Thursday is CPI day.

Just note that it will likely be “somewhat pivotal”.

We’ve had a good run of benign inflation month on month prints. Markets have responded. The Fed hasn’t pushed back “too hard” on the loosening of financial conditions.

But, we are only one bad print away from snapping right back to the lows. It is one of those weird moments where the trend line can go from being “of course it is going down” to “how could you think it was going down” depending on where it lands. We all practice eyeball econometrics.

And if that print is “bad”, meaning higher inflation, persistent inflation, then the Fed members will all come out and say “see, that’s why we want to keep tighter policy, for longer”, and the two together (the data, and the verbage) will see markets back to their lows.

We are 60% in the benign camp (maybe even a touch higher, but what value does saying 62-63% add, really, at the margin), where benign really just means “soft landing”, and 40% in the harder landing camp. So, we tip a good print, but are not wildly confident.

At least the 10% odds on stagflation seem to be going away. With unemployment at multi-decade lows, even if inflation stayed high I don’t see how you can call that stagflation.

If we see a “bad” print, we’ll probably sell (into what will almost certainly be a material down day) using pockets of the portfolio where we’ve had some unambiguously good gains/strong relative performance, to lock in some profits.

If it is a good print, we’ll probably just let things run as they are.

All of that will be at the margin, of course, not big changes.

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