Is inflation following the 1970s? … its direction is headed the wrong way … why the Fed should pause in December … another win from Louis Navellier I’m about to show you a troubling chart that’s making the rounds. It compares year-over-year Consumer Price Index (CPI) inflation in the 1970s to CPI in recent years. What you’ll see is that the curves are nearly identical, and our current position on this curve (the red dot) is concerning… 
Source: Macrobond and Nordea Inflation will be the single greatest driver of your portfolio over the next 12 months If inflation falls further and remains in check… The Fed will deliver the rate cuts that Wall Street wants… the 10-year Treasury yield will remain manageable… the U.S. dollar won’t break out… consumers will feel better about the economy and open their wallets in a virtuous loop that reinforces favorable conditions… corporate profits will rise… and your portfolio will benefit. On the other hand, if inflation begins to rise consistently… The Fed may not cut rates (or, God forbid, have to raise rates) … the 10-year Treasury yield will climb, pressuring stock valuations … the dollar will likely strengthen … consumers will feel worse about the economy and close their wallets in a destructive loop that reinforces painful conditions… corporate profits will struggle… and your portfolio will face headwinds. Inflation is the key issue. Now, you might be scratching your head. After all, the going narrative is that inflation is generally conquered today. You wouldn’t be blamed for thinking so after listening to some of Federal Reserve Chairman Jerome Powell’s recent press conferences. For example, after the November FOMC meeting last week, Powell said: We feel the story is very consistent with inflation, continuing to come down on a bumpy path over the next couple of years and settling around 2%. But as we’ve pointed out in the Digest, the last handful of months of core PCE inflation (the Fed’s favorite inflation gauge) have been heading higher on a month-to-month basis. Here’s how that looks: May: 0.1% June: 0.2% July: 0.2% August: 0.2% September: 0.3%. Is “bumpy” the right way to describe four consecutive months of rising or steady growth in what the Fed believes to be the best gauge of inflation? Earlier this week, the Consumer Price Index (CPI) report showed that headline inflation turned north for the first time in six months Meanwhile, core year-over-year CPI came in at 3.3%, which remains well above the Fed’s goal of 2%. Let’s jump to our hypergrowth expert Luke Lango for more analysis. From his Daily Notes in Innovation Investor: Inflation is stabilizing around 2-3%, but we should be mindful of reinflation risks. The Consumer Price inflation rate clocked in at 2.6% for October, in-line with expectations and largely in-line with long-term “normal” inflation rates. But the inflation rate did rise from 2.4% in September and is expected to rise again in November to 2.7%. In other words, inflation is at “normal” levels right now, but it is no longer falling. Instead, it is actually rising. We need to be mindful of this recent reinflation trend… There are six major categories in the CPI report. Among four of those six major categories, inflation is running largely at or below long-term normal levels. But inflation is falling among only two of them. The overall level of inflation is bullish. The overall trend of inflation is not. In his post-FOMC press conference last week, Powell put the blame for much of this unfavorable trend on “catch-up” inflation, not new inflation. He explained this by referencing the apartment rental market: Housing services is higher. What's going on there is, you know, market rents, newly signed leases, are experiencing very low inflation. And what's happening is older -- you know, leases that are turning over are taking several years to catch up to where market leases are; market rent leases are. So that's just a catch-up problem. It's not really reflecting current inflationary pressures, it's reflecting past inflationary pressures. Although this makes sense, it doesn’t explain yesterday’s uptick in Producer Price Inflation. Here’s MarketWatch: U.S. wholesale prices rose a bit faster in October and suggested that the Federal Reserve’s battle to reduce inflation to low pre-pandemic levels may go on a while. The latest “bump” in inflation, to use the words of top Federal Reserve officials, [saw the] producer-price index advance 0.2% last month, the government said Thursday. Wholesale prices also rose a bit faster in September than previously estimated. The increase in wholesale prices in the 12 months that ended in October climbed to 2.4% from 1.9% and matched the highest level in four months. So-called core wholesale prices that omit food and energy — viewed as a better predictor of future inflation — rose a sharper 0.3% last month. The 12-month rate moved up to 3.5% from 3.3%. This isn’t an old apartment lease rolling over. This is what’s happening right now with wholesale prices, and it raises an eyebrow. The biggest unknown in the inflation story is the neutral rate The Fed’s goal (as highlighted in its September’s SEP report) is to get the Fed Funds rate back to 2.9% by 2027. This is their estimate of the “neutral” rate, which is the theoretical rate at which interest rates are neither helping nor hurting the economy. But this neutral rate is always changing, and it can’t be measured directly. This variability creates the potential for error. The Fed sometimes applies too much gas or too much brake, resulting in bubbles and bursts. So, Powell & Co.’s assessment of the neutral rate is critically important. If they get it right, our economy has a better shot at enjoying the soft landing we all want, and this bull market likely charges higher. If they get it wrong, the chance of falling off the tightrope increases. Fall one way and we get a recession; fall the other way and we see a resurgence of inflation perhaps like the chart at the top of this Digest. Powell is well aware of the challenge. In his press conference last week, he said, “The right way to find neutral is patiently and carefully.” And yesterday, speaking in Dallas, he added, “The economy is not sending any signals that we need to be in a hurry to lower rates… The strength we are currently seeing in the economy gives us the ability to approach our decisions carefully.” Translation – don’t be so sure of that December rate cut. Right on cue, this morning’s retail sales report came in fairly upbeat. Consumer spending climbed 0.4% last month (the forecast was for 0.3% growth), and September’s number was upwardly revised to 0.8%. As I write Friday morning, traders are scratching their heads and frantically recalibrating their bets for rate cuts. According to the CME Group’s FedWatch Tool, yesterday, traders put 72.2% odds on another cut in December. As I write, it’s down to 58.7% I didn’t think the Fed should have cut interest rates last month, so I’m glad to see Powell hinting at more caution. After all, what if the Fed’s assessment of the neutral rate at 2.9% is wrong? What if it’s much higher? Louis Navellier’s favorite economist Ed Yardeni believes it is: Based on the performance of the economy, we think the [neutral] rate is currently 4.00% and probably higher… Our conclusion is that if the Fed continues to lower the federal funds rate, monetary policy will most likely stimulate an economy that doesn’t need to be stimulated. The result could be rebounds in both price and asset inflation rates. The latter is certainly underway in the stock market. Given this, we’re all for the Fed taking a breather in December. Of course, Wall Street might not agree. We won’t know how these inflation questions will resolve for months… In the meantime, Louis is calling for more stock market gains after the market digests its post-election surge. Let’s jump to his Accelerated Profits Flash Alert podcast yesterday: We went too far, too fast. We had an explosive January Effect, so we have to back-and-fill. That back-and-filling started [Wednesday]. It’s continuing [Thursday], and so I don’t want you to be alarmed that stocks won’t go up every day. But you have to back-and-fill. You just can’t surge and not give back some of those gains… Now, we will be rallying going into Thanksgiving. It’s a happy time of year. People are going to be in a good mood. Then, in December, we’ll get some tax selling. We’ll have an explosive start to the new year because we just had a massive January Effect. Speaking of explosive, a quick congratulations to Louis’ Accelerated Profits subscribers. One of their stocks just popped 27% on Wednesday after it reported blowout earnings. Here’s Louis: For the third quarter, Paymentus Holdings (PAY) reported earnings of $19.6 million, or $0.15 per share, and record revenue of $231.6 million. That represented 79.5% year-over-year earnings growth and 51.9% year-over-year revenue growth. The consensus estimate called for earnings of $0.09 per share on $190.63 million in revenue. So, Paymentus topped analysts’ earnings estimates by 66.7% and revenue forecasts by 21.5%... While that strong earnings performance might have taken Wall Street by surprise, Louis expected it and credits his Quantum Cash system. Back to Louis: At its core, Quantum Cash uses a series of algorithms to constantly scour massive amounts of data looking for patterns. Many of these patterns are nonlinear, meaning you’re not going to be able to see them with the naked eye. But the more data you feed it, the more patterns it can spot. Thanks to my Quantum Cash system, my Accelerated Profits subscribers have closed a number of big trades in 2024, including: - YPF Sociedad Anonima (YPF) for a 187% gain
- CECO Environmental Corp. (CECO) for a 135% gain
- Builders FirstSource Inc. (BLDR) for a 95% gain
Louis just released a special presentation that delves into the details of his Quantum Cash system. He describes how he’s been able to give readers a chance to collect three income plays a month, regardless of flat markets or even market crashes. I’ll note that even if you have a smaller portfolio size, Louis’ system is a great income vehicle. You can check out his research video right here. Coming full circle… It’s an interesting time of contrasts for the market… - Overall, inflation is down…but it’s headed in the wrong direction…
- Stocks have surged…but they need to pull back and regroup…
- The Fed is proceeding cautiously toward the neutral rate…but they could be aiming at the wrong target…
Despite this, our recommendation remains the same: Be mindful of how much risk you want to accept in today’s high-valuation market, but stay with bullish momentum. Though we’re not convinced that inflation won’t turn into a headache in 2025, for now, we’re following Louis’ lead and betting on higher stock prices after this back-and-fill runs its course. Have a good evening, Jeff Remsburg | 
