Investors,
Inflation is accelerating. Stocks are incredibly weak. Bitcoin is crashing. It’s so over.
That’s what sensationalists want you to think…
As usual, they continue to be completely detached from reality. I spent most of 2023 combatting these desperate claims and providing clear evidence to prove that the opposite was true:
Disinflation was strong & would continue to persist.
Stock market trends were bullish & upside participation was wide.
Bitcoin was in an uptrend & would benefit from an array of catalysts.
Amazingly, those same folks are repeating the same talking points from 2023, unwilling to swallow a bitter pill and face reality. As I’ve said in the past, “it’s okay to be wrong but it isn’t okay to stay wrong.”
Instead, they default towards a form of cognitive dissonance — unwilling to reconcile their beliefs in fear that they will have to admit that those beliefs were wrong.
And so, they bury their heads in the sand, shouting the same nonsensical claims, and even going as far as to say “I was right!” or “I told you so!”.
Hopefully, the 9,000+ of you who are subscribed to Cubic Analytics have learned to identify this behavior as laughable (at best) and are armed to combat these claims.
Today’s edition will, once again, aim to keep investors on the right side of truth.
Macroeconomics:
Inflation continues to decelerate, despite the fact that headline CPI jumped from +3.1% YoY in November 2023 to +3.4% in December 2023. Certainly, there are aspects & components within the CPI that did accelerate vs. the prior month; however, the broad-based behavior of the CPI continues to reflect disinflation.
For example, both the median CPI and trimmed-mean CPI (measures of how the average CPI component is evolving) decelerated in the December data:
Specifically, the data shows that:
Median CPI decelerated from +5.24% to +5.06%
Trimmed-mean CPI decelerated from +4.03% to +3.88%
Core CPI, also shown in the chart above decelerated moderately from +4.0% to +3.9%.
Taking it a step further, the Sticky Price CPI excluding Food & Energy also decelerated, which is fantastic considering that the sticky price CPI intends to track the items within the index that are the “stickiest”.
Per the Federal Reserve’s own admission, the sticky price index is important because it is “thought to incorporate expectations about future inflation to a greater degree than prices that change on a more frequent basis”. As such, seeing an ongoing deceleration in this datapoint is a useful way to validate that the disinflationary trend is intact.
As I combed through the individual components of the CPI, which you can read here, I saw clear evidence that disinflation was the significant trend in December, despite the fact that headline came in hotter than anticipated and hotter than the prior month. As I reiterated after the release of the June, July and August data: disinflation is in full force and the headline data isn’t painting the accurate picture. Nuance is required, but the trend of disinflation is clearly evident.
My biggest concern from the CPI data was the fact that headline CPI excluding Shelter (the largest & laggiest datapoint) did re-accelerate on a YoY basis:
However, on this point, I want to reiterate three things:
CPI ex-Shelter has a YoY inflation rate of +1.88%, which is below the Federal Reserve’s target and certainly within the historically normal range. The takeaway here is that every component within the CPI (except for Shelter) is under the Federal Reserve’s target.
The latest uptick in December is still below the YoY levels from August and September 2023, which came in at +1.90% and +1.99%, respectively.
On a month-over-month basis, CPI ex-Shelter is experiencing deflation for the past three months! The last three MoM readings have been: -0.2%, -0.5%, & -0.4%.
I challenge anyone to look at this chart and tell me that inflation is accelerating.
Supported by ongoing data and forward-looking indicators, I continue to reiterate my disinflationary thesis.
Stock Market:
Once again, people are casting doubt and aspersions about the stock market.
Mind you, these are the same people who made the same arguments last year, when all of the indexes outperformed their average calendar year returns en route to massive gains. Eventually, they’ll be right and the market will fall (as it always does), but it’s absolutely bonkers to think that these people have any merit in market-timing after such a horrendous ability to navigate market dynamics over the past 18 months.
So let’s actually look at the data…
On a YTD basis, each of the major indexes are slightly positive or flat in 2024.
In fact, all three indices made new 52-week highs or all-time highs in each of the past two trading sessions this week! While there was some initial volatility to start the year (on low volume, by the way), the market has generally snapped back quickly and trended sideways for the past 4-5 trading sessions.
That doesn’t sound weak to me…
It certainly isn’t weak when the MVP’s of the stock market continue to act like MVP’s!
If anything, the price structure that we’re seeing in the world’s greatest companies continues to reflect bullish dynamics that are likely to create a broad-based ripple effect throughout the rest of the market.
When I look at this chart, I see the following bullish dynamics:
An upward sloping 200-day moving average cloud (which is also potential support)
A bull flag breakout in November 2023 that has continued to be effective
A base breakout above the former ATH’s in November 2021 and July 2023
So long as the NYSE FANG+ Index stays above that green base, my bias will be bullish.
Bitcoin:
I recorded a podcast last night with the guys at the Investing Broz (skip to the 6-minute mark for the start of the discussion), covering everything from the launch of the Bitcoin ETFs, price action, and expectations for BTC & alts going forward.
As always, our conversation isn’t complete without some discussion about macro so we briefly discussed the key trends taking place in the economy as well.
Best,
Caleb Franzen
DISCLAIMER:
This report expresses the views of the author as of the date it was published, and are subject to change without notice. The author believes that the information, data, and charts contained within this report are accurate, but cannot guarantee the accuracy of such information.
The investment thesis, security analysis, risk appetite, & timeframes expressed above are strictly those of the author and are not intended to be interpreted as financial advice. As such, market views covered in this publication are not to be considered investment advice and should be regarded as information only. The mention, discussion, and/or analysis of individual securities is not a solicitation or recommendation to buy, sell, or hold said security.
Each investor is responsible to conduct their own due diligence and to understand the risks associated with any information that is reviewed. The information contained herein does not constitute and shouldn’t be construed as a solicitation of advisory services. Consult a registered financial advisor and/or certified financial planner before making any investment decisions.
AS always, an interesting read, even though I had to listen to part of it this time )) Maybe on next week’s call, you could spend a little time going over the historical dynamics of BTC around halving events?