Sticky Inflation Backstabs Market

Sticky inflation exploded to the upside, wrecking the stock market. [The Rude Awakening] February 14, 2024 [WEBSITE]( | [UNSUBSCRIBE]( Sticky Inflation Backstabs Market [pub] “Where did all these bubbles come from?” - Treasury Secretary Janet Yellen (under her breath) [Sean Ring] SEAN RING Yesterday’s inflation numbers sucked. First, the headline number was 3.1% year-on-year, while the market expected 2.9%. What’s the difference, you ask? Nothing in the present. But 0.2% compounded, on top of all the other idiotically high numbers over the past few years, starts to add up. But really, the market has to pick a target. And when the USG misses, the market reacts - sometimes severely. What Happened? Yesterday’s market thumping was the first real sign that we’re getting toppy this year. I still think the SPX will hit 6,000, and gold will hit at least $2,500. But we may have to suffer a bit of turbulence first. And I’m not blaming Jay Powell for this one. This lies squarely on our barely conscious President, his feckless Congress, and his somewhat vacant Treasury Secretary. While the Fed has tightened rates - and left them there - the Executive and Legislative branches have been spending like drunken pirates just off the ship in Tortuga. But before we go further, let’s get [the details from the horse’s mouth]( (bolds mine): The all-items index rose 3.1 percent for the 12 months ending January, a smaller increase than the 3.4 percent increase for the 12 months ending December. The all items less food and energy index rose 3.9 percent over the last 12 months, the same increase as for the 12 months ending December. The energy index decreased by 4.6 percent for the 12 months ending January, while the food index increased 2.6 percent over the last year. The first bold is the aforementioned headline number. It missed. Sure, from December, the number came down from 3.4%, and that’s good. But it didn’t come in under 3.0%, which is what the market was looking for. The real gut punch was the second bold. Excluding the two most critical civilizational requirements, food and energy, the rest of the products rose nearly 4%. Inflation is gone? Like hell, it is! And this is where we must feel just a bit of sympathy for our weary Fed Chairman. Sure, he started hiking too late and then hiked too quickly. But he didn’t fold like a deckchair when the market requested cuts. His monetary policy has been tighter than Scrooge’s wallet. No, Jay Powell essentially said, “F*ck your cuts and shut the f*cking door!” But it’s to no avail. And that’s thanks to the government’s remarkably expansionary fiscal policy. The total government debt outstanding is now $34.2 trillion, which gives America a 122.8% debt-to-GDP ratio - positively Greek! The third bold is quite interesting, as the energy index decreased and the food index increased. The food index increase is no surprise. With all the supply chain difficulties, that was to be expected. But I’ll ask a question I asked in Friday’s Rude again. If you knew the Suez was cut off to any Israel-allied vessel, wars were raging in Ukraine and Israel, and Taiwan was getting ready to defend itself, what do you think oil would be trading at? $100? $125? $150? Well, oil finally got goosed today, but only to $77! Our economy isn’t in a technical recession only by the “grace” of an insane deficit. And now a word from our favorite Nobel Prize winner: [CPI] Credit: [@paulkrugman]( And he wonders why he didn’t get the Fed chair instead of his old Princeton buddy Bernanke! Jillian Michaels, whoever that is, explains it to Bill Maher much better: [Chief Nerd] Credit: [@TheChiefNerd]( Clearly, we’ve not slayed inflation, and that has knock-on effects. The Dollar Popped Jay Powell will keep the punch bowl away for longer. That means higher rates for longer, and the dollar acted accordingly: [USD] The dollar popped nearly a point in one session. The probability of the Fed cutting rates in March now stands at 8.5%. I can’t see it happening until midyear, myself. [China to Launch Gold-Backed Currency]( A mountain of evidence compiled over the past 20 months makes it clear to us that China will make this announcement as soon as February 6, 2024. How you handle this situation will be one of the most important financial decisions you ever make. Here are 3 steps to take right now to protect yourself - and a $2 gold mining stock that could soar 1,000% when their announcement comes. [Get the name of the micro-cap here ]( [Click Here To Learn More]( Bonds Puked It’s not so much that TLT fell. It’s that there’s a load of space between here and the next level. [TLT] Lower highs and now a lower low - not great. We're looking to close that gap at 84. Stocks Puked I’ve seen boxers look better after they’ve fought Tyson in his prime. [Market Overview] Credit: StockCharts.com Nothing looked good, especially the VIX, which popped up to 18 before calming down at 15.85. The VIX is a measure of the expected forward volatility of the SPX. The higher that number, the worse it is. But kudos to Nvidia (NVDA), which nearly recovered all its losses on the day: [Nvda] Everything else got carted out. Mr. Slammy Smashed Gold On the New York open, Mr. Slammy decided he had had enough. Gold was down $40, below $2,000 for the first time in a long time. [XAUSD] Credit: [Kitco]( If the inflation story is real, why is gold down? Because Mr. Slammy is a bastard, that’s why. Bitcoin Withstands The Biggest Coin of Them All is holding its own. [BTUSD] It's still just a bit below $50,000—nice one. I’d like to see that kind of grit in gold. Wrap Up Sell everything? Of course not. But now we know where the market is vulnerable. Equities and gold may recover tomorrow. You never know with this crazy market. But I can tell you one thing: Joke Biden won’t like this one bit, and he’ll be pulling every lever he can to get the markets back onside. Let’s see how it plays out before doing anything rash. All the best, [Sean Ring] Sean Ring Editor, Rude Awakening X (formerly Twitter): [@seaniechaos]( P.S. In Jim Rickards’s Currency Wars, he quoted Genesis 47:15: So when the money failed in the land of Egypt and in the land of Canaan, all the Egyptians came to Joseph and said, “Give us bread, for why should we die in your presence? For the money has failed.” Is our money failing right now? Are we in the midst of a currency war? [Found out here.]( Because once this monetary apocalypse hits, it could already be too late. I don’t want to sound like a scaremonger. But even if I’m wrong, it can’t hurt to be prepared. [It can only help.]( In Case You Missed It… An American Bull While China’s Shot [American Bull] [Sean Ring] SEAN RING For years, my friend and colleague Jim Rickards has been talking about the weakness of the Chinese economy. With all that talk, China’s stock markets reflect that purported weakness. [In an editorial]( for the Pinko Paper - that’s the FT, Brussels’ mouthpiece - Stephen Roach, a faculty member at Yale and former chair of Morgan Stanley Asia, writes: It pains me to admit it, but Hong Kong is now over. A city I once called home and have cherished as a bastion of dynamism has had the world’s worst-performing major stock market over the past quarter of a century. Since the handover to China in 1997, the Hang Seng index has been basically flat, up only about 5 percent. Over that same period, the S&P 500 has surged more than fourfold; even mainland China’s underperforming Shanghai Composite has far outdistanced the Hong Kong bourse. Here’s the Hang Seng (Hong Kong’s index): [HK index] And the Shanghai Composite: [Shanghai index] These charts are so ugly that you’d have to tie a pork chop around them to get a dog to play with them. Contrast this with the major US markets: [Spx, Nas, russel] These may be hard to see, but that’s the SPX, Nazzie, and Russell 2000. They’ve all been in uptrends since November. After reading Roach’s piece, my good friend and Hong Kong hedge fund manager, H, had this to say: This is interesting. The issue is that we are taught to value markets according to Western metrics. However, Asia does not follow that. Look no further than property. Had you bought a property, had a business you'd be doing well. If you had bought shares in the same then you'd have gone sideways. The West is equities. Asia is bonds and hard assets like property and land. In addition, I do not think Hong Kong will rebound unless the mainland reverses course. I would be the first to buy the moment the big guy announces stimmies for China and reverses its policy. As the adage goes, the time to buy is when the government panics. Right now they are not panicking. The question is, if China’s and America’s economies are so interlocked, why is the American stock market outperforming China’s? Here are three possible reasons why. [Genesis 47:15 – For the money faileth]( Jim Rickards started out his 2011 book Currency Wars with this quotation from the Genesis: “And when the money failed in the land of Egypt, and in the land of Canaan, all the Egyptians came unto Joseph, and said, Give us bread: for why should we die in thy presence? For the Money faileth.” Now, nearly 12 years later it looks like he was exactly right… Because according to him…The money is beginning to fail. [And we are on the cusp of an all-out financial war for the U.S. Dollar]( And if you aren’t prepared soon…You’re going to get caught in the crossfire. That’s why he’s recorded [an urgent briefing]( to tell you exactly what you need to do to prepare. Because with the fate of the U.S. economy hanging by a single thread… You don’t want to take any chances. [Click here to view]( [Click Here To Learn More]( An Object in Motion Tends to Stay in Motion Reader, let’s welcome Ingy Chart - allegedly her real name - to the Paradigm Press team. She’s our new research analyst and provided the charts below. The market has gone up since November. That doesn’t mean it’ll go up forever. But it’s fair to assume it’ll continue in the near future. While the charts will look overbought to some, it’s the fourth year of the Presidential election cycle - typically good for stocks. You’ve also got a Federal Reserve with some dry powder for once. By midyear, the Fed should be cutting rates to give the flailing Democrat campaign some cover. [Returns] Credit: [The FT]( According to the chart, the S&P 500 would hit about 5,650 in twelve months if it were just an average return. Our target is 6,000. Momentum can be a powerful market determinant. Credit Spreads are Tighter Than a Clam’s Bottom Since we didn’t suffer a technical recession - how can you when the government overspends by $2 trillion - Mr Market thinks one won’t happen now. Note: the credit spread we refer to here is Moody’s Baa (S&P: BBB) corporate bond yield minus the 10-year UST yield. The difference or “spread” between the two is the premium you receive for default, maturity, and yield curve risks. [Credit] Credit: [AO Wealth]( These spreads are historically low or “tight,” meaning investors don’t require much premium to invest in these bonds. That means investors feel safe. America’s AI Advantage Look at the below chart. First, CAGR is the compound annual growth rate. In everyday parlance, if we say a stock is earning 10% per year, that’s a compound annual growth rate. TSR is total shareholder returns. TSR includes income in the form of dividends and capital gains (and losses). [CaGR] Credit: [McKinsey & Company]( Notice the “x” after the bolded numbers. That means leaders in AI in the insurance sector outperform laggards by 6.1 times as measured by CAGR, not 6.1%. Wow. So here’s another clue, or golden nugget. When looking for companies to invest in, make sure they’re among the leaders in their sector for AI. That should help them outperform as a company and you as a shareholder. Wrap Up The upshot is that the US stock market is roaring, and I hope you’re participating in the rally. China’s stock market is a damp squib compared to what’s happening in the States. For now, at least, we have momentum, investor confidence, and AI on our side. As English Cavalier poet Robert Herrick once wrote, “Gather ye rosebuds while ye may!” And have a great day! All the best, [Sean Ring] Sean Ring Editor, Rude Awakening Twitter: [@seaniechaos]( [Paradigm]( ☰ ⊗ [ARCHIVE]( [ABOUT]( [Contact Us]( © 2024 Paradigm Press, LLC. 1001 Cathedral Street, Baltimore, MD 21201. By submitting your email address, you consent to Paradigm Press, LLC. delivering daily email issues and advertisements. To end your Rude Awakening e-mail subscription and associated external offers sent from Rude Awakening, feel free to [click here.]( Please note: the mailbox associated with this email address is not monitored, so do not reply to this message. We welcome comments or suggestions at feedback@rudeawakening.info. This address is for feedback only. For questions about your account or to speak with customer service, [contact us here]( or call (844)-731-0984. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. 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