It's Not Just Eggs

Higher-than-expected inflation is back... But why the market is shaking it off... On it goes... Today at the White House... A natural gas export bonanza... Europe needs it, too... A special invitation...

Inflation is running 'hot' (again)...

Another monthly read on inflation – the January producer price index ("PPI"), published this morning by Uncle Sam – told a familiar story: The pace of price increases was faster than Wall Street expectations.

Headline PPI – which measures prices paid by sellers, or businesses, and is seen as more of a leading indicator of inflation – rose by 0.4% in January and 3.5% year over year.

Combined with yesterday's consumer price index ("CPI") report for January – which measures prices paid by Main Street buyers – that showed a 0.5% leap for the month and a 3% year-over-year rise, the state of inflation to start 2025 is clear.

It's running hot, just like it was for much of the fourth quarter of 2024.

Now, you might have already known this without hearing about the "official" statistics.

Here's just one example: The Waffle House restaurant chain is now charging a surcharge for eggs because prices are so high (though that should hopefully be more of a temporary bird-flu-related measure than a sign of "sticky" inflation).

Egg prices are officially up 53% year over year, according to yesterday's CPI data. Today's PPI numbers point to further price jumps, showing a 44% increase for the month and a 186.4% gain from a year ago.

But prices are up for a lot of things.

It's not just eggs...

As recent Stansberry Investor Hour guest Lawrence McDonald noted on social media yesterday, in the CPI report, "transportation" costs – which include auto insurance – were a "big culprit" for the rise, showing a 1.4% gain just for the month. Used-car prices were up 2.2% on average, versus 0.8% in December 2024. Meat is up 3.2% year over year.

You can similarly pick out price spikes from today's PPI report. A category called "traveler-accommodation services" – Bureau of Labor Statistics-speak for hotels, resorts, and vacation rentals – jumped by 5.7% for the month, and diesel fuel rose by more than 10%.

However, the market shook off today's report...

Forget the hot numbers on the surface, and forget what real people are seeing every day when they buy things. For investors, these same numbers suggest a better-than-expected reading for the inflation metric that the Federal Reserve cares most about.

According to analysts from Citigroup, when you put this week's CPI and PPI data together, it shows that the "core" personal consumption expenditures ("PCE") index – the Fed's inflation benchmark – should "only" measure a 0.22% gain. That would push the annual inflation rate down to 2.5% from the 2.8% it has measured since October.

This is because financial and health care services – which play a big role in PCE – saw price decreases in January.

So this week's pair of inflation readings for January might not delay further interest-rate cuts, or rattle current expectations, as much as it might appear.

Wall Street "reading the tea leaves" like this might make you want to smack your head against a table... Then you'll do it again when you hear the Fed speak...

Yesterday, for instance, we said that Fed Chair Jerome Powell brushed off that day's CPI report during congressional testimony, reiterating that the central bank prefers to gauge inflation through core PCE. Powell said yesterday...

The people who follow us closely know this: that we'll know actually what the PCE readings are late tomorrow.

Put this all together and I suspect this is why, despite another "hot" inflation report today, Mr. Market actually reacted positively to the news. The prevailing thought is that the Fed is still on a path to lower interest rates and juice the economy some more in 2025.

The major U.S. stock indexes opened higher and finished up across the board. The tech-heavy Nasdaq Composite Index led, up about 1.5%, and the benchmark S&P 500 Index, Russell 2000 Index, and Dow Jones Industrial Average each gained about 1%.

On it goes...

Meanwhile, at the White House today...

India's Prime Minister Narendra Modi visited for a meeting with President Donald Trump, and the pair held a joint news conference.

Heading into it, mainstream media reported Modi was said to be seeking to "avoid tension" over trade and illegal immigration... while Trump had just announced plans for a blanket "reciprocal" tariff policy on all trading partners.

Reading those tea leaves and going beyond the headlines, at the heart of this meeting was a new trade deal involving American energy...

Up for discussion was one of Trump's campaign promises that has been front and center in the first few weeks of his administration: reducing America's trade deficit with the rest of the world...

Tariffs have gotten most of the headlines, but there's another big spoke to this wheel: the straight-up exporting of America's assets. As our Commodity Supercycles team wrote in their latest issue on Monday, that's where the energy industry comes in...

When he first won the White House in 2016, the U.S. trade deficit with the rest of the world was $502.3 billion.

That meant the U.S. bought $502.3 billion more from other countries than it sold to them.

In 2024, the U.S. trade deficit hit a record $918 billion. That's a near-doubling of the trade deficit in just eight years.

One way to reduce the deficit is to bring manufacturing back to America's shores. Tariffs on China, for example, are aimed at making it more economical for carmakers and chip manufacturers to set up shop in the U.S. instead.

Apart from imposing tariffs on countries like China, Canada, and Mexico, he also sees booming energy exports as a way to claw out of this trade deficit hole.

That's because America now produces far more oil and natural gas (a byproduct of crude-oil drilling) than we need. In 2017, at the beginning of Trump's first term, the U.S. became a net exporter of natural gas in the form of LNG, or liquefied natural gas. As our team wrote...

The U.S. exported 7.6 trillion cubic feet of LNG worth $34.3 billion in 2023. But the growth stalled in 2024, as former President Joe Biden imposed a ban on new export licenses.

The tone has now changed, to say the least. Soon after he was inaugurated, Trump lifted the ban on approving LNG-export facilities.

The U.S. is ready to supply natural gas...

One of Trump's first actions in office was the Unleashing American Energy executive order. Going alongside his "drill, baby, drill" rallying cry, Trump wants to remove regulations on energy companies to boost oil and gas production.

India is a huge market, too, and is a motivated buyer. Prior to today's White House meeting, Indian state-owned energy company GAIL had said it would look to lock up a long-term supply of U.S. LNG with the ban out of the way.

More from the Commodity Supercycles team...

India is the world's fastest-growing major economy. It's undergoing growth similar to what China experienced in the early 2000s.

Natural gas consumption is seen tripling in India by 2050 compared with 2022 levels. That's more than double the average rate of growth in global demand.

We'll have to wait and see if "drill, baby, drill" turns into a boom for domestic energy production. But Trump's energy policies are having a more immediate impact on energy exports.

Last week, Trump welcomed Japanese Prime Minister Shigeru Ishiba to the White House. Trump said Japan and the U.S. are working on a joint venture linked to Alaska oil and gas and that "we've opened the sale of LNG immediately... Japan in particular, we're very happy they're going to start immediately."

Europe needs more gas, too...

Once again, there's a shortage of gas in Europe. In a recent interview, Helge Haugane, senior vice president for gas and power at European natural gas giant Equinor, said European natural gas reserves could be only 30% full by the end of this winter.

That would mean Europe needs an additional 15 to 18 million metric tons of imported natural gas, Haugane added. According to Standard & Poor's, Europe imported about 100 million metric tons of LNG in 2024.

So Equinor is calling for anywhere between a 15% to 18% increase in European gas imports to refill the continent's stockpiles.

And when Equinor says something, folks better listen. It's the largest natural gas producer in Norway, making up 30% of Europe's total gas market. So this company has a great feel for what's going on in the energy market.

In the February issue of Stansberry's Investment Advisory, editor Whitney Tilson noted that Europe itself has very little natural gas supply. Whitney isn't the only one keeping an eye on the European natural gas market.

As this chart from the Commodity Supercycles team shows, the U.S. is already the leading exporter of LNG to Europe, for example (the trend took off at the start of the Ukraine war as European nations soured on Russian supply)...

The U.S. has more than tripled its natural gas imports to Europe since 2021 and diminished Russia's share. The Commodity Supercycles team explained the impact of the Ukraine war in their most recent issue...

Meanwhile, in Europe and Asia, Russia's role as a stable supplier of natural gas has been permanently damaged by its war on Ukraine. From a prewar 45% share of Europe's total natural gas supplies, Russia accounted for just 18% last year.

Even with Trump pushing for a quick end to the war in Ukraine, the conflict has already exposed the issues in Europe's energy supply chain. A resolution won't mean Russia goes right back to being the largest natural gas supplier in Europe.

The U.S. has already stepped in, and the trend will continue.

The Commodity Supercycles team just recommended "one of the best-positioned companies in the energy industry" to take advantage of this trend. Subscribers and Alliance members can read the team's full write-up and see the recommendation here.

Lastly today, a special invitation...

We've all learned great, timeless investing lessons over the years in annual or quarterly letters from folks like Warren Buffett, Howard Marks, and others who are willing to publicly share investing wisdom beyond the required run-of-the-mill reporting of their businesses' financials... or tell you in plain English what they're thinking about the markets.

Longtime readers know we always look forward to the Saturday in late winter or early spring when Buffett publishes the annual letter for Berkshire Hathaway (BRK-B). We're about due for the 2024 version soon...

But Berkshire is a publicly traded company. Many other market gurus operate private funds and keep their shareholder letters under lock and key... passed around between those with friends in high places. After all, that's one of the perks of getting your money in with an elite wealth manager.

Well, one of these letters recently came across my desk, and I want to share it with you.

It's from Austin Root, the chief investment officer at Stansberry Asset Management ("SAM"). SAM is an SEC-registered investment advisory firm, which is separate from our Stansberry Research publishing business but uses our research, plus other sources, to help manage individual clients' portfolios.

While the letter is intended for SAM's clients only, the firm gave us permission to pass it along...

In it, Austin reflects on the biggest investing lessons of 2024 and shares his outlook for 2025 – including where the markets may be headed and how SAM is positioning for the opportunities and challenges ahead.

You can click here to read the full letter... You'll also see how to get more information about SAM and what it's like to have a full-service wealth manager.

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In today's mailbag, feedback on yesterday's edition, seemingly preempting today's edition... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.

"I, along with many other people I know, have NO faith in any numbers on inflation, PPI, Jobs/employment, PCE, etc., that come from the government..." – Subscriber Greg C.

"It is interesting that prior to the election the Fed got giddy about lowering rates but once the election was over, they suddenly become less giddy. Maybe it's the numbers, maybe something else." – Subscriber Phillip B.

All the best,

Corey McLaughlin and Nick Koziol
Baltimore, Maryland
February 13, 2025

Disclosure: Stansberry Asset Management ("SAM") is a Registered Investment Adviser with the United States Securities and Exchange Commission. File number: 801-107061. Such registration does not imply any level of skill or training. Under no circumstances should this report or any information herein be construed as investment advice, or as an offer to sell or the solicitation of an offer to buy any securities or other financial instruments. For more information on SAM, please visit here.

Stansberry & Associates Investment Research, LLC ("Stansberry Research") is not a current client or investor of SAM. SAM provides cash compensation to Stansberry Research for Stansberry Research's advisory client solicitation services for the benefit of SAM. Material conflicts of interest may exist due to Stansberry Research's economic interest in soliciting clients for SAM. Certain Stansberry Research personnel may also have limited rights and interests relating to one or more parent entities of SAM.

For important information about Stansberry Research's relationship with SAM, click here.

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