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In this week’s newsletter:

1. Market recap

2. Skills & data used this week

3. Top holdings: what I am buying & selling

Market Recap

YTD returns:

• S&P 500: -16.8%

• Nasdaq: -28.76%

• Russell 2000: -17.62%

• Top holding position US Dollar ($UUP): +12.41%

Earlier this month we got the CPI report, a broad measurement of inflation. This week we received the PPI report, another measurement of inflation that can often be a leading indicator for future CPI reports.

PPI Report (Produce Price Index): displays change in cost of raw materials used in products

CPI Report (Consumer Price Index): displays change in price paid for good and services

You can start to see that as the PPI number increases, meaning the cost of raw materials going into products is rising, companies have to raise prices to maintain margins. That will lead to a higher end user cost, or a rising CPI report. The same goes for the opposite.

"S&P 500 closes higher after another lighter-than-expected inflation report, Nasdaq jumps 1.4%" - CNBC

"Yet another key economic report is showing inflation pressures are easing" - CNN

"Slower U.S. producer price growth adds to improving inflation outlook" - Reuters

Look, I'm not here to argue the facts - inflation, on a rate of change basis, is slowing. It has been for a few months now.

But it's slowing...SLOWLY. 

So because we've seen historic levels of inflation, and those historic levels are slowly slowing...we're STILL at historic levels.

And what does the Fed have to do when inflation is high? RAISE. MOTHER. F'IN. RATES.

Remember, the Fed is trying to get the blue line in that chart to 2%....

You may be onto something, Ray!

Skills & Data Used This Week

Are you sick of me talking about interest rates yet? 

You shouldn't be, because in my eyes what is going on with rates is some of the most telling signs in all of Macro.

"You get interest rates right, you tend to get a lot of other things right" - Keith McCullough, Hedgeye

Typical yield curve inversion: when the short end of the curve (2 year interest rate) exceeds the long end of the curve (10 year interest rate).

Ok, so why is this bad?

Think about a bank that borrows on short term rates while lending out on long term rates. It costs more to borrow than what they are receiving back in interest!

It's no surprise that all inverted yield curves lead to a recession. That's because recessions mean slowing growth, and the long end of the curve (10 yr) will fall on signs on slowing growth.

It's doing so to help aid in lowering the cost to borrow, which helps companies grow. Get it?

The problem is, the Fed influences the short end of the curve to combat inflation. So when you have a 10 yr curve that reacts to economic activity, coupled with a reckless Fed that is hiking short end rates to combat historical levels of inflation, you get...an inverted yield curve.

Inverted yield curves are a leading indicator of recessions. 100% of the time.

In The Account | my top holdings 

1. $UUP - US DOLLAR

   1. Last week I took this position to my max size (12%) due to an epic oversold signal. Currently it still sits there after a pretty quiet week, and I have no issue with that whatsoever.

On The Radar | positions I want to build / sizing up

1. HEALTHCARE - $XLV, $PINK

2. STAPLES - $XLP, $PBJ, $STKL

3. GOLD - $GLD

4. LOW BETA - $SPLV

5. HIGH DIVIDEND - $HDV

   1. All of these signals are starting to look investable again with the VIX coming out of the 30s; but, most of them are overbought so I'm going to wait for a selloff to start entering in position.

Off The Grid | removed positions / short selling opportunities

1. TECH - $XLK, $QQQ

2. FINANCIALS - $XLF, $KRE

3. BASIC MATERIALS - $XLB

4. INDUSTRIALS - $XLI

5. RETAIL - $XRT

6. HIGH BETA - $SPHB

7. CRYPTO - $BITO, $MSTR

8. HIGH YIELD - $HYG

   1. On the next market sell off I'd look to book gains in these shorts to then enter into the positions on my radar. See how this game works?

Until next week....

-BW

DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.