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VRA Investing Podcast: Unpacking Inflation Data, Rate Cut Speculations, and Reactions to Bitcoin’s Spot ETF Debut – Tyler Herriage – January 11, 2024

In this episode, we dive into the market's response to this morning's CPI data, discuss the implications for the Fed's policies, and analyze the day's market performance. Additionally, we look into the latest in the cryptocurrency ...

Posted On January 11, 2024Episode 1307
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About This Episode

In this episode, we dive into the market's response to this morning's CPI data, discuss the implications for the Fed's policies, and analyze the day's market performance. Additionally, we look into the latest in the cryptocurrency market with today's launch of Spot Bitcoin ETFs. Tune in to today's podcast to see what the markets are telling us based on the VRA Investing System.

Transcript

Don’t look back because the market is closed. Good Thursday afternoon, everyone. Tyler Herridge here with you for today’s VRA investing podcast. We hope you all had a great day out there today. It was a choppy day for our markets today after this morning’s CPI data came out out. We also had a few Fed speakers today as well, trying to manage expectations on what so many are looking for in March, which would be a rate cut. Got some pushback on that today from the Fed, but that didn’t stop our major indexes from opening higher on the day today, although shortly after the open, our major indexes fell from there. But we got a little bit of a rally into the close for a couple of our major indexes to finish positive on the day today.

So we’ll jump into all of that today. But a lot of this stemming from this morning’s inflation data. So let’s jump into what we saw this morning from the latest read of December’s CPI consumer price index, which missed expectations slightly today with a 3.4% inflation level year over year coming in versus expectations of 3.2%. And core CPI matching estimates exactly here, coming in at a 3.9% year over year, which is still an elevated number. But I will point out the big plus side here. This was the first reading below 4% since May of 2021. So yes, overall, maybe the overall inflation numbers came in slightly higher than expected. But as we’ve been talking about here at length on this podcast, especially this week, is that the important factor remains the same, and that is that inflation is trending in the right direction, continuing to trend lower from here.

[00:02:07]:
The surprise here for this reading, something we talked about this week as well, was that both energy and rip prices rose a little bit more than expected. I’ve got a couple of things on that here, but we look at this as a little bit of a lag from where our estimates were, especially on the rent side. But going forward, these readings should continue to fall, especially on the rent side of things, and we expect to see that a little bit more in January’s readout. But overall, again, continued trend lower in inflation is what we’re seeing here. But here’s some of the insights today, especially into the sticky rent and shelter picture that we’re seeing here. This makes up a big part of inflation data, but much like all of the other government data that we get, it’s collected in strange ways, calculated in strange ways. Just take a look at rent and shelter here, which has continued to cool off. But here’s why the data may have looked a little bit higher today.

First, shelter inflation. I can’t believe this is a real thing. It’s based off of surveys of renters, not excludes homeowners. So it’s based only on rent. And again, here we’re looking at surveys. Don’t we have the hard data to look at what people are paying month over month? But that’s also another factor to this as well, is that there’s a lag in this data because it’s taken not from what rent prices are. If you’re going to start renting today, but it takes into account all active leases. Now, how many people do you know that are in a month to month lease? Most apartment leases are from eleven to 1516 months.

I mean, eleven being on the short end and 18 months maybe being on the long end there. So we’re taking into account what people were paying for rent almost a year ago now. Now if you follow rent prices in most cities around the US, they have dropped drastically in the last year. So again, a little bit of a lag here, but if you know that about the data, it makes a little bit more sense there. And then lastly here, what was interesting as well, just to say that rent prices are coming down the month over month change in CPI. Rent came in at a 24 month low here, which brought the year over year change to a 17 month low as well. So we expect it to continue to cool from here. Overall on inflation, our review remains unchanged.

[00:04:48]:
Disinflation leading to deflation is the trend going forward from here. Now, we don’t think that that means the Fed needs to come in and cut rates six times this year. We’re not in that camp, but we do think that inflation is heading in the right direction. Now all eyes will be on tomorrow’s producers price index numbers and we’ll see what we get from those numbers. We do expect them to be lighter as well. But if we see another month lag like we’ve seen in CPI, we’ll look for it in January’s numbers. But I’ll leave you with this. On the inflation data, something interesting to think about, especially lately with all that we’ve seen from the Bureau of Labor Statistics reporting how they pull jobs from the future to get strong jobs numbers, they always, at least for the last year, every single one has been revised lower, significantly lower at that.

So very similar to these jobs numbers. What if a lot of this inflation data is cherry picked and fake? I mean, thanks to websites like shadowstats.com, we know that inflation was vastly underreported for decades here, especially from in the 2010s era. They were telling us, the Fed was telling us, oh, we just can’t get inflation up high enough. It’s coming in below 2%. Wow, this is such a big problem. When in reality we knew that inflation was much higher than that. That’s pre Covid not talking about what happened with the massive ramp up in inflation, where they reported at 9%, it was likely closer to 15% to 20% is what the reality of the situation was. So thanks to great websites like shadow stats, we can really see what that looks like.

Were they taken to calculations? Well, it’s not like they’re pulling these numbers out of nowhere. A lot of it is. They’re calculating inflation the way it used to be calculated pre, I believe it was 1981 when they started calculating it in a new way. So they calculate it in the old fashioned. That’s the way the government used to look at it. And by their own data on those, it’s vastly underreported here. So again, given what we know about jobs data, given what we know about how they inflate, what they’ve done with inflation data, let’s think about the number that we just got here, so we’ll back up a little bit. We’ve seen the market rally in a massive way to end 2023.

[00:07:19]:
The Dow rallied over 5000 points from its lows in October. I mean, that’s a massive, massive move there. So maybe investors have gotten a little ahead of themselves. Maybe investors have gotten a little bit overly optimistic. And I’m talking here in the very short term, okay, not the medium to long term. You know that we remain extremely bullish. We think we’re prepared here for a roaring 2020. So I’m not trying to take away from that point at all.

But in the very short term, we’ve seen a massive move here, a massive increase in bullishness from the market. Whether you see in the AAI survey, the fear and greed index, you see it in all kinds of places. So after that great rally and a consensus estimate from the market that the Fed was going to cut rates six times in 2024, we’ve said from the beginning, that seems a little high. And if it is that high of a number, you likely won’t like it because it means that the Fed broke something. And to cut six times this year would be something broke. The Fed is scrambling to fix it right now. So maybe a little bit of what we’ve seen here is trying to manage expectations, temper the enthusiasm we’re seeing from the market. Not saying that these numbers are completely fabricated, but think about what a slightly hotter than expected inflation reading would mean.

Okay, well, the Fed may be able to stay higher for longer. That’s been their theme that they wanted to go back to. You heard it this morning as well from Fed speakers like I was talking about trying to re emphasize the Fed’s higher for longer stance here in the short term. Well, then today’s number was a Goldilocks number for the Fed. So not so hot that people are freaking out. Oh, inflation’s back, right? It’s still in a downtrend. All right, we’re good there, but not so under that. People are looking for rate cuts for the Fed.

[00:09:27]:
At least this was a Goldilocks number today. And so I think maybe a big part of the number we got could have been some manipulation there. I don’t want to dive too deep into that. That’s just an opinion here. But really, when you think about it, this is a Goldilocks number for the Fed. So again, all in all, not a bad number here today continues our trend of lower inflation and or at least normalizing back to a reasonable number. The Fed’s goal is 2%. Personally, my view is that should be 0%, just like it was before the Fed, but they’re never going to do that, at least not anytime soon.

So overall, this gives the Fed cover to keep rates higher for longer, which ultimately is a good thing. Again, we do look for a couple of rate cuts this year. Maybe it’s two to three. We don’t really want to see six. You want to see it happen in an orderly fashion here. So if that’s what we get, then what can we expect from there? Right. Well, I saw a great tweet about this today. It reminded me a lot of the 1995 Fed rate cut, where the Fed began to cut rates in 1995 from over at 6% to below 5%.

Well, we’re not far on the top end from that right now. From there, the S and p rallied 34%. It was already up on the year going into rate cuts, and then rallied, I think, another 20% after the first rate cut. And again, that’s leading up to the 1995 to 2000 melt up from the market. That is an analogy we’ve made a lot to this market today. We think that we’re looking at here. Here’s another similarity to that. So that’s what we’d like to see here going forward, a couple of reasonable rate cuts this year.

[00:11:18]:
And again, if you see six rate cuts, it means that something bad happened. So at the end of the day, we want to see a strong, thriving economy here in America. If we got six rate cuts, that’s certainly not the case. So regardless of who the president is, I think we all want to see a healthy and thriving America. Although I don’t see that happening under Biden, I will certainly say that here, at least for another four more years. All right, that said, let’s take a look at our markets on the day today. As I mentioned earlier, a choppy session today. We did manage to finish with two out of our four major indexes positive on the day.

And we had the Dow hitting an all time intraday high today, finishing just shy of its all time closing high, if this chart is correct here, but an impressive session nonetheless. After a choppy morning, the Dow was down as much as 240 points at the lows of the day, rallied all the way back to positive. That’s the kind of strength we’re looking at here in this new bull market. And as Kip says often the bull market doesn’t start until all of our major indexes have gotten back to all time highs. So we are still in the very early innings here. But the Dow up just fractionally, up 15 points on the day to 37,711. The Nasdaq also barely managed to finish positive on the day. Not even a register on the percentage on a percentage basis, just flat up 0.5 points on the day to 14,970.

But just what you want to see today when the market is not giving you what you want. The semis still leading on the day to day. SmH, the semiconductor ETF up zero point 57% on the day to day. Exactly what you want to see on a day like today. Next up, the S and P 500 down zero 7%. So just three points on the day to 4780, still very close to an all time high there. And lastly, the rough 2000 down three quarters of 1%, are laggard on the day to 1955. I’ll also point out here with the inflation news and talk about yields that the ten year also had a very choppy day today.

[00:13:36]:
And an outside day here from the ten year yield as it rose today after this morning’s inflation data to a 4.6% before finishing down 1.3% on the day at a 3.97. So back below four on the ten year. That is. We’ll continue to look for the ten year just to continue to creep lower. Hopefully no big drop offs, just a smooth move lower, just like we’re seeing in inflation. Yes, there’ll be some bounces to the upside in the short term, but over the long term trend is lower. We expect to see that in yields. Looking at our internals on the day to day, not great numbers here.

Not going to sugarcoat it, but given the choppy day that we had, not too bad. Declining stocks beating out, advancing stocks on both the NYSE and the Nasdaq. But no big two to one beats here or anything for either the Nasdaq or the NYSE. So no big concerns. 52 week highs and lows did manage to come in positive on the NYSE. Just over two to one positive there and just slightly negative for the Nasdaq. Lastly here, volume, roughly two and a half to one negative on the NYSE, but better for the Nasdaq. Under two to one negative on the day to day.

Looking at our sectors on the day today, not surprising that we had just two out of our eleven sectors finishing higher on the day today. Leading the way, though, is exactly what you want to see. The tech sector up about half a percent on the day. Also right there at an all time high, followed there by energy and then our laggards on the day. Utilities, real estate and financials, of course, don’t forget, tomorrow kicks off earnings season. We’ll get the big banks the first leaded off here, so stay tuned. We’ll be reporting on that here as well. Finally here for today, our VRA commodity.

[00:15:31]:
Watch a little bit of red on the screen here. Gold, excuse me, since recording this or since I started this podcast, looks like it had a little bit higher here. Gold now up about a quarter of a percent to $2,033 an ounce. Silver, down over six tenths of 1% to $22.91 an ounce. Copper now up a quarter of a percent to $3.79 a pound. And oil still stuck in this range in the lower 70s area, but up 2% on the day to $72.84 a barrel. Finally here for today, one of the most talked about topics. I’m surprised I haven’t gotten it to it more.

Found a way to work it in earlier to this podcast, but after the inflation data today, it got a backseat a little bit. Was bitcoin having a volatile day today on its first trading day for the brand new spot? Bitcoin ETFs, which traded big volume today, surpassing four and a half billion, according to Yahoo Finance. I believe that’s for all eleven of the new bitcoin ETFs, including grayscale, which just transferred over to an ETf. I will dive into that here today. But it did hit a 52 week high. A lot of those finishing higher on the day today, while crypto has had a bitcoin in particular, a volatile day, the price was up this morning, hitting a 52 week high, which this is a group that we remain very bullish on here, but hit 52 week high of 49,000 before going lower all of a sudden on the day now, just above even, up half a percent to 46,221. A lot of big calls out there today. Kathy Wood with the big one, which is betting against Kathy Wood, has been a long term losing proposition.

And you gotta love what she stands for, right? Innovation. That’s how we work our way through problems. Problems are actually great because they drive innovation. This is what she said at the beginning of COVID and then look what she did from there. Tech stocks had an incredible year. Innovation have incredible years after that. I mean, that’s a story that you can really get behind there, regardless of how you feel about Kathy Wood. Love her optimism about the future, and I would hate to bet against an optimist there.

[00:17:55]:
And she’s extremely optimistic on bitcoin. Her target for 2030 is either 600,000 on the low end to one and a half million of bitcoin on the high end again by 2030. She also said that she has roughly 25% of her net worth in bitcoin as well. So a true believer here. We’ve said for a long time, even before these bitcoin etfs were expected to pass, that this would be a very bullish thing in the short term. Harder to tell, but long term, this will be more money into the crypto space. So we remain very bullish there as well, folks. That’s all that we have time for here today.

Please be sure to subscribe to receive our VRA podcasts every day at the market close. You can sign up@vraletter.com click the podcast link at the top, and we’d love to have you with us. You can also find our transcripts there as well. So thanks again for tuning in. Until next time, we’ll see you back here tomorrow for the close.

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Time Stamps

00:00 Energy and rip prices rose more than expected.
04:48 Disinflation leading to deflation, Fed rate cuts.
07:48 Market sees massive bullishness, Fed may intervene.
11:56 Dow hits all-time high, finishes just shy.
16:15 Bitcoin ETFs trading volume surpasses four billion.
17:55 Strong optimism for bitcoin with potential growth.

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