As predicted PPI was hot, CPI will be hotter

The PPI number came in hot.  I expect the CPI number tomorrow, Thursday, to come in blazing hot.  I keep looking for asymmetrical ways to express this view.  In other words, limited downside, significant upside.  The utility stocks are my preferred play although there may be a few others including long gold.

Producer prices increased 0.6% in April, up from a 0.5% increase in March. The consensus expected producer prices to increase 0.2%.  Ex-Fed Chairman Alan Greenspan said although he doesn’t see an imminent rise in prices, it’s a mistake to believe that inflation isn’t a threat. Greenspan spoke in Washington after the release of higher than expected PPI data. Greenspan said, “It came in as a big surprise… …Now, I’m not forecasting that inflation is about to run. I doubt it very much. But the presumption that it’s no longer on the horizon I think is a mistake.”

Greenspan continued, “I don’t know whether or not that is other than a blip, but if inflation is beginning to pick up, it’s got to start somewhere, and it usually starts the way we’re looking at.”

It seems incredulous to believe that there are no negative consequences to the unprecedented period of asset inflation and near zero interest rate policy the Fed has undertaken.   Anyone that has been around the block knows there is no free lunch.  If we could have elevated stock market prices and real estate values with low interest rates and no consequences, why haven’t we been doing that all along.  Of course there are consequences.  The most likely immediate one now is a pick up in inflation.  

I’m looking for ways to express this view.  Shorting utilities, (already up 10% this year), buying gold, and selling other interest rate sensitive instruments should work well in an inflationary environment.  I also like income producing real estate as rent roles should be able to be raised somewhat as the Fed is adamant rates should not be raised.

As they say, “we will see.”  One or two days doesn’t make a trend.  We closed out profitably our puts on the Vanguard Utility ETF but remain with all of our long dated puts on the XLU.