US CPI hits a new high, the market fluctuates back and forth, bulls and bears explode

Overnight on the 10th, the U.S. Bureau of Labor Statistics (BLS) announced the CPI increase in January 2022. Compared with the year-on-year growth rate in January 2021, it was as high as 7.5%, and it was higher than the CPI in December 2021 (refer to the 1/13 article "U.S. inflation hits a new high, a dream back to the 1980s overnight", the U.S. CPI was 7% in December last year and 6.8% in November).

In the article "The United States encounters high inflation, and the market is in a life-and-death situation" on December 11, 2021, it was recorded that John Authers, a senior editor of Bloomberg at the time, comforted everyone that inflation had not exceeded 7, and President Biden said that although inflation was high, the growth rate was slowing down. However, two months later, the market gave these ostrich remarks a hard slap in the face.

The Bureau of Statistics (BEA) PCE data will not be released until February 25, but it does not look like it will be very low.

The CPI of 7.5% this time has set a record high in nearly 40 years since February 1982. In other words, only the high inflation in the 1980s can be compared with it.

History will not forget. At this moment when the CPI hits a new high, looking back at the article "The United States encounters high inflation, and the market is in a life-or-death situation", it is funny to see how the eagle politicians, after angering the rabbits and shooting themselves in the foot, tried to cover up their mistakes and deceive themselves.

For the sake of political correctness, European and American governments have surrendered to the new coronavirus. They have vigorously promoted the theory that Omicron is harmless through the so-called mainstream media controlled by capital, and concocted the pseudo-scientific argument that Omicron is a natural vaccine - it is said to be able to expel other mutant strains, while being non-toxic itself, thus achieving the effect of fighting poison with poison - which is quite similar to the saying "no one in the world can capture Paris before France surrenders."

But this would disprove Powell's reasoning that high inflation is due to the impact of Omicron on the supply chain. On the one hand, he is promoting that Omicron is harmless, while on the other hand, price inflation is rising steadily. Anyway, who cares whether the logic is self-consistent or not?

Inflation is high, and the Fed will inevitably raise expectations for rate hikes if it wants to control inflation. Traditionally, it is generally believed that high inflation will push up value stocks and hit growth stocks. Value-based companies have strong cash flow, and if upstream and downstream prices rise at the same time and they have strong bargaining power, they will be less affected by inflation. Growth-based companies mainly rely on financing to survive, and are greatly affected by capital. If interest rates are raised and money is withdrawn, capital flooding will be controlled, and growth-based companies will bleed and become disabled.

We can regard the former as a market-driven model and the latter as a capital-driven model. The term capital here refers specifically to monetary capital. Looking at today's US stock market, a large number of companies are engaged in capital operations to drive growth. After all, the Federal Reserve has supplied so much cheap money, and anyone who does not make money is a fool. Through capital operations, cheap money and capital flooding are converted into rising stock prices, and then the stock options in their hands are sold at high prices to cash out. This is something that every savvy American corporate executive will consider. Working hard to do practical things and making a few cents from the market, how can capital operations make money quickly and easily?

Therefore, the consequence of the US stock market's decade-long bull market is that the US stock market is flooded with capital-driven stocks. The market moves at the slightest hint of the Federal Reserve. As inflation rises and expectations of a rate hike by the Federal Reserve grow, US stocks fall. The S&P and Nasdaq both retreated by about 2%.

The cryptocurrency market is even more lively. Before the CPI was released, Bitcoin fell from 45k to 43k, which wiped out some longs. As soon as the CPI was released, Bitcoin rose sharply in the opposite direction, as if it didn't care. This not only wiped out the shorts who bet on a decline, but also created an illusion that the expectation of interest rate hikes has been fully digested, or that funds will flow into Bitcoin for risk aversion due to high inflation. In just a few hours, Bitcoin rushed from 43k to a high of nearly 46k, tempting longs to chase the rise again with FOMO. Suddenly, in the early morning, it plunged from a high position, falling all the way from below 46k, and returned to the 43k line, killing the longs with a surprise attack.

Looking around, the market is full of wailing. Such back-and-forth fluctuations have caused short-term speculators to complain bitterly, but have created opportunities for long-term investors to increase their positions when the market falls.