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PCE Runs A Little Hot

Well we got the PCE (personal consumption expenditures) this morning and the numbers were a tiny bit hot. The price index was 6.2% versus 6.4% a year ago (year on year). The core rate ran at 4.9% versus 4.6% a year ago. Bottom line is no real relief in this inflation gauge which Jay Powell claims to be his favorite gauge.

Stock indexes are off just a bit while the 10 year treasury is 3 basis points lower at 3.71%.

So today is another day I plan to watch and not buy–but a nibble will be taken if a current holding takes a giant tumble—each day it seems like there is something that gets hammered.

22 thoughts on “PCE Runs A Little Hot”

  1. I need a little help understanding the two PCEs reported by the BEA. There is the “PCE” then also the “real PCE” (see below). We all know that the “PCE” increase 0.3% MoM. However, the “real PCE” increased only 0.1% MoM. My question is – “what is the real PCE, and why is it different?” Seems like 0.1% MoM, if real, would be a good thing.
    From the preceding month, the PCE price index for August increased 0.3 percent (table 9). Prices for goods decreased 0.3 percent and prices for services increased 0.6 percent. Food prices increased 0.8 percent and energy prices decreased 5.5 percent. Excluding food and energy, the PCE price index increased 0.6 percent. Detailed monthly PCE price indexes can be found on Table 2.3.4U.

    From the same month one year ago, the PCE price index for August increased 6.2 percent (table 11). Prices for goods increased 8.6 percent and prices for services increased 5.0 percent. Food prices increased 12.4 percent and energy prices increased 24.7 percent. Excluding food and energy, the PCE price index increased 4.9 percent from one year ago.

    Real PCE

    The 0.1 percent increase in real PCE in August reflected an increase of 0.2 percent in spending on services and a decrease of 0.2 percent in spending on goods (table 7). Within services, health care and transportation services were the leading contributors to the increase. Within goods, “other” nondurable goods (including personal care products, and newspapers, printed materials, and other nondurable recreation items), and recreational goods and vehicles were the leading contributors to the decrease. Detailed information on monthly real PCE spending can be found on Table 2.3.6U.

  2. Market seemed to hold until the last 2 hours of the day then steadily moved down. Last 1/2 hr it seemed to drop but market closed before it got worse. The DJA broke 29,000 so be interesting to see what Monday brings. Several of the stocks talked about here ( LBRDP ) hit interday lows but recovered. I thought I was underwater on EQC-PD but by end of day it more than recovered. Thank you Sam Zell for my faith in your 50 yrs of Real estate experience. Looking at Medical REITS my small position in GMRE-PA did good.
    Been too heavy to banks because of yields offered, banks are non cumulative so slightly higher risk

    1. Quarter end rebalancing and a $6 Billion sellside imbalance for the market on close trashed things the last half hour

      1. Maverick61,

        How does one know what the imbalance was at market close. Is this information publicly available somewhere?


        1. Bill – I follow a few investment type accounts on twitter, one of which is zerohedge. While they put a lot of different stuff out, some of which is political, they put some good investment info out including info from Goldman, JPM, others. In that vein, they often post market on close imbalances when they are significant about 15 minutes or so before the close
          That is how I usually see them.

          That said, i wasn’t sure if these are public or not – but you made me curious and a quick search turned up this. I will have to see if this updates in realtime or not


          1. Though I’ve never paid them no mind, I believe I see those market imbalance news announcements on the newsfeed from ThinkorSwim as well.

            1. Charles, Read it twice. Not good. Easy to envision many financial sinkholes appearing across the landscape.

              Seems at least in part another unintended consequence courtesy of excessive QE.

              1. Alpha, I also read it twice as well as the comments from liptick47 and what the article states seems to be a normal reaction to what is taking place with the fed as well as events around the globe. Wasn’t the point of QT to cause exactly what the author discussed? As for the whole thing over in Britain with their pensions… “just a flesh wound”.

                So many people are looking for the reason we will have an almighty crash they might not be taking the time to examine what is worth purchasing when prices are depressed. I am not referring to you or anyone here. I just mean in general. Fear does seem to bring investors together to have something to grumble about!

                1. Liked that one fc,
                  Yes we might be whistling past the graveyard. A lot of this is above my head and a lot of moving parts.
                  “Keep Calm and Carry On”
                  I can’t worry about things beyond my control.
                  Trying right now to spread the risk out and generate a 6% + income. Be great if like Grid says there have been times investment grade has offered 7% it can happen again.

                2. fc, Charles’ linked-article is relevant and important, though you wrote it better than I might have – that we have some of the best opportunities in years yet fear appears to be paralyzing many keyboards. Sooth-sayers are wreaking havoc.

                  We all know a lot about what “should” happen, but close to zero about what “will” happen. We can drag out history, experience or expertise, “reliable” indicators, academic studies, news articles, trend lines, star charts or pepe’ the talking burro; the best we can do is establish historical correlations. None of it, that is – zero – of it, is reliably predictive and certainly cannot explain/anticipate aberrations such as today’s violent price reversal.

                  One has to stay in their lane. With the best deals in years, we are buyers. Proportional/incremental buy orders have been hitting near as fast as we can record and re-enter them – until today of course, when we sold some back into the “unpredicted” market reversal at significant gains.

                  My own 2 cents, worth about 1 cent, is that when one identifies the best opportunities in years, they should not be stared at until they no longer exist, and no prediction or news article should alter that focus.

  3. After reading the PCE report, I cancelled 5 buy orders.
    There will be more bloodshed in the next few months.
    So, why buy?
    However, If I could get 7% IG preferreds, I can live with that.
    Waiting for Bac-l and Wfc-l to come to poppa.
    I expect that in 2 months.
    Hmm, I think I should raise cash as well

    1. Newman, history speaking and not recent decade, 7% IG has been a good yield. For example Baltimore Gas and Electric issued several 7% issues in the early 1990s when rates were higher….Man I miss trading those! My “cash account” has become RZA. I dumped a slug at 25.20 on the tender, and then noticed past few days it was trading at 25.10 and under, so I bought a bunch back and are just riding it out from here.

  4. Looks like Powell is stuck in a box and will either continue to raise interest rates in November (.75%) and push the economy into a nasty deep recession or pivot and we live with inflation. Either way it’s not good for stocks and bonds.
    Meanwhile the Fed’s increase in interest rates has push the dollar up significantly and is indirectly affecting other economies i.e. England and China. Where this stops nobody knows.

  5. Nibbled on DUK-As and MSCA. I’m still working, and want to build my own CEF for retirement cash. I have no problem holding these for years, and I like the historic charts for entry points. Also, bought some ZIM in the high risk account.

    I personally like IG bank preferreds with QDI at 6.25%+. Getting about the effective tax rate as a MSCA with more liquidity if needed.

    If the market goes lower, I’ll buy more. Sadistically, I want a horrible Oct to get even better entry points. 10-15% lower on Muni CEFs, and I’ll get those. Thanks for the tips!

  6. A little hot…at sub 5% on the core rate!

    To get some perspective, Paul Volcker kept the fed funds rate at 16% until May of 1981. You could buy 30-Year Treasury Bonds back then at 15-20% yields.

    But the big difference today from the Volcker 1980s is that the government debt/GDP ratio for the US economy is now at generational highs (125%). In the 1980s debt/GDP was 35%.

    This economy is simply not equipped to handle massively higher interest rates. That is why the Fed can only go so far with its Tough Guy policies.

    The Center For Responsible Lending already has said that interest costs on our $31T in national debt will likely hit $700 Billion in 2023; they were below $400M last year. You simply can’t keep nearly doubling those expenses and not expect major consequences.

    1. Rob, I am on the same page – the US debt is my major long-term concern-term, for myself, my children and grand children.

      I take a different angle on the Fed. I believe they must get inflation down to 2% no matter what, otherwise interest rates will remain high for many years and service of the debt will require printing even more money. A viscous debt cycle. Cheers!

      1. Hmmmmmm – adjective: viscous
        “having a thick, sticky consistency between solid and liquid; having a high viscosity.” Maybe you do mean viscous! ha. a big gooey mess….

    2. Rob—I definitely agree with you and have always believed that the Fed will back off because the debt needs to be serviced. I lived through the late 70’s and early 80’s market. I remember buying large dollar quantities of 10 year CD’s at 15%—in multiple accounts so I got FDIC insurance on all of them.

      This time our country’s situation is different because of the debt to GDP ratio. I think we may be headed into a Japanese style economy with relatively low interest rates and a stagnant GDP growth rate. The political pressure on the Fed to ease will be enormous. JM2C

    3. So they’ll print more money to pay the Treasuries, which is inflationary. Hiking rates while printing is like running the air conditioner and heater at the same time.

  7. Tim, you have more patience than many, waiting for your price/yield point before adding. Are you looking at DUK-A?

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