CPI: Calling People Idiots

Estimated read time: 4 minutes and 31 seconds

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: -19.18%

• Nasdaq: -31.57%

• Russell 2000: -21.49%

• Top holding position US Dollar ($UUP): +10.52%

On Wednesday of this week we received the CPI report (inflation) followed by the Fed's decision on rate hikes the following day.

CPI: 7.1% YoY vs consensus 7.3%

Anyone else thinking what I'm thinking? I know right, really fucking high still! Just making sure I can read charts correctly to notice that inflation hasn't been this high in FORTY YEARS.

And this is AFTER the Fed has hiked rates significantly. All of that pain and suffering of rate hiking has put only a small dent in this number...

This is one of my favorite weeks to scan headlines to see how the media reacts (wrongfully) to these reports.

"Inflation Cools Again, Adding to Hope the Worst Is Over" - Barron's 

"Inflation Cooled Notable in November, Good News for Fed" - NY Times

"Why November's CPI Data are seen as a 'game-changer' for financial markets" - MarketWatch

I mean seriously, people get paid to write these things? Spend 10 minutes a week in our posts and I can give it to you straight up, no BS.

The road ahead is STILL rough. Growth continues to slow and inflation remains high. Meanwhile the Fed has continued to remain hawkish in their fight against inflation, which means they are continuing on their quest for more rate hikes. All of this happening simultaneously is what happened in the 80s. 

Anyone remember Black Monday? I wasn't even born yet, but if I had the knowledge I do now about how our economy is trending and what the Fed is doing at the same time, I might have had a fighting chance against it.

No, I'm not saying we will have another Black Monday type of event; in fact, there are many investable places to be in the equity space currently that I could BTTD in (see positioning below). 

But there's also a lot of things I'm going to stay far, far away from over the next few months while all of this plays out. Because that's what you do when we're in a recession, you put your chips aside and wait for the right time to buy back in.

Someone put this clown in a home.

Skills & Data Used This Week

Debt.

In some cases debt is critical for a business to have as a means to invest into growth. But as most individuals see it, debt is not something you want a lot of.

Because when you have debt the primary goal is to...well...get rid of the debt as quickly as possible! Whether it be a car loan, student loans, or a mortgage, any chance you get to pay off the principle means less interest paid.

As debt accumulates, an individual might be less inclined to make purchases of certain things as a means to avoid having their debt get out of control (at least most competent individuals would act that way).

Maybe eating out less, going on shopping sprees, vacations, etc. 

Collectively, if enough people start to do this we would see demand slowing for a lot of consumer goods and services. 

Ok just get to the point already - peep this chart on consumer credit card debt:

Let's get the obvious out of the way: this graph looks like a meme stock.

Despite levels being triple what they used to be in the 2000s, let's focus in on the last 3 years as the Covid era has really shocked our economy (for better or for worse).

When Covid hit a lot of people were not spending like they used to...they physically couldn't! Restaurant and bars were closed, people worked from home, etc.

So naturally, debt fell as people were spending less. Oh and the government bailed us out with a nice stimmy check (see initial fall on the above graph in 2020)

Then what happened? Well, things reopened and life returned to normal (?). Regardless, spending increased and growth accelerated. The economy loved to see this and we had a historical 2021 year to prove it.

And then inflation kind of didn't stop going up....

And spending just naturally didn't stop. So debt started to rise as it got harder to pay off certain things in a timely manner. And here we are now, record highs of debt while demand is....

Body bagged.

It's no surprise that when debt is rising the consumer (who might I add is very important to our economy) can't afford things like a new car!

So demand in slowing. And inflation is still high. Oh and the Fed is going to continue hiking interest rates. 

Pay attention to this next section if you don't want to be body bagged over the next few months.

In The Account | my top holdings 

1. $UUP - US DOLLAR

   1. Yes, it's off the highs and not performing 'as well' as it did earlier this year. But, it still remains a core asset in this type of economy and continues to hold its trend.

2. $GLD - GOLD

   1. This one is getting beefed up on every red day, along with it's equity counterpart $GDX (gold miners). My GLD position will always remain higher than GDX because it has less volatility. GLD currently sits at 4.5%, GDX 2%.

3. $XLP (Staples), $PINK (Healthcare), $XLU (Utilities)

   1. All great sectors to be in and will continue to buy on red

4. $PPLT (Platinum), $SLV (Silver)

   1. Don't ask me why but metals have a great signal. I don't ask, I just do.

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

1. BONDS

   1. I continue to wait and watch both the 10yr and MOVE index to pick my spots in Bonds. I'm looking for the 10yr to ramp a little higher while the MOVE index remains <110.

Off The Grid | removed positions / short selling opportunities

1. TECH - $XLK, $QQQ, $GOOGL, $META, $TSLA

2. RETAIL - $XRT

3. HIGH BETA - $SPHB

4. CRYPTO - $BITO, $MSTR

5. HIGH YIELD - $HYG

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.