Last night the family went out to dinner at our favorite sushi place in town. Insert the joke here about getting sushi on a Monday night, but it was a special occasion & it is our favorite place. Surprisingly, it was hopping last night. Packed. We were lucky to get a table for the 5 of us. Bear in mind, there was no sporting event to watch for Chicagoans. The weather was 'meh' so that wasn't an excuse. I thought to myself that maybe this economy, or at least my corner of

it, is in much better shape than I am giving it credit for.

I guess I shouldn't be surprised then that the CPI number today was also a surprise - surprisingly hot. I was expecting a weaker than expected number given what we have seen in commodity prices, M2 growth, fincl conditions & inflation expectations. However, it was stronger & stronger across the board. It was hard to find a category that was down.

Shelter led the way as rents are hot, & medical care costs were next. Everything was higher than expected as was the core.

This brings the Fed solidly in play. I will say that even though I expected CPI to be lower, I still thought the Fed had to hike 75 bps. I think the Fed is fighting not just the inflation number but the inflation mindset. I think the Fed wants to restore credibility in its resolve. I think JayPo wants to normalize policy, which he did in 2019 & the mkt wouldn't let him but now he has the green light. So 75 bps is a lock in 8 days now with tiny odds of 100. It looks like 75 bps is starting to be priced into Nov. I thought that was also going to be 75 even with CPI easing so I am even more convinced now.

This is not good for equity prices. The chart today shows the number of hikes priced into

the next 12 months in white & the forward EV/EBITDA multiple in purple.The driver of the mkt has been multiple expansion from the very lows in June as rate hikes were being priced out & some rate cuts were priced in. As the rate cuts came out, multiples declined and that

was the end of August sell-off. With today's news, there is little reason to think we will not go back to the lows in multiples. That means earnings will have to carry the mkt exactly at the time when earnings are expected to slow. This does not paint a pretty picture for mkts.

This is at a seasonally difficult time for risky assets. This is at a critical time in Europe & Asia. The risk antennae are on high alert.

I have written about the need for a catalyst to change the impasse we were at with negative news but also negative positioning. Position sizes were smaller now & there would seem to be clarity to press bets. I fully expect the bears to control the tape for the time being. Be careful out there and ...

Stay Vigilant