Benzinga’s Money Mitch had the opportunity to catch up with Great Hill Capital's chairman and managing member Thomas Hayes on Benzinga’s Stock Market Movers on Thursday. Hayes, who is routinely on Fox Business TV, Yahoo! Finance, Bloomberg and CNBC, was on to speak about the latest CPI data, which Hayes called a “trainwreck.”
Here’s The Insight: U.S. annual consumer prices jumped 9.1% in June, the largest increase in more than four decades. The Federal Reserve is slated to hike interest rates by an additional 75 basis points (0.75%) at the end of July.
- The consumer price index (CPI) jumped 1.3% in June
- Year-on-year CPI soars 9.1%
- Core CPI increases 0.7%; up 5.9% on year-on-year basis
The larger-than-anticipated increase in the consumer price index released on Wednesday also reflected increased costs for a number of other goods and services: clothing, furniture, and automobiles were some of the consumer goods affected by rising inflation.
What Caught Your Attention In These Reports?
Well, the bad news, Mitch, is that it was a complete trainwreck. The good news is that [the data] is backward looking. The numbers couldn’t have been any worse, they were much higher than expected — both on the CPI, core CPI, PPI, core PPI. Everyone expected these numbers to come in lower, signifying that inflation peaked in April and the Fed could pivot in the next month or so. That has just not happened. That’s the negative.
The positive, though, if you look at the month of June, all of the commodities have collapsed. That even includes energy and oil. However long that takes to trickle into consumer prices, then we’ll see these numbers start to roll over.
Opinion follows the trend and today feels like the culmination.
Do We Get The 100 Basis Point Hike Rate?
Yeah, I don’t think so. I think [Chris] Waller more or less took that off of the table today. He said 75 basis points gets us to neutral in July.
If you look at the Fed, quantitative tightening last month was supposed to reduce $47.5 billion of liquidity from the market. They actually only did $7.5 billion, they were net buyers of treasuries; they actually net bought $3 billion of treasuries. So, all of the tightenings came in mortgage-backed securities.
That tells me that the Fed sees these trends — they’re trying to thread the needle. They can’t print more oil, so the play in their book was to destroy demand, they’ve been successful in doing that.
Where Are There Opportunities In This Market?
China tech bottomed in March and biotech bottomed in May, and both have been on an uptrend while the general market has been weak. We like both of those groups as there is an exceptional amount of stimulus now focused in China, and as they get through these short-term shutdowns, you’ll continue to see money flow back in that direction.
We’ve Got The Big Natural Gas Situation Going On In Germany and Russia, How Do You See This Situation Playing Out?
The Europeans have boxed themselves into this situation; so Putin can do basically whatever he wants. He’s got an unlimited amount of funds coming in from China and India is happy to take oil barrels off of his hands at a discounted price, and he’s happy to supply them.
If you’re taking a 60-minute view, things are going to be tough. If you take a 6-month view or a 9-month view, this is where money is made. When no one wants to come in and buy high-quality businesses at discounted prices, but if you slowly ease in over time, I think you’re going to be very happy when you let the year out.
Where Do You See Oil Prices Stabilizing?
I think there’s going to be more pain, here. I think later this year there is going to be another opportunity to reload on energy, but it is too early right now. Expect more pain.
Watch the entire interview, here.
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