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* FIEND'S SUPERBEAR MARKET REPORT *

* September 23, 2026 *

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* e-mail: fiendbear@fiendbear.com *

* web address: http://www.fiendbear.com *

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Fiend Commentary
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Six-Dollar Gas and a Record Nasdaq

Something doesn't quite fit.

Gasoline at one of the cheaper stations in Santa Maria reached $6.19 a gallon Tuesday.

Rent for an ordinary one-bedroom apartment in this relatively small Central California city can easily exceed $2,000 a month. A modest house can run $3,000.

Diesel is even worse.

Yet several hundred miles away on Wall Street, the Nasdaq celebrated another record.

Maybe this is the new American economy.

Six-dollar gasoline at the bottom.

Record technology stocks at the top.

And an inflation statistic somewhere in between trying to explain both.

Tech Has Its Own Economy

Tuesday's market was mixed almost everywhere except technology.

The Nasdaq reached another record while the S&P 500 went essentially nowhere and the Dow lost nearly 200 points.

Once again, money flowed toward AI and the giant technology stocks seemingly immune to whatever is happening at the local gas station.

At this point, technology appears to be operating in its own lane.

Oil shock?

Buy AI.

Fed raises rates?

Buy AI.

Bond yields near 5%?

Buy AI.

Economic uncertainty?

Apparently that is another reason to buy AI.

This doesn't mean the technology boom isn't real. Semiconductor demand is extraordinary. AI capital spending continues at a pace that would have seemed unimaginable a few years ago.

But there is an increasing disconnect between the businesses driving the indexes and the economy most Americans encounter every day.

Apple and Nvidia don't care whether somebody in Santa Maria has $40 less to spend after filling a gas tank.

A restaurant does.

A clothing store does.

A small contractor does.

That difference may become increasingly important.

Can $6 Gas Actually Lower Inflation?

It sounds contradictory, but there is a strange way in which extremely high gasoline prices can eventually become disinflationary.

Not because gasoline becomes cheaper.

Because consumers become poorer.

Suppose someone normally spends $250 a month on gasoline and suddenly spends $400.

That extra $150 has to come from somewhere.

Maybe fewer restaurant meals.

Maybe a delayed appliance purchase.

Maybe fewer clothes.

Maybe a cheaper vacation.

Maybe the credit card absorbs it for a while.

Gasoline demand itself is relatively difficult to eliminate quickly. People still have to get to work, take children to school and buy groceries.

So consumers cut somewhere else.

The Federal Reserve has made this same point. Energy shocks reduce household purchasing power, particularly for lower-income families that spend a larger percentage of income on necessities.

That creates an odd two-sided inflation effect.

Higher energy prices directly raise inflation.

Higher freight, manufacturing and transportation expenses can eventually raise it further.

But the money diverted into gasoline and electricity can simultaneously reduce demand for other goods and services.

The gas station gets the money that would have gone to the restaurant.

That doesn't make the energy shock harmless.

It simply changes where the damage appears.

The Inflation Rate Isn't the Price Level

This also helps explain why the official inflation discussion increasingly sounds disconnected from everyday experience.

August CPI was 3.4%.

That sounds nothing like the 1970s.

And statistically, it isn't.

Inflation reached double digits during the worst years of that period. Today's annual rate is nowhere close.

But there is something important hidden by the way we usually discuss inflation.

A 3.4% inflation rate does not mean the inflation of the past several years went away.

It means prices that already rose dramatically are now rising another 3.4%.

The CPI index stood at about 258 at the beginning of 2020.

Today it is about 335.

That's an increase of almost 30% in the general price level.

Inflation slowing from 9% to 3.4% doesn't reverse any of that.

The $10 item that became $13 does not return to $10.

It becomes $13.44.

That distinction between the rate of inflation and the accumulated price level probably explains a lot of the argument between economists telling people inflation has moderated and consumers wondering what planet the economists live on.

Both can be correct.

Inflation has moderated.

Things are still expensive.

And California Is California

Gasoline provides an extreme example.

California's statewide average is now roughly $6.14 a gallon.

The $6.19 seen in Santa Maria isn't some outrageous station beside the freeway charging stranded tourists.

It is essentially the market.

We haven't quite reached the inflation-adjusted record.

California regular gasoline averaged around $6.27 during the June 2022 spike. Adjusted for the increase in the general price level since then, that would equal something above $7 today.

So things have been worse.

That's not especially comforting when you're standing beside the pump watching the numbers spin past $60.

It also illustrates another weakness in national averages.

Someone driving in Texas and someone driving in California are experiencing very different energy inflation.

CPI has to combine them into one number.

Your checking account doesn't.

Does CPI Miss the Real World?

It is tempting to say inflation statistics simply don't count these things properly.

That isn't quite fair.

Gasoline is absolutely included in CPI.

So is food.

So is rent.

In fact, shelter represents more than a third of the entire CPI basket, making it by far one of the most important components.

The real problem is subtler.

CPI measures an average consumer who doesn't actually exist.

Your personal inflation rate depends on what you buy.

Someone who owns a paid-off home, works remotely and drives an electric car may experience considerably less inflation than someone renting an apartment and driving 70 miles every day.

The national CPI has to average those two households together.

Housing creates another complication.

For homeowners, CPI doesn't simply measure the price of houses. It uses something called owners' equivalent rent—an estimate of what a homeowner's property would rent for.

There are sound technical reasons for doing that. A house is partly a consumption item and partly an investment asset.

But it also means a young family trying to buy its first home can experience an affordability disaster that isn't captured simply by looking at the monthly CPI shelter number.

The statistics aren't fake.

They just answer a narrower question than many people assume.

How fast are consumer prices changing?

That isn't necessarily the same question as:

Can an ordinary paycheck still afford an ordinary life?

Those are increasingly different discussions.

The Fed Has to Live in Both Worlds

This creates a difficult problem for Kevin Warsh.

The Fed has to make policy using national economic statistics.

It can't set interest rates based on what gasoline costs in Santa Maria.

But it also can't ignore what consumers experience.

If inflation expectations begin rising because households repeatedly see higher prices at the grocery store, gas station and rental office, those expectations can eventually affect wages and prices throughout the economy.

That is where inflation becomes difficult to remove.

Workers demand larger raises.

Businesses expect suppliers to increase prices.

Landlords expect rents to rise.

Consumers stop being surprised by price increases.

Eventually inflation becomes normal.

That was one of the great mistakes of the 1970s.

Not simply that inflation became high.

It became accepted.

Warsh's Real Decision Is Still Ahead

Last week's 25-basis-point hike was relatively easy.

The bond market had crossed 5%.

Inflation was clearly above target.

Markets had priced the hike at near certainty.

Doing nothing would have required more explanation than doing something.

The next hike will tell us more.

Current futures pricing puts October almost exactly at a coin toss, around 53%.

That is where WUCO—Warsh Usually Chickens Out—gets tested.

If the next inflation report comes in hot and employment remains strong, another hike becomes difficult to avoid.

But what if CPI is merely mediocre?

What if headline inflation stays around 3.4%?

What if employment softens slightly?

What if oil falls another few dollars?

Will the Fed act preventatively because inflation is still far above target?

Or will it find enough ambiguity to wait?

That distinction matters much more than one September hike.

Token Tightening or an Inflation Fight?

The Fed is eventually going to have to decide what success looks like.

Is 3% inflation close enough?

Is 2.5% close enough?

Does it accept several years of inflation above target because forcing it lower would require too much economic pain?

Or does 2% actually mean 2%?

For most of the post-Volcker era, that question didn't require much sacrifice.

Inflation usually behaved.

Now it does.

The uncomfortable truth is that wringing inflation out of an economy generally requires something people dislike.

Higher unemployment.

Slower spending.

Lower asset prices.

Reduced borrowing.

Weaker housing.

Some combination of those things is how tighter monetary policy reduces demand.

There is no painless button marked LOWER INFLATION.

Yet modern central banking has become extraordinarily sensitive to anything breaking.

Stocks fall sharply?

Provide liquidity.

Credit markets freeze?

Provide liquidity.

Banks get into trouble?

Provide liquidity.

Recession threatens?

Cut rates.

Each individual decision can be justified.

Collectively, however, they can teach markets that sufficiently bad news eventually produces easier money.

Investors have learned this lesson extremely well.

Perhaps too well.

The Nasdaq Knows the Fed Too

That may be one reason technology stocks continue levitating.

Wall Street sees the same dilemma.

If the economy remains strong, corporate earnings remain strong.

If the economy weakens substantially, investors assume the Fed eventually stops tightening.

If something truly breaks, history suggests the Fed will respond aggressively.

That creates an unusually favorable psychological setup for risk assets.

The downside always appears to contain an eventual central-bank rescue.

Meanwhile the upside remains open-ended.

Perhaps that perception is correct.

It has certainly worked for a long time.

But it creates its own instability.

If investors become convinced that policymakers will never tolerate meaningful economic or market pain, capital gets increasingly concentrated in riskier assets at increasingly expensive prices.

The eventual correction becomes larger.

Then rescuing the system becomes even more necessary.

That is how a safety net can gradually become a trap.

Six Dollars Versus 27,000

So Wednesday morning we are left with two numbers.

Gasoline above $6 in California.

And a Nasdaq above 27,000 at a record high.

Both are real.

They simply describe different parts of the economy.

Technology investors see extraordinary innovation, earnings and AI spending.

Consumers see rent, groceries, insurance and the gas pump.

The Federal Reserve sits between them with a 3.4% inflation rate and a mandate to get it back to 2%.

Warsh can probably keep everyone reasonably happy for a while with occasional 25-basis-point hikes whenever the data becomes impossible to ignore.

The harder job would be convincing markets—and perhaps the Fed itself—that inflation must actually be defeated even if doing so requires accepting some economic pain.

We haven't seen that Fed yet.

Last week's hike didn't prove it exists.

The next several meetings may tell us whether Warsh intends to build one.

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