Inflation can be compared to Bela Lugosi’s “Dracula” from 1931; it is the sinister figure lurking in the shadows, continuously stalking its victims.
Like Dracula, inflation is terrifying – both because it is fatal to stock-price gains and because we never know exactly when it will strike.
As long as we sense its presence, there is no peace. After all, we may be next.
The anxiety is exhausting… and paralyzing… and we’re all ready to get back to making money – consistently.
Here’s the bright side: There is an end in sight as this week’s inflation reports are rolling out, and the numbers are looking good.
I’ve said this before it before, and I’ll say it again: Good news is on the way as inflation continues to moderate. So, in today’s Smart Money, let’s take a look at the latest inflation data… and where to go from here.
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The Latest Inflation Data
This week, we received two important reports that measure inflation. First, the Consumer Price Index (CPI), was released on Wednesday while the second, the Producer Price Index (PPI), was released on Thursday. Let’s dig in…
CPI
The CPI is the most widely used measure of inflation. And this past week, investors were happy with the report. In June, the CPI rose 0.2% and is now running at a 3% annual rate. This is the lowest pace the CPI has been at since March 2021.
Meanwhile, the core CPI (which excludes food and energy) increased 0.2% in June and is now running at a 4.8% annual rate. That is the lowest pace since October 2021.
Overall, these are great numbers and the markets responded well to the data on Wednesday. Specifically, treasury bond yields were considerably lower. The 10-year treasury bond was at 3.9% while the two-year treasury yield is now under 5%, both of which are great signs.
PPI
The PPI measures inflation from the perspective of costs to industry and producers of products. And Thursday’s reading showed positive signs. For June, the PPI rose 0.1% and also rose 0.1% in the past 12 months. This marks the lowest annual pace in almost three years.
Also, core PPI (which excludes food, energy, and trade) rose 2.6% in the last 12 months. So, clearly, inflation is cooling on both consumer and wholesale levels.
Battling Inflation
These reports are the sort of progress that will bring an end to the Fed’s rate-hike cycle and remove a major headwind to the stock market.
But, as the cliché goes – we trade and invest in a market of stocks. Not a stock market.
That simply means that while the market might continue to spit out paltry returns over the next year or two, that doesn’t mean that individual stocks won’t double, triple, or even quadruple their value.
Like stocks in a major megatrend I’ve had my eye on for quite some time…
The Energy Spectrum
If there is one indisputable conclusion we can draw from the market’s action this year (and the year before… and the year before that…), it’s that technology stocks have been hammered while energy stocks power higher.
Here’s the proof…
Energy has broadened far beyond the stodgy, oil-centric sector of old; energy is now a spectrum, encapsulating household names like Exxon Mobil Corp. (XOM) to newer-to-the-scene companies like Liberty Energy Inc. (LBRT).
And the newer, “greener” side of the spectrum is where I’ve set my sights.
This side of the spectrum, though speculative, is so complex that even getting to a functional solar panel, wind turbine, lithium-ion battery, or EV-charging unit, requires vastly greater quantities of battery metals than the legacy technologies they aim to replace.
Here’s what I mean…
- The average solar power project, for example, requires about five times more copper per megawatt (MW) of capacity than a conventional fossil fuel plant. Offshore wind farms demand about 10 times more.
- In raw numbers, a single 13-MW offshore wind turbine requires a stunning 275,000 pounds of copper. That’s about how much copper you’d find in 600 average American homes.
- The average plug-in EV requires about 200 pounds of copper, which is nearly four times what a comparable internal combustion vehicle requires. Depending on the exact battery chemistry, these vehicles also contain about 50 pounds of nickel, along with meaningful quantities of manganese, aluminum, lithium, and graphite.
Therefore, as EVs, solar panels, and windmills spread out across the globe, metal demand from these technologies will explode.
Summing Up
As we talked about today, it doesn’t really matter what the stock market as a whole does… it matters what individual stocks in high-octane sectors do.
The market may very well pull back more… or not. But if it does, the trend is what matters. There’s nothing that can stop powerful megatrends – not inflation, not the Fed, nothing.
And we’ll be ready to take on the next one as it comes.
Now, I’ve recently uncovered the next big megatrend and it’s going to change everything. A few years ago, a couple of billionaires like Peter Thiel and Elon Musk met in San Francisco to launch what I’m calling “Project Omega…”
A project that I believe will soon end American as we know it.
Make no mistake… this project is going to have huge implications for you, no matter how much money you have, where you live or what you do.
“Project Omega” is set to “unleash the greatest profit engine in history.” I’m talking about an estimated $15.7 trillion in new wealth.
So pay close attention because I revealed all the details during my “Project Omega” briefing.
Regards,
Eric Fry
Editor, Smart Money
