Market Bounces Up. Pull Back or Recovery?    
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Last week’s big market news was a decline in the Consumer Price
Index (CPI) number. This report elicited a bull rally from retail
investors. This caused many sectors to turn bullish short term.

For many retail investors, this rally is confirmation that the market
has reached support. However, most institutional investors are bracing
for another big drop. I tend to personally think we see a larger drop
coming later this year or 2023 when holiday shopping numbers come in
short of expectations.

The other news was the passage of the “Inflation Reduction Act,”
which will increase government spending, job losses, and taxes. The
end result is more INFLATION. I will talk more about this later in
the _REPORT._

Turning back to the CPI, Many economic observers also hailed the
recent (CPI) reading’s reduction due to lowering food and fuel
prices. 

The producer pricing index (PPI) confirmed the decline a day later
—the first since January 2020— and suggested inflation had peaked.

However, I want to point out that A DECLINING CPI DOES NOT INDICATE
THAT PRICES ARE DECREASING OVERALL; INSTEAD, IT SIMPLY SUGGESTS THAT
THEY ARE RISING SLIGHTLY LESS QUICKLY CURRENTLY (+8.5% over the past
year as opposed to +9.1% in June).

REAL INFLATION IS GREATER THAN CPI; even though I use CPI as a
baseline since it is poorly estimated, it is calculated the same way
each month.

I FOLLOW TRUFLATION TO GET AN IDEA OF WHAT IS REALLY
HAPPENING. Decentralized finance (DeFi) firm Truflation
[[link removed]] is based on the same calculation method
as the CPI but is different in that it uses real “price data”
versus the government’s survey data. It uses current real-market
prices data from Zillow, Penn State, and Nielsen to measure and report
inflation changes each day.

Officials from the Federal Reserve are BECOMING MORE CIRCUMSPECT,
STATING THAT BEFORE DECLARING THE TOP, THEY NEED TO OBSERVE MANY
MONTHS OF DECLINING CPI.

This is another way for the Fed to say they are MORE HAWKISH AND
LIKELY TO CONTINUE RAISING RATES.

Lastly, any other geopolitical unrest, such as a worsening of the
Russia-Ukraine conflict, a crisis or war between the United States and
China, or a Middle East war between Israel and Iran, COULD BRING
ABOUT SUPPLY SHOCKS THAT RAISE INFLATION ONCE MORE.

FED CONTINUES TO DENIES “RECESSION”

Officials continue to share the same forecast on the recession from
the Fed. No Fed official that I have seen has confirmed the US
recession. However, most regional Fed bank presidents see modest
economic growth, and some are prepared for a quickening of the
recession. 

For example, Neal Kashkari, president of the Minneapolis Federal
Reserve Bank, stated last week that “we may be in a recession in the
near future.” I find it challenging to comprehend the opposition to
calling the current recession into question. The economy has shrunk
for two consecutive quarters even as the Fed raises interest rates.

CBO WARNS ABOUT DEBT & INFLATION REDUCTION ACT

According to a Congressional Budget Office (CBO) assessment, over the
next 30 years, the federal deficit as a percentage of GDP will average
7.3 percent.

Debt will make it harder for the economy to grow at a healthy rate,
possibly resulting in decades of relatively slow growth. Additionally,
higher debt levels will result in higher foreign interest payments and
a greater risk of a financial collapse.

The US Senate passed the “Inflation Reduction Act” on Sunday, and
it is going to the House. In typical government fashion, the name is
very MISLEADING AS IT BLOATS THE GOVERNMENT’S SIZE AND INCREASES
TAXES.

Americans For Tax Reform
[[link removed]]
did a great breakdown of the bill and its effects. Here are the key
points:

* $6.5 Billion Natural Gas Tax Which Will Increase Household Energy
Bills
* $12 Billion Crude Oil Tax Which Will Increase Household Costs
* $1.2 Billion Coal Tax Which Will Increase Household Energy Bills
* Corporate Income Tax Hike on U.S. Businesses Which Will Be Passed
on to Households
* $124 Billion Stock Tax Which Will Hit Your Nest Egg — 401(k)s,
IRAs, and Pension Plans
* 95% Federal Excise Tax on American Pharmaceutical Manufacturers
* $52 Billion Income Tax Hike on Mid-Sized & Family Businesses
* Add 87K IRS Agents, Supersizing the IRS to Increase Audits – $124
Billion

One of the key things is that it hurts many investors and people when
they retire. Under the new law, Democrats will levy a new federal
excise tax on Americans who decide to sell shares of stock back to a
firm, lowering household savings’ value. Any person with a 401(k),
IRA, or pension plan will have their retirement funds harmed by tax
increases and restrictions on company buybacks.

THE BOTTOM LINE IS THAT IT WILL RESULT IN MORE GOVERNMENT SPENDING,
which will lead to more inflation. This is exactly the opposite of the
title of the bill. There may be some opportunities for investors to
buy stocks related to this bill in green energy.

SOCIALIST PRICE-FIXING BILL

The Democratic Socialists of America-backed Rep. Jamaal Bowman (D-NY)
plans to submit the “Emergency Price Stabilization Act,” which
would grant the White House authority to regulate the cost of rent and
housing, food, energy, and healthcare. 

The federal government must “move swiftly to safeguard individuals
from the kinds of price shocks we are witnessing now,” according to
Bowman, who also claims that the measure is a first step in
“redesigning our economy.” “We need a revolution in
governance,” Bowman continued.

CHINA TAIWAN TENSIONS

While Taiwan’s president rejected Beijing’s proposal for
reunification, China’s military continued to surround Taiwan. China
declared that its training exercises were complete but did not signal
the end of its war games in the waters off Taiwan.

According to state-run media in China, the People’s Liberation Army
(PLA) would continue its routine patrols of the Taiwanese territory.
The presence of the PLA around Taiwan has not decreased, according to
Taiwan’s President Tsai Ing-wen, who also stated that Taiwan rejects
China’s offer of the “one nation, two systems” concept put forth
by Beijing in a white paper released on Wednesday.

KEY EVENTS & CALENDAR

* Tuesday, August 16 – Building Permits (July)
* Wednesday, August 17 – Retail Sales (MoM) (July)
* Fed Notes
* China Taiwan Tensions

The United States July retail sales are anticipated to be the primary
figure for the upcoming week on Wednesday. Next week, the NAHB Housing
Market Index, building permits, housing starts, and existing home
sales will all be released, along with Home Depot (HD) and Lowe’s
(LOW) earnings reports, giving investors a clear picture of the state
of the housing market (LOW).

Along with a significant investor event for FuboTV, the calendar also
features earnings reports from Target (TGT), Walmart (WMT), and
Macy’s (M) (NYSE: FUBO).

The intensive scrutiny of inflation and interest rates will remain in
the meantime. The minutes of the most recent meeting are expected to
be released by the Federal Reserve on August 17. While the
deceleration in inflation adds some intrigue, the expectation is that
they will only confirm that members are committed to fighting
inflation and that the subsequent negative surprise in CPI may not
change the plan.

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