Stocks are celebrating inflation's demise prematurely and the big money isn't buying, says Larry McDonald

CNBC

2 days ago

(PRO Views are exclusive to PRO subscribers, giving them insight on the news of the day direct from a real investing pro.) The stock market and retail investors are celebrating an end to inflation worries prematurely on Tuesday, and the big money is not playing along, according to Larry McDonald of "The Bear Traps Report" — whose clients are some of the biggest hedge funds on the planet. There already was something off with the way financial markets were reacting to the July CPI report with the 10-year Treasury yield going higher after the numbers, while the Dow Jones Industrial average is rallying . Big institutional money on Wall Street is siding with the bond market and believes that inside of the CPI report were the signs of a growing comeback in inflation. They are looking at what's called "supercore" inflation, which removes food and energy, but also shelter and rent costs from the headline number. When that's taken out, inflation was running at a 3.21% rate last month, much higher than the 2.7% headline annual rate that was slightly less that economists expected and sparked the equity rally. "This could be like a nice relief rally today, but under the surface, inflation is just not coming down fast enough and that's not great for bonds," said McDonald, author of " How To Listen When Markets Speak. " Supercore "is one of the most important number's the Fed looks at. ... The bond market is really focused on supercore and you can't fake that," he said. This hidden inflation that's about to rear its head is "good for hard assets, good for gold, silver, platinum, palladium, copper," said McDonald. Big hedge funds are buying anything that comes out of the ground Tuesday, along with natural gas, he said. "The cheapest part of the market right now is natural gas," McDonald added, noting its key part in powering AI data centers. The investor and strategist pointed to the First Trust Natural Gas ETF (FCG) along with Antero Resources as ways to play along with the big money. (Watch the video above for the full conversation.)