"S&P 500 margin forecasts appear vulnerable to a widening gap between producer and consumer price inflation:" @GinaMartinAdams While CPI has been rising, "PPI is rising at double the pace and the largest negative spread between the two indicators since 1974."
It makes sense that this gap is a better predictor of margin pressures than the CPI or PPI alone. Theoretically, it begins to approximate how much of the higher input costs companies can pass along to consumers on a rough, average basis.
The reaction to today's inflation data is odd, at least at first glance. Bond yields are now sharply lower while stocks selloff, led by financials and, oddly, energy despite higher crude prices. Perhaps potential margin pressures is key among traders' concerns, more than the Fed.

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More from @lisaabramowicz1

13 Sep
"Stock valuations are as cheap as ever relative to junk." A fascinating chart by Brian Reynolds of Reynolds Strategy, looking at the S&P 500 earnings yield as a percent of junk-bond yields.
"To get to fair value while holding bond yields at this current level, the S&P 500 would have to be over 9000. To get to fair value while holding stocks at this price would mean that junk yields would have to surge from the current 3.86% to over 8%."
Another way to look at this relationship in a similar, though perhaps less extreme way: Junk bond yields are basically the same as the S&P 500 earnings yield right now.
Read 4 tweets
26 Aug
A fascinating thread on how income inequality can lead to lower rates, which disproportionately benefit the wealthy, leading to a vicious cycle. A note: my point wasn't that the Fed should tighten policy to fight inequality, but rather that it's worth considering as a side effect
This is relevant as the Fed decides when to start paring its $120 billion of monthly bond purchases. It's one thing to fight a crisis, it's another to keep pumping huge amounts of cash into markets amid a strong labor-market recovery.
Some may argue the labor market is more fragile than it seems, and that there shouldn't be anything that upsets the apple cart in any way right now. Perhaps this is the case. At the same time, many analysts are saying that ongoing QE is mainly just distorting asset prices
Read 4 tweets
24 Aug
To be clear, inequality is a political question & not necessarily the Fed's job. But if the Fed is going to be discussing inequality and making it the subject of their conference, they should talk about their role in it. It may be a side impact from policies that are worthy (1/2)
There is a tradeoff here - it's legitimate to say that it's worth it, but there should be a discussion around how long it's worth it & what the other ramifications could be. This is relevant as people discuss the usefulness of $120 billion of monthly bond purchases at this point
To frame this as me arguing for higher unemployment or saying that the Fed is evil or even wrong in their stimulus efforts is intellectually dishonest and a way to dismiss the discussion without deeper analysis.
Read 5 tweets
9 Nov 20
Stocks surge on positive vaccine news. “This is about the best the news could possibly be for the world and for the United States and for public health.” bloomberg.com/news/articles/…
Treasury yields surge:
American Airlines:
Read 4 tweets

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