“But most investors do capitulate eventually. They simply run out of the resolve needed to hold out. Once the asset has doubled or tripled in price on the way up — or halved on the way down — many people feel so stupid and wrong, and are so envious of those who’ve profited from the fad or side-stepped the decline, that they lose the will to resist further. My favorite quote on this subject is from Charles Kindleberger: “There is nothing as disturbing to one’s well-being and judgment as to see a friend get rich” (Manias, Panics, and Crashes: A History of Financial Crises, 1989). Market participants are pained by the money that others have made and they’ve missed out on, and they’re afraid the trend (and the pain) will continue further. They conclude that joining the herd will stop the pain, so they surrender. Eventually they buy the asset well into its rise or sell after it has fallen a great deal. In other words, after failing to do the right thing in stage one, they compound the error by taking that action in stage three, when it has become the wrong thing to do. That’s capitulation. It’s a highly destructive aspect of investor behavior during cycles, and a great example of psychology-induced error at its worst.” ― Howard Marks

1. U.S. Consumer Prices Jump Most Since 2008 — the consumer price index jumped 0.9% in June and 5.4% from the same month last year, according to Labor Department data released Tuesday. Excluding the volatile food and energy components, the so-called core CPI rose 4.5% from June 2020, the largest advance since November 1991. Used vehicles accounted for more than a third of the gain in the CPI, the agency said. The outsize increase was also driven in large part by the pricing rebound in categories associated with a broader reopening of the economy including hotel stays, car rentals, apparel and airfares.
2. Senate Democrats Agree on $3.5 Trillion Infrastructure Bill — Senate Majority Leader Chuck Schumer announced that Democrats on the Senate Budget Committee and White House officials had clinched a deal on a $3.5 trillion investment plan. The proposal notably includes a significant expansion of the Medicare healthcare program for the elderly as well as major spending on education, child care, and the fight against climate change. The deal would come on top of a separate bipartisan infrastructure bill currently being discussed that would add some $600 billion of new spending to invest in roads, bridges, and broadband connections.
3. CDC says deaths on the rise again after weeks of decline — “After weeks of declines, seven-day average daily deaths have increased by 26% to 211 per day,” Dr. Rochelle Walensky said during a press briefing. New cases are also on the rise, with a current seven-day average of 26,300 cases, according to the CDC. That is an increase of roughly 70% from the seven day average last week. The seven-day average for hospitalizations is now at 2,790, up about 36% from a week ago after weeks of decline. Reflecting on the new numbers, Walensky said the pandemic has now become a “pandemic of the unvaccinated.” The five states with the highest case rates, Arkansas, Florida, Louisiana, Missouri and Nevada, all had a higher rate of new vaccinations compared to the national average.
4. Biden’s Hong Kong Warning Sends Message to Companies, China — The Biden administration warned investors about the risks of doing business in Hong Kong, issuing an advisory saying China’s push to exert more control over the financial hub threatens the rule of law and endangers employees and data. The U.S. warning singles out the Hong Kong’s National Security Law, imposed on the territory by Beijing last year, as a key concern. It said the vaguely-worded legislation has been used to justify the arrest of foreign nationals, including a U.S. citizen, to undermine data security, and to allow warrantless electronic surveillance.

The week ahead — Economic data from Econoday.com: