Morning Note: Producer Prices Please, However... -- And -- "Systems Thinkers"

Positive earnings news and lower than expected jobless claims, along with tamer than expected producer price inflation has equities adding onto what was already a strong rally in the futures pits.

In terms of the economic data, the jobless claims of course make perfect sense; remember, the U.S. presently sports over 10 million job openings. As for the producer inflation data, well, that's a bit more nuanced.

Headline PPI was expected to come in at .6% month-on-month for September, it turned out to be .5%, which was .2% lower than August. Core (ex-food and energy) came in at a mere .2%, vs .5% expected, and .6% in August. 

So, if inflation is as big as folks like yours truly suggest, what gives with the PPI? 

Well, interestingly, transportation/warehousing pricing dropped by 4%, with airline passenger services down a big 17% (although they're still up 4.4% year-on-year). Medical care and cell phone services were tame. (HT Peter Boockvar)

Otherwise, there's nothing here that says inflation is broadly coming off the boil just yet. Now, it certainly will as bottlenecks ease, but, as I keep repeating, our long-term thesis calls for a weaker-trending dollar and somewhat higher long-run inflation than we've become accustomed to these past several decades. 

Asian equities rallied overnight, with all but 3 of the 16 markets we track closing higher.

Europe's notably positive so far this morning, with 17 of the 19 bourses we follow nicely in the green, as I type.

U.S. stocks are strong to start the day: Dow up 323 points (0.94%), SP500 up 1.00%, SP500 Equal Weight up 0.88%, Nasdaq 100 up 1.19%, Nasdaq Comp up 1.19%, Russell 2000 up 1.16%.

The VIX sits at 17.49, down 6.17%.

Oil futures are up 0.52%, gold's up 0.15%, silver's up 1.06%, copper futures are up 2.37% and the ag complex is up 0.29%.

The 10-year treasury is down (yield up) and the dollar is down 0.13%.

Led by base metals futures, KRBN (carbon credits), ALB (lithium miner), AMD (chip maker) and MP (rare earth miner) -- but dragged by uranium miners, Verizon, wind stocks, solar stocks and emerging market equities -- our core portfolio is up 0.61% to start the session.

Successful investors virtually have to be "systems thinkers."  Here's another snippet from Alex Rutherford's excellent book Learn To Think In Systems: 

"...systems thinkers can see both the forest and the trees; one eye on each.

Peter Senge, a well-respected system thinking expert, sees the definition of systems thinking as being “a discipline for seeing wholes and a framework for seeing interrelationships rather than things, for seeing patterns of change rather than static snapshots.”

And another:

Linda Sweeney and John Sterman, both well-known researchers in the field, state, “Much of the art of systems thinking involves the ability to represent and assess dynamic complexity (e.g., behavior that arises from the interaction of a system’s agents over time), both textually and graphically.”[viii] The pair of experts also provide a list of specific skills of systems thinking:

• “Understand how the behavior of a system arises from the interaction of its agents over time (i.e., dynamic complexity);

• Discover and represent feedback processes (both positive and negative) hypothesized to underlie observed patterns of system behavior;

• Identify stock and flow relationships;

• Recognize delays and understand their impact;

• Identify nonlinearities; Recognize and challenge the boundaries of mental (and formal) models.”

Have a great day!

Marty