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VRA Investing Podcast: Navigating Inflation’s Rough Waters and Looking Beyond Day-to-Day Action – Tyler Herriage – April 10, 2024

In today's episode, we will unpack the market's reaction to the latest look at inflation data and what it indicates about the resilience of the markets. Tyler dives into the rise in Consumer Price Index (CPI) figures, ‘bidenomic ...

Posted On April 10, 2024Episode 1361
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About This Episode

In today's episode, we will unpack the market's reaction to the latest look at inflation data and what it indicates about the resilience of the markets. Tyler dives into the rise in Consumer Price Index (CPI) figures, ‘bidenomics’, and some surprising commentary from the President on interest rates. Finally, learn how to protect yourself in case inflation remains "higher for longer".

Transcript

Don’t look back because the market is closed. Good Wednesday afternoon, everyone. Tyler Heritage here with you for today’s VRA investing podcast. Hope you all had a great day out there today. If you’ve been checking the markets today, you know that it wasn’t a great day for our major indexes out there. After this morning, we got the latest look at inflation. Now, before I dive into that data, I have to say that given the numbers that we got this morning, this really wasn’t an out of control sell off that we got today. It could have been a whole lot worse.

And finishing down where we did, which was well off the lows of the day, I would say really shows the strength and resilience of this market on a little bit of a pullback here like we saw today. But again, it could have been a whole lot worse after this morning, we got the CPI data coming in about with expectations. As I said yesterday on the podcast, expectations were for a third month in a row of an increase in inflation. That is what we got coming in at three and a half percent on the CPI for the year over year data. There, month over month growth in inflation was four tenths of 1% as well. Core CPI also coming in hotter at 3.8% year over year, again making three in a row here of slightly hotter inflation data. Really from our point of view here, the VRA, we’ve said for a long time we don’t like to look at any single month data, but now that we do have three months in a row, it’s starting to show up a little bit. But we’ve said from the beginning inflation was never going to go down in a straight line.

[00:01:51]:
So nothing really overly concerning for us here, but a few interesting things that did happen today that I noticed is that going back to the beginning of Biden’s term now, inflation has not fallen in a single month. The closest we got was July of 2022, and inflation was unchanged, which leaves overall prices up since Joe Biden has been in office at 19%. Now, that’s bidenomics for you there. That’s the reality of what bidenomics has looked like. And strangely today, Joe Biden decided to comment not only on inflation that would have been expected, but on interest rates as well, saying that he thought today’s numbers might push back the first rate cut by about a month or so, but there will be a rate cut before year end, according to Joe Biden today. I’m not sure why he decided to comment in such a way, but there you go. That’s what he said. And he went on to say that inflation has been reduced dramatically since he took office.

Well, you know, that’s a joke. I just talked about how much prices have risen since he took office, and the day that he was inaugurated, inflation was at just 1.4%. So who knows what this guy is talking about here. But on the interest rate topic as well, it would be neglectful for me to fail to mention this one here. None other than Jim Cramer wrong way Jim himself has said today that he reiterated that he is still in the one cup cut to no cut camp for 2024. Now he’s got to get calls right from time to time. You know, this might actually not end up being that bad of a call, but this might be a warning sign that the Fed’s higher for longer narrative may not last as long as they might hope. Remember, he’s gotten some big calls wrong recently, like saying Silicon Valley bank was cheap and had room to run then Silicon Valley bank, one month after he said that, fell 87%.

He’s also been late on the bitcoin train as well, and just some other. I won’t get into all of them today, but we’ll see if his nickname wrong way Jim there, or inverse Kramer, whatever you want to call it. We’ll see if that holds true here as well. And on that note, the CME’s Fedwatch tool. I covered this yesterday. Yesterday we saw a 56.1% probability of a rate cut in June. That was before this morning’s data. After the data expectations plummeted, with now just a 16% probability of a rate cut in June, and 83% probability that the Fed will stay put again here in June.

[00:04:52]:
We saw similar action for the July expectations as well. The probability once again that the Fed will not have cut by July. A 59% probability now of the Fed staying put in July. That’s a big increase there as well. And now you have to go out to September before you see the first expected rate cut from the Fed. That’s at least the probability there. But I will say even that is still a very narrow chance that that will be the first rate cut according to the CME’s Fed watch tool. Right, those are probabilities.

Nothing set in stone there. But this does appear to have pushed back the Fed’s timeline. We’ll see what they have to say at the end of the month with their next meeting. We’ll also get PPI tomorrow as well. The producers price index. So again, as I mentioned earlier, I was hopeful for a beat on this morning’s print, but I also said that if it came in hotter than expected, it wouldn’t worry us here. And now. Don’t get me wrong.

Tyler Herriage [00:05:56]:
I know that inflation sucks. I’m living in it here as well. Paying more for everyday items year after year now is getting exhausting. It’s just kind of this rolling inflation. You know, you saw it in food prices, you saw it in gas prices. Now you get it in home insurance increases. You know, obviously mortgage rates are higher now as well. Everything is just a little bit higher.

But the real issue here that I want to focus on as to why inflation really is the way that has continued the way that it has is the continuous debasement of our currency. We talk about this here often, and we can’t forget that during coronavirus insanity, we added 40% to our money supply in just two years. Yes, that has slowed since then, but we are still averaging an 8% per annum debasement of our currency. That is, that is without inflation. So you add in the three and a half percent inflation number we got back today, and now you’re looking at having to earn, on a yearly basis 12% on your cash just to break even. And you wonder why stocks are going up so much. I mean, that is above or right at where the S P’s average return is anyway. It’s the only way you can fight inflation is to own assets.

[00:07:24]:
And again, I mean, that’s just, it sounds terrible that you have to earn 12% on your money just to break even. I had to say that again. And it is exactly why Kip and I wrote our book, the Big Bribe. This is one of the biggest factors for why we wrote this book. If you haven’t had a chance to read it yet, you can check it out@bigbridebook.com. Or, or come and join us at our 14 day free trial to get a digital copy on vraletter.com. But if you haven’t read it yet, I’ll give you a quick insight into this important theme, which is that in order to beat inflation, you want to invest like the smart money. You really have no choice.

This isn’t an environment where you can leave money in your mattress and expect it to be worth anything in the future. You’re not going to be able to retire by just putting money under the mattress now. It’s not terrible. It’s great to save money, don’t get me wrong, but it has to be going somewhere that at least offsets what the US government is doing. What the Fed is doing, what the treasury is doing with this continuous debasement of our currency. And so that option, again, it sounds simple, because it is simple. You want to be protecting yourself, and the best way to protect yourself is to take that cash and be buying assets. That can be stocks.

Your favorite stocks out there could be ETF’s, could be commodities. Physical gold and silver is what we recommend here. We also like bitcoin as well. That is a big inflation hedge, a big reason why a lot of people have bought into the bitcoin theme. Is it? That is one reason alone to get into it. And of course, real estate, they aren’t making any more of it, as they often say. But the key point, as the dollar continues to lose value, which it inevitably will, that is the way our system is built. Even at 2% inflation, which is the Federal Reserve’s target, that means your dollar is being cut in half every 50 years at 2%.

[00:09:34]:
Right. And so if it’s running hotter than that, then you’re only devaluing your dollar even quicker. Even though the Fed isn’t running their money printing machines, our government is running out of control deficits, which is, in and of itself, quantitative easing. So we’re not really in a true quantitative tightening period. Yeah, the Fed might be, but the government hasn’t gotten the memo here. And so even if they were able to get back down to 2%, the point is that your dollar will continue devaluing every single year. And that is how our system works. And so, again, we’re at a point here where you can’t just store cash under your mattress that will just lose value for you every single year.

So you have to own assets that have the ability, at least to appreciate against the dollar. Doesn’t mean they’re going to go up every year. Right? But these are the things you want to own, and especially when it comes to the harder assets like gold and silver, physical assets, you want to own those with the goal in mind of hopefully never having to sell them. You know, as I saw, an even better version of this old adage, kind of the old gold coin adage is, you know, the gold always. Gold always holds its value. A 1oz gold coin would have bought you a fantastic suit in the early 19 hundreds. It would still buy you a handmade tailor suit. Today.

You can go back even further. I just saw somebody do this, that in ancient Rome, a gold coin would have bought you a nice handmade toga. And still today, it’ll buy you a very nice suit. So that is our primary lesson, or one of the primary lessons in the big bribe. And especially on a day with inflation data out, I would have been remiss not to bring it up here. So kind of moving on here. Another factor that was impacted by today’s inflation data, of course, is bond yields. This hotter print had bond yields going higher right after the open this morning.

[00:11:39]:
We did settle a little bit off of the highs of the day, but still a multi month high here from bond yields, up 3.87% on the day at a 4.53 highest since November of last year. Now, we get a lot of questions when rates are on the rise, especially where they’re kind of getting out of the downtrend that they were creating there. So if you go back longer term, there’s still a longer term downtrend in place. But when yields rise, we get a lot of emails, a lot of questions about it. And so this is the theme that we’ve covered here often, and that is at these levels, bond yields do not concern us. We reference this here often, that during the 1995 to 2000 dot melt up, where the Nasdaq went on to rally 575%, yields averaged well above where they are at current levels, above 6% for a good portion of it as well, and above well above 5%. So we aren’t even to those levels yet. So in the 4% range, we don’t see this as a potential derailment event for the market.

Our long term call does remain in place that yields will continue to head lower over the medium to long term. In the short term here, we don’t want to see them go too high, but at these levels, no big deal for us here. And before I get to our market action, I’ve got to share one more incredible statistics statistic with you here. Have you been tuning in with us here for a while? You know that our view for the last 19 months now, over the last year and a half has been that we are in a new bull market and the smart money move is to buy the dip. We say it here over and over and over again. And I want to reiterate that nothing has changed in that view. But importantly, this bull market was never going to be straight up either. Even in the.com melt up I just referenced, there were multiple corrections in that market of 10% or more.

There’s even drawdowns of over 20% or more. A technical bear market in there. And we see this as the same time period here. So, yes, there will be pullbacks. Yes, you will want to buy those dips. And here’s the data to back that up. This data is from bespoke. It was from on Charles Payne’s show today.

[00:14:09]:
He had someone on from bespoke. By the way, Kip will be on Charles’s show tomorrow as well. So make sure to tune into Fox business tomorrow at 02:00 p.m. Eastern time for making money with Charles Payne. KiPP will be on there again at sometime in the 02:00 hour tomorrow. But back to the data. Just incredible stats here from bespoke about buying the dip, and it’s specifically geared towards the S and P 500. I didn’t get the full data set, but the chart went back about 20 years.

And if you only buy the S and P 500 or own the S and P 500, excuse me, only after updates, you would have gains right now of 29.6%. So not too bad there. But that is a long period of time. However, and this is a big one, if you only owned the S and P 500 after down days, you would have gains. Incredible. Incredible. 804%, 804% versus 29.6%. I think I’ll keep buying the dip from here as we do think that this theme continues and remains the smart money move here.

That said, let’s cover our market action on the day, but stay tuned. We will also be getting the producer’s price index back tomorrow as well as latest earnings from the financials. The big banks coming in on Friday, really the unofficial start of earnings season as well. So we will be reporting on those here every day at the market close. All right, so looking at our markets on the day to day, we did finish lower across the board, but we did finish well off the lows of the day today. And what was really interesting about today’s action and really what we’ve seen over the last week or so is that despite the fact that our major indexes, even with this pullback, are not far off of all time highs here, investors are running for the exit. It will be interesting to see what the AAIII survey looks like when it comes out. I believe it’s tonight or tomorrow morning.

[00:16:17]:
It’s always around that time period every week. But the fear and greed index back into a neutral territory here, falling today to a 54 from above a 60 in greed territory yesterday, now back down to neutral. We love to see that here. If we were still at extreme greed territory after a sell off like today, yeah, we might be looking to take some profits, but that has not been the case. Every minor pullback we’ve gotten. Investors are running for the exit. Until there is that sense of euphoria out there in the market, the sense of stocks only go up. Back in the market, we don’t see it as anywhere near a long term top.

So back to our markets. For all of the inflation fears today, again, the sell off really wasn’t that bad. Could have been much worse. And we were able to finish off of the lows of the day today. So let’s take a look here. We were led today by the Nasdaq, still down 0.84% to 16,170. The semis tried to go higher earlier in the session, finished down less. So still tech and the semis leading the way here, even on a down day.

Nvidia bucked the trend today and ended up finishing higher as well. So interesting to keep an eye on. You like to see important leading stocks bucking the trend like that. It’s a sign of strength. Next up, the S and P 500 down 0.95% to 5166. After that, the Dow Jones down over 1% to 38,461. And lastly here, small caps leading the way lower down two and a half percent for the Russell 2000 at 2028. Next up here, taking a look at our internals on the day.

[00:18:11]:
You know, we got pretty good internals the last two sessions for considering that we had a mixed market the last two days as well. Today did not remain the same, but one day doesn’t make a trend. We do still see a market that is broadening here. But today’s numbers were not pretty. Declining stocks beating out, advancing stocks coming in just under six to one negative on the NYSE. Just over three to one negative on the Nasdaq. 52 week highs and lows also came in negative today. Just barely, though, on the NYSE and still only 46 stocks hitting 52 week lows there.

The Nasdaq, on the other hand, a little weaker. You know, there’s a lot of names that really aren’t primetime players, so it kind of skews what the 52 week lows really look like. But we did come in roughly five to one negative there for the Nasdaq. Finally here for our internals, we did get 81.7% downside volume today, which doesn’t mean much in and of itself. You don’t want to see back to back days of negative 80% downside volume. But again, one day by itself, no major concerns there. Nasdaq was better still, though. Just over two to one negative.

Next up here, taking a look at our sectors on the day today. Energy leading the way was our only s and p 500 sector to finish higher on the day. So we finished with one out of eleven higher on the day. It helped that oil was was higher as well, but the energy sector XLE nearing a 52 week high today. I believe at the highs it was just $0.30 off of an all time high. And then our laggards on the day. Our biggest loser was the biggest gainer from the last two sessions. Real estate down big, followed by uterials, Matilda materials, utilities and financials as well.

[00:20:07]:
So again, ten out of our eleven sectors finishing lower on the day today. Finally here for today, our VRA commodity watch. Gold now down slightly on the day by four tenths of 1%, $2,352 an ounce. And this is kind of a fun one here, but Costco, known for selling a lot of things in bulk, did not even know they sell gold as well. And a Wells Fargo analyst came out today to say that they believe Costco’s gold sales might reach $100 to $200 million monthly. They just started selling gold last year as well and have already made 100 million off of selling gold in their stores. They’re sold at a slight markup. They’re really interesting from gold, but that’ll be a fun one to watch going forward as well.

What happens with Costco? Next up, silver, higher on the day, holding on to $28 an ounce here. Up by about a quarter of 1% to $28.05 an ounce. Copper now lower on the day by two tenths of 1% to $4.27 a pound. And oil, as I mentioned earlier, higher now by 1.2% to $86.27 a barrel. And finally here for today, bitcoin did actually get back above 70,000 briefly not long ago here before recording this podcast. Now just below it, still up 1% on the day to 69,891 a bitcoin folks, that is all that we have time for here today. Please be sure to subscribe to receive our VrA podcast every day at the market close. Excuse me, you can sign up@vraletter.com click the podcast link at the top and we’d love to have you with us.

Thanks again for tuning in. Until next time, we’ll see you back here tomorrow for the close.

Podcast Newsletter

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Time Stamps

00:00 Market shows resilience despite inflation concerns.
03:05 Doubts about rising prices and interest rates.
06:20 Inflation caused by continuous debasement of currency.
11:39 Bond yields rise not concerning for market.
12:54 Yields to continue lower, short-term stability. Bull market expected to continue.
16:17 Fear and greed index falls back to neutral.
21:02 Costco, silver, copper, oil, and bitcoin update.

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