  Of course, that is the main part of the problem.

On interest rates, the Fed will be forced to continue tightening.  There is talk now of even a 100 basis point hike in its target rate at the next meeting.  It is likely there will be at least a 75 basis point hike.

This means that short-term yields will rise.  If longer-term yields stay about the same, then we will see a major flattening of the yield curve.  The 2-year yield has already been higher than the 10-year yield the last several days.  Now we are going to see the shorter-term yields such as the 3-month yield approach the 10-year yield.

This has recession written all over it.  Some people think we may already be in a mild recession right now.  That is quite possible, and it just may depend on your definition.  Maybe we will have two consecutive quarters of negative GDP.

The American middle class is already in a recession no matter what.  They are faced with 9% price inflation, and most Americans aren’t getting an annual raise of 9%.

Even if we are in an official recession right now, it doesn’t mean we can look forward to a recovery in the near future.  There are massive misallocations caused by many years of reckless government spending and money creation from the Fed.

It doesn’t start with COVID either.  This goes back to at least 2008 when the Fed started massively expanding its balance sheet.  There was only a brief period (approximately 2015 to 2019) of the last 14 years when the Fed wasn’t inflating.  Ironically, the Janet Yellen era (when she was chair of the Fed) was probably the least bad.

So here we are, probably near the peak of the Everything Bubble.  Stocks probably already peaked many months ago.  Real estate might be right near its peak in most places, although I can’t be certain that mortgage rates will continue to go higher.

Bonds have a lot of contradictory forces working.  The high price inflation indicates that yields should go higher to compensate investors.  But the yields are way below where the price inflation numbers are.  It might just mean that investors are taking what little yield they can get, even if it is negative in inflation-adjusted terms.

You may be better off taking a negative 6 percent “return” in the bond market in real terms rather than risking a 30 percent loss in stocks.

Even with the high inflation numbers, long-term bonds could still ultimately go down from here.  U.S. government bonds are seen as the ultimate safety.  If we are going into recession, long-term yields could fall even with the high inflation rate.

And then there are commodities.  The price of oil has come down from its peak, and there has been a little bit of relief at the gas pump.  Just as with bonds, there are forces working for and against higher oil prices.  A deep recession should certainly soften demand for energy.

Gold – and worse, mining stocks – have been crushed lately.  One would think that gold would be soaring to new highs with the crazy price inflation rates.  Unfortunately, there have been some forces working against it such as a supposedly big discovery of gold in Uganda.

Gold just hasn’t been part of the Everything Bubble.  I guess that makes it the “Most Everything Bubble”.  The mania has been nearly everywhere but precious metals.  Speculators wanted the big action in the crypto market.  They have gotten some big action lately, but probably not in the way they wanted.

Also, with gold, the dollar has been relatively strong against other major currencies.  The euro just hit parity with the U.S. dollar.  That says more about how bad the euro is than how good the dollar is.

Anyway, I will have more analysis in future posts about the euro and gold.

The gold market and the bond market are telling us that we should expect a severe recession.  There doesn’t seem to be great fear about high price inflation years into the future.  The market is taking the word of Jerome Powell that the Fed will continue to tighten.

It is already a tough economic environment out there, and it is only going to get tougher.