"Just one more thing."

-- Lt. Columbo

Citigroup (C) , for the second consecutive week, was my "Trade of the Week."

The shares had an excellent week and day ( +$2.30/share or almost +4% in today's trading session).

Here was my write-up from Tuesday morning:

Feb 16, 2021 ' 07:20 AM EST DOUG KASS

Trade of the Week - Buy Citigroup (Again!)

Last week's "Trade of the Week" was Citigroup (C) which rallied a bit during the five trading sessions.

I am back with the same stock this week as it is growing abundantly clear that bonds are breaking down in price and rising in yield.

C remains one of my favorite bank stocks.

Banks now face a virtuous cycle of rising rates, market share gains as non U.S. banks falter, climbing net interest margins and incomes, better credit demand and a likely release of the extraordinary elevated loan loss provisions taken during the spread of Covid-19.

From Credit Suisse this morning:

Citigroup Inc.

What is C Discounting? One Step Back or Two Steps Forward on the Path to Improved Returns

Rating: Maintain Outperform

Target Price (USD): $78.00

Jane Fraser is set to become CEO of Citigroup on March 1st. She takes the reins of the bank with a much strengthened balance sheet, but returns that lag peers and a consent order. Therein lies investors' frustration and Jane's challenge. A "strategy refresh" is underway; we expect it to lead to investments (transformation efforts and otherwise) and divestitures ("simplification has value") alongside an intense focus on execution as the means to drive returns i.e., ROTE, into the teens, over the medium to longer term. Though management is not expected to detail its plan or financial targets for several months, we expect actions along the way to signal the path. Consider the creation of Citi Global Wealth (CGW) as a starting point... efficiency to be realized by combining operations across the bank, strategic import underscored, and perhaps a redefinition of what's core in consumer banking. Suffice it to say, we expect a fair bit of change and a renewed sense of urgency; that coupled with valuation, balance sheet strength and prospects for economic recovery support our continued recommendation.

• On the path to improved returns... one step back or two steps forward? Our 2022 estimate translates to a ~10% ROTE, lagging best in class peers (Bank of America and JPMorgan are expected to generate 14-16% ROTEs in 2022); the shares lag even more. Trading at a discount to book, with what we believe to be ample confidence in balance sheet strength, Citi's shares would appear to doubt the achievability of that 10% ROTE; the latter tied to concern that the next leg of the Citi story will require increased investment and strategic actions that come with a higher cost-expense and/or earnings dilution, beyond what's embedded in current estimates.
• Herein we evaluate EPS and ROTE sensitivity to divestitures and investment. Our analysis of potential divestitures starts with the Asia Consumer Bank, envisioning that less profitable consumer markets follow the path of the Latin America business under the leadership of Jane Fraser, with Asia's core wealth franchise moved into Citi Global Wealth.
• Our estimates and $78 target price are unchanged.

Thanks for providing me with this platform and taking the journey with me today and all week.

I hope I was value added to your decision-making process.

Enjoy the weekend.

Be safe.

I end the week at the highest net short exposure in quite a while.

I am seeing multiple large and plain vanilla buyers from my institutional trading contacts.

* Facebook's shares are trading down by -$7/share today

* I have added to my short

I have already traded Facebook FB on the short side twice this year.  

Two weeks ago I reestablished my FB short and I have added throughout the last few days. 

I added again to my short today. 

Here is my investment short thesis: 

Feb 05, 2021 ' 08:12 AM EST DOUG KASS

Apple's New Privacy Policy Is Likely a Near Term Threat to Facebook

* I recently made a successful short trade in Facebook - covering for a profit

* I am back shorting again

Ahead of a future IOS upgrade, Apple's (AAPL) new privacy policy will likely have a meaningful impact on Facebook (FB) by requiring users to give their permission for apps to collect data about them.

Specifically, Apple will be adopting an "app tracking transparency" initiative which will allow the consumer to block companies and apps like Facebook to track their digital activity across other companies apps and websites. (See prompt above that will be seen by Apple users when an app asks permission to track your data.)

In support of this policy Apple made the following statement:

"We believe that this is a simple matter of standing up for our users. Users should know when their data is being collected and shared across other apps and websites - and they should have the choice to allow that or not. App Tracking Transparency in iOS 14 does not require Facebook to change its approach to tracking users and creating targeted advertising, it simply requires they give users a choice."

Obviously this has the potential for adversely impacting Facebook's advertising business.

Indeed, Facebook has take out full-page newspaper ads attacking Apple, claiming that the changes will "limit businesses" ability to run personalized ads and reach their customers effectively".

This fundamental change in privacy is a potential threat to Facebook's business and share price.

The recent share price rise in FB has provided short sellers another opportunity to reload on the short side - which I have.

* A continuing portfolio theme I am positioned for

The yield on the 10 year US note is +7 basis points to 1.357% today.

Though the markets, for now are non plussed, I expect we are getting to levels that will adversely impact equities. 

Bank stocks are looking better and better.

I have recently noted that Tesla's (TSLA) fundamentals are deteriorating and that they are cutting prices further. 

Here is a more positive and nuanced view of Tesla's fundies... 

My reaction? 

There is no such thing as "nuance" from a member of the Tesla cult. 

Steel and lithium prices are up huge (year over year) and the speaker is saying that the company is cutting prices because of "the mission." 

In fact, Tesla is selling far fewer cars than their stated production capacity. 

Any company whose "mission" is to sell its products for no profit is a great short anyway, so if that is "the mission"... 

From Mark Spiegel:

I have just taken a medium-sized short position in the Russell Index ETF (IWM) at $225.70.

In my view, the Russell Index has a plethora of overvalued stocks relative to the senior averages (which I am also short of).

Positives

1) Thanks in part to the late December passage of another fiscal spending plan where unemployment benefits were extended and juiced by $300 and some income earners got another $600, retail sales jumped 6% m/o/m in the 'control group' in January after a 2.4% decline in December and .9% drop in November. 

2) The February NY manufacturing index rose to 12.1 from 3.5 and that was twice the estimate. Prices paid jumped to 57.8 from 45.5 and that is the most since May 2011. Prices received rose 8 pts to 23.4, also the highest since May 2011. Looking out to the next 6 months, business activity confidence rose to 3 pts to 34.9 after dropping by 4.4 pts last month. The six month average is 35. Positively, capital spending plans for both plant/equipment and technology improved sharply. Expectations for inflation, both prices paid and received jumped as well. 

3) The February Philly manufacturing index fell slightly to 23.1 from 26.5 but that was still above the estimate of 20. With respect to pricing, prices paid rose 9 pts to 54.4, the highest since August 2018 but those received gave back the 20 pt launch in January. With respect to the 6 month outlook, business activity expectations fell to 39.5 from 52.8 and that is below the 6 month average of 48.7. Expectations for prices paid and received rose while capital spending fell by 10 pts after rising by almost 12 pts last month. 

4) The February Markit US manufacturing and services composite index rose a hair to 58.8 from 58.7 with services higher by .6 pts to 58.9 and manufacturing down by .7 pts to 58.5. Here was the inflation commentary: "Input costs across manufacturing and services soared higher as demand outstripped supply, rising at by far the steepest rate since comparable data were first available in 2009. Service providers registered the steepest increase in cost burdens since October 2009, while manufacturers recorded the quickest rise since April 2011. As a result, firms raised their selling prices at the sharpest rate on record (since October 2009), with panelists stating the increase was due to the partial pass through of greater costs to clients." 

5) The NAHB home builder survey for February was 84, up 1 pt from January and 1 pt better than the consensus. As 50 is the breakeven between expansion and contraction, builders are very enthusiastic in response to a desperate need in the industry for more supply, particularly on the lower end. The internals however were more mixed as the Present Situation was unchanged but at a still VERY high 90 while the Expectations component fell 3 pts to 80, high but the lowest since August. Prospective Buyers Traffic rose 4 pts m/o/m after dropping by 5 last month. Concerns with record high lumber prices were expressed. 

6) Permits were higher for both single family and permits in January. For the former they grew by 46k m/o/m to 1.27mm. Multi family permits jumped to 612k from 481k. 

7) U.S. industrial production in January rose by .9% m/o/m, 5 tenths more than expected but partially offset by a 3 tenths downward revision to the increase seen in December. The manufacturing component was higher by 1% m/o/m, 3 tenths more than forecasted. Capacity utilization rose to 75.6% from 74.9% thanks to a rise in tech (computers, semis) and mining. 

8) The Cass Freight shipments index jumped 8.6% y/o/y and expenditures rose at a 19.5% y/o/y pace. "Freight rate increases accelerated in January at the fastest pace since 2009-2011, with the exception of a few months in late 2018. As these higher volumes meet rising contract rates, it is clear that this index is headed for growth rates over the next several months not seen since 2010-2011." 

9) Japan said its February manufacturing and services PMI rose to 47.6 from 47.1, with manufacturing getting back above 50 at 50.6. Services though, because of the selective shutdowns, fell to 45.8 from 46.1. The vaccine gives hope and why "Businesses were optimistic that business conditions would improve in the coming 12 months." 

10) Japan said its machinery orders figure for December, a good proxy on cap ex, rose 5.2% m/o/m, well better than the estimate of down 6.1% 

11) Benefiting from the economic rebound in China and most of Asia, along with an incredible containment of Covid, and the rise in commodity prices, particularly in iron ore, Australia reported an increase of 29.1k jobs in January, in line with expectations. Also, the unemployment rate fell two tenths to 6.4%. 

12) Non oil exports in Singapore jumped 12.8% y/o/y in January, well above the estimate of up 5.2%. Also there was a bump up to China ahead of their holiday and easy comps to China as they shut down last January. The shipments of chemicals and electronics led the way while pharma exports were little changed. 

13) The February Eurozone manufacturing and services PMI rose a touch to 48.1 from 47.8 with weakness in services thanks to Covid offset by strength in manufacturing which is a global thing. On inflation Markit said, "One concern is the further intensification of supply shortages, which have pushed raw material prices higher. Supply delays have risen to near record levels, leading to near decade high producer input cost inflation. At the moment, weak consumer demand, notably for services, is limiting overall price pressures, but it seems likely that inflation will pick up in coming months." 

14) The UK saw a nice snapback in its composite index with services jumping to 49.7 from 39.5 as they are doing a great job rolling out the shots. Manufacturing was 54.9 vs. 54.1. Similar wording as written for the Eurozone was stated for the UK on price pressures. 

15) The German ZEW February expectations index on the economy rose to 71.2 from 61.8 and that was above the estimate of 59.5 as investors look past the current selective shutdowns and to the vaccine rollout instead. According to the ZEW, "Consumption and retail trade in particular are expected to recover significantly, accompanied by higher inflation expectations." As for the current situation, it still remains challenged as this component fell to -67.2 from -66.4. 

Negatives

1) The Fed's balance sheet exploded higher this week by $115 billion to a fresh record high of $7.56 Trillion. A lot of the increase was another jump higher in MBS holdings. 

2) Initial jobless claims totaled 861k, well above the estimate of 773k, and up from 848k last week which was revised from 793k. The 4 week average fell by 4k to 833k. Those receiving PUA jumped to 516k from 342k. Continuing claims, delayed by a week, fell to 4.49mm from 4.56mm in the week prior. The estimate was 4.43mm. Delayed by two weeks, those continuing to claim PUA fell 258k after rising by 725k in the week before. Those still receiving emergency assistance fell by 718k but after rising by 1.17mm in the week prior. 

3) U.S. wholesale inflation spiked in January with a 1.3% headline m/o/m increase, well more than the 4 tenths rise and the core rate was up by 1.2% m/o/m vs. the estimate of up 2 tenths. Versus last year, prices grew by 1.7% headline and 2% core, and this is BEFORE the base effect jumps we are going to see in the next few months. 

4) Housing starts in January totaled 1.58mm, down 100k from December and below the estimate of 1.66mm. All of the decline and then some was in the single family category where they fell to 1.16mm from 1.32mm. That's a 4 month low and likely in response to the issues that builders are facing with high lumber prices and finding labor. Multi family starts rose to the highest since July at 418k from 357k last month. 

5) While the average 30 yr mortgage rate is still very low at 2.98%, that is the highest since mid November, coincident with the rise in the 10 yr yield and it did lead to a decline in purchases and refi's. Purchases have fallen for the 3rd week in 4 which the uptick in mortgage rates joins almost double digit price increases. The y/o/y increase though was still almost 15%. Refi's fell 4.7% w/o/w but are higher by 51% y/o/y. 

6) If we include the downward revision to December, January existing home sales were a touch light relative to expectations. Totaling 6.69mm, the level compares with 6.65mm in the month prior (revised from 6.76mm) and just off the highest level since 2006. There is still so little supply as months' supply remained at just 1.9 BUT this time of the year they always fall. First time buyers totaled 33% of purchases vs. 31% in the month prior and the same level as one year ago. The NAR said, "We have to get more inventory." The median home price rose 14.1% y/o/y but figure the average price is rising at an 8%-10% pace. Still well above the rate of inflation and the Fed should be acknowledging this as the benefits of low mortgage rates no longer an offset. 

7) Thanks to the weaker dollar and the general rise in prices on a variety of goods and commodities, import prices jumped 1.4% in January m/o/m from 1%. The estimate was 1%. Ex petro, import prices rose .9% m/o/m, more than double the estimate of up .4%. They are now up 2.6% y/o/y ex petro, the biggest increase since December 2011. The gain was driven by industrial supplies and food/beverage price spikes. Petro prices rose 8.3% m/o/m. 

8) Japan said its January CPI core/core rate went from -.4% y/o/y to +.1% y/o/y. The estimate was zero. The headline rate fell .6% y/o/y but with what's happening with food and energy prices, this will invert higher in coming months. 

9) Japan reported trade data that was somewhat below expectations. Exports in January rose 6.4% y/o/y vs the 6.8% expected gain. Ahead of the Chinese Lunar New Yr, exports to China jumped by 37.5% y/o/y, while exports to the U.S. declined by 4.8% and by 1.6% to the EU. Imports fell by 9.5% y/o/y vs the forecast of down 5.5%. 

10) In Australia, its PMI fell to 54.4 from 55.9 with both components falling. 

11) In Germany, its PPI jumped 1.4% m/o/m in January, 5 tenths more than expected and higher by .9% y/o/y, 6 tenths above the estimate. 

12) UK January CPI rose .7% y/o/y, one tenth more than expected and up one tenth from December. The core rate held at 1.4%, one tenth above the estimate. Wholesale prices surprised to the upside. 

13) Sweden said CPI in January rose 1.6% y/o/y from .5% in December. The core rate was higher by 1.8% y/o/y from 1.2% in the month prior. 

14) As for the pile of debt that a rise in rates would impact, the Institute of International Finance this week said global debt in 2020 went to $281 trillion, up $24 trillion to a fresh record high. That is 355% of global GDP. About half the debt increase was from government and the other half from the private sector (both business and households).

* I added to my (SPY) short.

* I added to my speculative stock basket short.

* I added to my Tesla (TSLA) short.

Scott Galloway's weekly No Mercy No Malicecommentary.

Obviously, I continue to have damn computer problems.

Notwithstanding the announced increase a few weeks ago of more QE, the Aussie 10 yr yield continues higher. Last Friday it closed at 1.22%. Today it closed at 1.43%, up 6.6 bps on the day. So while the RBA wants to keep short rates at zero and hoped that QE would contain long rates, the market spoke louder and just tightened policy by almost 25 bps this week. That is going to be the story elsewhere, particularly in the US where if the market believes the Fed is making a mistake by keeping rates at zero for too long, the long end will respond and it has.

The German 30 yr yield as of this writing stands at .18% vs .08% one week ago. The 10 yr is at -.33% vs -.43% last Friday. The 10 yr gilt yield is higher by 12 bps on the week at .64%. The Japanese 10 yr yield closed at the highest since November 2018.

Yes, we are seeing higher commodity prices and inflationary pressures intensifying but bond markets also see that these vaccines work and however slow and uneven the rollout has been so far in many places, the inoculation is taking place. What's gone on in Israel is a great example of what we have to look forward to where a growing portion of the population has gotten shots. In the next few months in the US, the Covid numbers will collapse.

The actions of the Federal Reserve seem to reflect a committee that doesn't believe in vaccines as their balance sheet exploded higher this week by $115b to a fresh record high of $7.56 Trillion. A lot of the increase was another jump higher in MBS holdings. Annual home price increases of 10% is not enough to get them to stop. Lumber prices over $1000 is not enough to get them to stop.

As for the fiscal side, Sara Eisen's excellent interview with Janet Yellen on CNBC had the Treasury Secretary echo her desire to 'go big' with spending and which possibly will be followed by more in the form of infrastructure and other 'investments' thereafter. In a question on taxes and when they might go higher, Yellen said it is something they will be discussing in the latter part of the year to pay for these 'investments' but it was unclear whether this would be passed in 2021 or 2022. Either way, they are coming.

It is that reiteration of more aggressive spending that has the US dollar index back below its 50 day moving average and testing that 90 level again.

Japan said its February manufacturing and services PMI rose to 47.6 from 47.1 with manufacturing getting back above 50 at 50.6. Services though, because of the selective shutdowns, fell to 45.8 from 46.1. The vaccine gives hope and why "Businesses were optimistic that business conditions would improve in the coming 12 months."

Japan also reported its January CPI and the core/core rate went from -.4% y/o/y to +.1% y/o/y. The estimate was zero. The headline rate fell .6% y/o/y but with what's happening with food and energy prices, this will invert higher in coming months. The Japanese 10 yr inflation breakeven rose 1.6 bps to the highest level since December 2019 at a still low .17%. JGB yields continued higher with the 10 yr yield back above .10% at almost .11%, up 1.2 bps. The Japanese 40 yr yield was higher by a like amount to .735%.

In Australia, its PMI fell to 54.4 from 55.9 with both components falling.

The February Eurozone manufacturing and services PMI rose a touch to 48.1 from 47.8 with weakness in services thanks to covid offset by strength in manufacturing which is a global thing. On inflation Markit said "One concern is the further intensification of supply shortages, which have pushed raw material prices higher. Supply delays have risen to near record levels, leading to near decade high producer input cost inflation. At the moment, weak consumer demand, notably for services, is limiting overall price pressures, but it seems likely that inflation will pick up in coming months."

The UK saw a nice snapback in its composite index with services jumping to 49.7 from 39.5 as they are doing a great job rolling out the shots. Manufacturing was 54.9 vs 54.1. Similar wording as written for the Eurozone was stated for the UK on price pressures.

We saw the US PPI spike in January this week, in Germany, its PPI jumped 1.4% m/o/m, 5 tenths more than expected and higher by .9% y/o/y, 6 tenths above the estimate.

* The new space race to Mars. 

* 12 things to remember when the market goes crazy. 

* Jobs and the gig economy. 

At least for the moment the bloom is a bit off the speculative corner of the markets. 

Traders and gamblers note that the declines below could come to a stock your trading: 

* Tilray (TLRY) has gone from $70 to $28.

* AMC (AMC) has declined from $22 to $5.

* GameStop (GME) has dropped from $480 to $40. 

The notion that the strategy of trading shiny objects du jour can provide sustained profits for many amateur and newly-printed traders remains suspect, in my view. It will always be an opportunity set for the small amount of facile traders who have a bona fide record of succeeding in that arena... and have a sense of when to get out! 

But that will not stop many from trying. 

Unfortunately the hit ratio of success is low for the masses trying to make an easy trading buck. 

There will be many records of wipe outs - though we will hear repeatedly, mostly by promoters, of the enormous wins. 

And it will not stop me from trying to short them and to capitalize on the repeated and historical idiocy of trading stocks solely based on price action and not on fundamentals. 

Warren Buffettt's phrase, "price is what you pay, value is what you get," seems especially relevant these days. 

I am maintaining a short spec package of gewgaws - and I continue, as I always do, to trade around those volatile positions. As noted a week ago, already some of those trades have recorded 40%-45% gains in brief timeframes. 

Bottom Line

I feel the same about short selling and trading uber speculative stocks - most will fail and most should not play either game as it's too tough, requiring a degree of discipline which is anathema to most amateurs. 

TGIF!

* Resilient overnight action

"Workin' on our night moves
Trying to lose the awkward teenage blues
Workin' on our night moves
In the summertime
And oh the wonder
Felt the lightning
And we waited on the thunder
Waited on the thunder."
- Bob Seger, "Night Moves"

While not as dramatic as the prior evening, stock futures were volatile Thursday night.

Down about 16 handles when I went to sleep, S&P futures have been resilient and are 8 handles higher at 6:30 a.m. ET.

Nasdaq futures were also lower (by about 50 handles) at around 9 p.m. Thursday and are now up 40 handles.

Our computer system remains down in my office; I am trying to work around it somewhere else, but for sure posts will be less frequent and shorter until we get resolution.

Thanks.

The worst year in bond history?

Danielle DiMartino Booth on the longer runway for an inflation scare:

• Core intermediate good PPI inflation was up 3.7% YoY in January, exceeding the 1.7% read on core finished PPI inflation by two points; this is the widest spread since 2018, when trade war fears sparked a jump in inflation expectations and a stockpiling impulse from businesses
• Ex-auto import inflation is only up 0.1% YoY, but this departs from a 17-month deflationary period from March 2019 to July 2020; meanwhile, internally sourced core consumer finished goods PPI inflation has shifted from the low-1% range last year to January's 2.0% YoY pace
• Used cars and trucks accounted for 1.2% of the core consumer goods CPI inflation's 1.7% YoY gain in January, with Manheim reporting values up 15.1% compared to a year ago; the remaining core consumer goods trend of 0.5%, a 17-month high, is where the risk lies

Beware of fake movie news. Rotten Tomatoes' rated 1978's Animal House at 90% and 2003's Old School at 60%, a 30-point spread. Delta Tau Chi house wins hands down, right? Well, not according to the audience which scored a much closer three-point differential with Animal House at 89% and Old School at 86%, not near the decisive victory for the boys on double secret probation. Who's right, the experts or the masses? Roll the statistics. Profit measured by domestic box office to production budget saw Animal House ($142 million to $3 million), well ahead of Old School ($75 million to $24 million). Things tilted the same way for worldwide box office ($142 million to $87 million). And our favorite normalizer, inflation adjusted domestic box office, had Faber College ($554 million) beating Harrison University ($114 million) like Secretariat winning the 1973 Belmont Stakes by 31 lengths.

For us at QI, members of the MTV generation we are, Animal House was a rite of passage growing up. It holds a special place in our hearts and our minds. "Was it over when the Germans bombed Pearl Harbor? Hell, no! [Germans. Forget it, he's rolling...]" But today we're going old school with our deep dive into the U.S. Producer Price Index (PPI).

There was a time when the PPI was a more integral input into crafting monetary policy. Take a trip back with us to the 1990s when then Fed Chair Greenspan would refer to resource utilization as an important guidepost for the inflation outlook. This was anchored in labor metrics such as unemployment and to industrial measures like capacity utilization. Higher factory operating rates were consistent with higher PPI inflation and vice versa.

Fed watchers would peer up the production pipeline and gauge price pressures for intermediate goods and finished goods to judge the forward view for the funds rate and the broader term structure. However, after China entered the World Trade Organization in 2001 and globalization took over the industrial supply chain, the PPI that measures domestic pricing only shrank in importance. Structural changes in the economy also generated a PPI revamp by the Bureau of Labor Statistics (BLS) to reflect a wider view of business pricing to include services, not just goods prices.

As legacy, the BLS still publishes the old-school "stage-of-processing" data series. We are thankful they do. A quick perusal of core intermediate good PPI inflation and core finished good PPI inflation revealed the former (3.7% year-over-year) exceeding the latter (1.7%) by two percentage points in January. It was the widest spread since late 2018 when tariff and trade war fears caused a jump in real-world inflation expectations and a large stockpiling impulse by businesses. We call that spread our Pipeline Pressure Indicator.

Until the last several years, this metric was a spotty guide for the annual oscillation in U.S. 10-year yields (left chart). Since the middle of 2016, the correlation between the Pipeline Pressure Indicator and the year-over-year path for 10s is a cool .91.

Domestic pipeline pressures have been and should continue to be a bigger factor in the rate discussion for long duration bonds. Significant supply chain tightening, especially in the U.S. and across the European continent, suggests the narrative could have staying power.

If an inflation scare is going to work its way from upstream to downstream channels to end buyers, how can we monitor the risk? The right chart takes a stab at it with four camera angles.

Products are procured from two places - outside or inside U.S. borders. Look externally first through the lens of import price inflation for consumer goods. Autos are excluded only because that's the way the BLS produces the series. The most recent year-over-year trend looks anything but threatening, clocking in at a 0.1% gain (yellow line). However, this departs from the 17-month deflationary period from March 2019 to July 2020. With the U.S. dollar depreciating since March 2020, a further shift away from imported deflation seems likely.

Gauging internally sourced pressures are illustrated by core consumer finished goods PPI inflation (green line). It has shifted decisively from the low-1% range in place from January (pre-COVID) to November last year to January's 2.0% annual pace.

With the boost from soaring used vehicle prices to satisfy the demand of urban outmigration, core consumer goods CPI inflation is already on the rise. Used cars and trucks accounted for 1.2 percentage points of January's 1.7% annual rate (red line). Industry leader Manheim continues to indicate a very tight market with values up 15.1% compared to a year ago. The remaining core consumer goods trend of 0.5%, a 17-month high, is where the risk lies.

The Cass Freight Price Index rounds out the picture. Encompassing all domestic cargo modes, freight inflation rose to an annual rate of 10.1% in January. The bulge isn't over yet. Freightos container costs bound from China to the U.S. West Coast are running at three times year-ago levels through the middle of February. The pressure is most acute through West Coast ports that are diverting traffic from Los Angeles/Long Beach north to Oakland or Seattle/Tacoma.

What's not old school and presents a wild card for supply chain pressure is the still-unfolding disaster in Texas. We expect the recovery effort to be like Hurricane Harvey on steroids, paving a longer runway for the inflation scare.