CPI, Tight Credit, CRE and Software
Don’t expect CPI to fall off of a cliff tomorrow when numbers are released at 8:30am ET. Price increases are slowing or turning negative depending upon the CPI category. However, we expect for Owners’ Equivalent Rent to continue to increase and therefore expect for Core CPI to remain at or above 4.0%.
Core CPI: Core CPI will provide the Fed with a narrative for the Fed to raise its Fed Funds rate in December if it so chooses. The advantage to doing so would be that when the Fed ultimately does change course, it will not have to cut its Fed Funds rate quite as much. Make no mistake, interest rates have to go lower given the Treasury’s $34 Trillion debt bomb.
Tight Credit: So long as yields along the curve remain elevated, banks will continue to be tight with credit, thereby shrinking the money supply and the economy. CRE will feel the tightening most severely (Remember when WeWork labeled itself “PropTech” to help justify its outlandish private company valuation? Laughable it was).
Cash Flow-Rich Software Companies: When credit is tight, cash flow-rich Software companies are perhaps the most resilient of all companies across any sector.
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