Owner’s Equivalent Rent Rises 0.6% In March

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In his podcast addressing the markets today, Louis Navellier offered the following commentary. 

If you wish to listen to this commentary, please click here

The Labor Department reported the CPI in March rose 0.1% and 5% during the past 12 months (down from a 6% annual pace in February).  The good newshttps://www.valuewalk.com/cpi-fireworks-told-you/ is the CPI is now running at the slowest annual pace in nearly two years (since May 2021). 

However, the core CPI, excluding food and energy, rose 0.4% in March and 5.6% in the past 12 months (up from a 5.5% annual pace in February).  Energy prices declined 3.5% in March, while food prices were unchanged. 

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Cracking Equivalent Rent

The real estate component, namely Owner’s Equivalent Rent, finally moderated and rose 0.6% in March, down from 0.8% in February.  In the past year, Owner’s Equivalent Rent has risen 8.2% and represents about one-third of the overall CPI. 

Interestingly, used vehicle prices declined 0.9% in March and have fallen 11.2% in the past 12 months.  Overall, the headline CPI was great, but the core rate remains stubbornly high, so until Owners' Equivalent Rent cracks, consumer inflation will persist.

The PPI contracted in February, so we want to see if that trend continues in March, plus it would help if wholesale service prices moderated.  Finally, we want to see if consumers were still spending in March, since after an explosive January, retail sales dipped in February. 

Ironically, due to a manufacturing recession, based on the ISM manufacturing survey for the past five months, the only way for the U.S. economy to grow is if consumer spending via retail rales remains strong.

NatGas Glut

Energy prices in the CPI fell 3.5% in March, and that was mostly due to low natural gas prices. Natural gas has everything to do with the weather. In the natural gas business, you want a freezing cold winter and a hot miserable summer because they use natural gas for electricity generation in the bigger plants in high metropolitan areas.

What's interesting is the West Coast has been colder than normal but New York has been warmer than normal. So natural gas prices fell and we have a glut. 

French Fried

The strikes in France have disrupted energy markets around the world.  Specifically, the work stoppages and blockades at key import terminals, distribution hubs and oil refineries have resulted in fuel shortages all over France.  Africa and the East Coast of the U.S. receive refined products from France, like gasoline, so prices at the pump are expected to rise. 

The French government has relied on its emergency stockpiles during recent strikes, but must also replenish its inventories, which is expected to put upward pressure on crude oil prices in the upcoming months.

French President Emmanuel Macron is getting diplomatic heat after saying that Europe should distance itself from the brewing tensions between China and the U.S. regarding Taiwan.  In the wake of massive Chinese military maneuvers this week, Macron’s comments were considered ill-timed by many diplomatic experts. 

In a Politico interview when Macron was asked if the confrontation between China and the U.S. made it see Europe as “a chess piece between two blocs,” Macron responded by saying “Is it in our interest to accelerate on the subject of Taiwan?  No. 

The worst thing would be to think that we Europeans must become followers on this topic and adapt to the American rhythm and Chinese overreaction.” 

Furthermore, Macron also warned of a “trap for Europe” if it got “caught up in a crisis that are not ours.” It is obvious that the U.S. is no longer respected in the world, so this rift between the Biden Administration and French President Macron may soon spill over to Ukraine, since France has been making recent overtures to its business interests in Russia.

China’s recent military exercises designed to intimidate Taiwan and the U.S. are interesting.  However, the easiest way for China to take over Taiwan is to merely influence the upcoming Taiwan Presidential election and to install a pro-China president. 

This is how China was able to take over Hong Kong via its pro-China mayor.  One thing that China is very patient and pragmatic.  China is very good at fighting economic wars and taking over industries. 

Since Taiwan dominates semiconductor manufacturing, China would like to dominate that industry as well, so it will be interesting if the U.S. can offshore enough semiconductor manufacturing in the upcoming years, since currently the U.S. and the rest of the world are dependent on Taiwan.

Coffee Beans: Giant Kong

The New York museum that houses the World Video Game Hall of Fame announced it is installing a 20-foot Donkey Kong arcade cabinet designed to be the largest in the world. The machine will be 370% larger than the original arcade cabinet but will be fully functional and available for guests to play. Source: UPI. See the full story here