DOES STAN DRUCKENMILLER WARNING HAVE ANY MERIT?

The indices fell anywhere between 1.50% and 2.0% reversing earlier gains. A Bloomberg headline read “The Volatility is about the Index, Not Single Stocks,” a verbiage that I found unique.

Equities fell for a myriad of reasons. Some pointed to Brexit tensions, others blamed an increase in European COVID cases, while some to delays in another stimulus. I think it is all of the above amplified by overall angst and nervousness that includes the election, increasing pricing pressures, to valuations of the unrelenting advance in a handful of names.

If history is any type of guise, rising pricing pressures will impact both stock and bond prices. As inferred above, August’s PPI was greater than anticipated, another illustration of how quickly prices are bouncing back following the lockdowns, suggesting there is now little risk of sliding into deflation.

In my view, the bigger risk is that—with inventories looking unusually lean—the price rises go well beyond just reversing the declines that occurred during the lockdowns.

Wednesday legendary investor Stan Druckenmiller stated that rising inflation is a “big threat,” stating that it could eventually rise by as much as 10%. His rationale was simplistic…massive debt, lean inventories, record money supply, extremely dovish Fed policy, and rising wages.

Speaking of jobs, initial jobless claims remained unchanged at very elevated 884,000 while continuing claims rebounded slightly higher to 13.4 million. Both data points were nominally higher than expected. As bad as this data appears, it is in direct contradiction with the JOLTS data that revealed by July layoffs had already fallen back to their pre-pandemic level.

The government’s Job Openings and Labor Turnover Survey (JOLTS) indicated a larger than expected 6.6 million vacant positions at employers, about 400,000 shy of pre-pandemic levels.

Labor Department figures also indicated the so called “quits” climbed by 344,000 to nearly 3 million in July. The number of job leavers as a share of total employed rose to 2.1%, creeping closer to the 2.3% that was prevalent before the coronavirus shut down the economy.

Against this backdrop will cost push (aka wage inflation) become an issue?

Today the CPI is released. Will the data again surprise on the upside as it did in July? Prices are expected to rise by 0.3%. The core rate up by 0.2%.

Last night the foreign markets were up. London was up 0.31%, Paris up 0.10% and Frankfurt down 0.04%. China was up 0.79%, Japan up 0.74% and Hang Sang up 0.78%.

The Dow should open nominally higher following yesterday’s volatile day. The 10-year is off 4/32 to yield 0.69%.

 

The views expressed herein are those of Kent Engelke and do not necessarily reflect those of Capitol Securities Management. The information contained herein has been compiled from sources believed to be reliable; however, there is no guarantee of its accuracy or completeness. Any opinions expressed are statements of judgment on this date and are subject to certain risks and uncertainties which could cause actual results to differ materially from those currently anticipated or projected. Any future dividends, interest, yields and event dates listed may be subject to change. An investor cannot invest in an index, and its returns are not indicative of the performance of any specific investment. Past performance is not indicative of future results. The material provided in Daily Market Commentaries or on this website should be used for informational purposes only and in no way should be relied upon for financial advice. Please be sure to consult your own financial advisor when making decisions regarding your financial management. Members of FINRA and SIPC, Capitol Securities Management is a privately owned full-service retail brokerage and investment advisory firm headquartered in Richmond, Virginia. For nearly 30 years, we have been serving the needs of our investors. Today, more than 200 Capitol Securities Management investment professionals and support staff serve approximately 18,000 customer accounts from Southern Florida to the New England coast.