MAD Macro - Sorry Sir, It's Sticky
Sir, It’s Still Too High, It’s Up Here!
I Can’t See It, I’m an Elderly Man
The Tin Man is trying to see what inflation needs to be, before Jay eases policy. Krugman is telling him they can ease soon. Krugman keeps telling the Tin Man the soft landing is here and if Jay eases they can crush the Orange Mad King I in November. Yesterday’s CPI report was a little higher than expected but the market still believes the Fed will ease in June. Nick Timiraos, the official Fed whisperer, has a WSJ article today discussing yesterday’s CPI report, linked here. The Fed is in their quiet period leading up to next week’s meeting. So, Nick interviewed ex-Fed member, Eric Rosengren. Eric does not believe that the CPI report will stop the Fed from easing in June. Nancy Lazar, Piper-Sandler’s economist, believes inflation is sticky and still believes that the economy is headed for a recession. In a report yesterday, she points out that half of CPI components are posting 0.3% or higher month-over-month gains. She concludes that service sector wage gains will keep inflation sticky.
Not surprisingly, my favorite lefty economist, Paul Krugman, disagrees with Nancy. He has an opinion article in the NYT, linked here. It’s titled, “Is the Landing Soft? Will It Stay That Way?” Spoiler alert- he believes yes. But he is starting to worry a little about the labor market. I am predicting that Krugman will be writing constantly between now and the June meeting about the early signs of a slowdown in the labor market. Why? Because he will be pressuring Jay to ease. Why? Because he is more worried about the Orange Mad King I than inflation. Of course, he will never say that. I also think they will ease in June and it will be more about the Orange Mad King I than inflation. Maybe investors should hang on to some inflation hedges in their portfolios.
The market ignored the higher than expected CPI report and risk assets ripped higher again yesterday. Bitcoin is making new all-time highs again today. I continue to struggle with how bitcoin should be described. Is it a risk asset or a safety asset? Michael Saylor was on CNBC earlier this week and had an interesting perspective. He said people shouldn’t think of it as a digital currency. They should think of it as digital capital, or digital property. I am not sure. Maybe it does not matter. Risk assets are ripping higher and so are safety assets, like gold. I worry that risk assets are extended or maybe in an AI bubble. One note of caution for markets, Friday is the Ides of March and the dot-com bubble topped on March 24th, 2000. I included the chart today. Tomorrow we get the PPI report which will again be important. Expectations for the PCE report later this month, will be updated after the PPI report is released.
I included the chart of CPI which seems to have stopped falling at 3%. I updated the U.S. Dollar Index, U.S. 10yr yield, WTI crude oil, copper, spot gold, bitcoin, NASDAQ 100 Index in March 2000, S&P futures and NASDAQ 100 futures charts below.
The dollar is unchanged and interest rates are a little higher.
Crude oil is a little higher. Ukraine has been attacking Russia’s energy infrastructure this week. Today they destroyed a major Russian oil refinery. That should piss off Putin. Copper continues a nice rally this week. Today it is challenging the $4 level. Gold is a little higher after pulling back yesterday. I highlighted the near term support level of $2,135. Bitcoin, risk or safety asset, is making new all-time highs again. It has confirmed it’s breakout above the 2021 highs of 68,900.
I added the chart of the NASDAQ 100 index from March of 2000. S&P and NASDAQ 100 futures are unchanged after yesterday’s strong risk-on rally.
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S&P 500 futures are a type of derivative contract that provides a buyer with an investment priced based on the expectation of the S&P 500 Index’s future value. Nasdaq 100 futures are commodities futures products traded within the equity futures sector. West Texas Intermediate (WTI) oil is a benchmark used by oil markets, representing oil produced in the U.S. Brent Crude Oil is a blend of crude oil recovered from the North Sea in the early 1960s, whose price is used as a benchmark for the commodity's prices. The U.S. dollar index (USDX) is a measure of the value of the U.S. dollar relative to the value of a basket of currencies of the majority of the U.S.'s most significant trading partners. UBS Bloomberg Constant Maturity Commodity Index is a total return rules-based composite benchmark index diversified across commodity components from within specific sectors.
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