Thursday, July 13, 2023

Morning Note: Never's A Long Time! -- And -- Working on a Mystery ♪♪

We'll keep this morning's note short and sweet, and illustrate exactly why yesterday's soft CPI number very much jibes with our go-forward base case, and why we continue to actively hedge against what remains not-small downside potential in equities before the current market cycle completely plays itself out.

First, here's our 63-year chart of the Leading Economic Indicator/Coincident Indicator Ratio (red-shaded areas highlight past recessions):

Yep -- while there's perhaps a first time for everything -- this particular indicator has never seen present levels without a recession to follow... Never, by the way, is a very long time!

Now, we indeed remain structural bulls on inflation... "Structural" being the operative word there.. For, as I've stressed multiple times (in videos especially), if/when recession hits, we inflationistas will get lambasted by those who think that, at the end of the day, nothing's really changed, and that inflation will settle right back into essential nothingness for many more decades to come... I.e., as the economy slows, so does inflation -- you can 100% bet on it!

Well, now, you won't catch me lambasting anybody when we emerge from recession (if indeed one's in the offing), and inflation rises -- with ease -- from the ashes, right back above what we firmly believe has become a long-term untenable 2% Fed target... Nope, I promise, there'll be no I-told-you-so's (well, no mean-spirited ones for sure) from me -- you see, I know, from experience, this stuff ain't easy!

Note: I've written volumes on our inflation thesis over the past few years... If you're new to the blog, or if you'd like a review, this one from December 2021 captures it pretty well.

Back to yesterday's CPI print, and why it makes perfect sense to us...

Here I'll fold CPI (in yellow) into the above graph:

Yep, as you can see, falling inflation (this morning’s PPI reading as well) is/was a virtual inevitability given the overall setup signaled by, among other things, that LEI/CEI ratio! What would typically be next (not necessarily tomorrow, mind you) on that graph is what the equity market is not remotely anticipating at this juncture.

Stay tuned...

Asian stocks rocked overnight, with 15 of the 16 markets we track closing higher.

Same for Europe so far this morning, with 16 of the 19 bourses we follow trading up as I type.

US equity averages are up to start the session as well: Dow by 112 points (0.33%), SP500 up 0.57%, SP500 Equal Weight up 0.38%, Nasdaq 100 up 1.05%, Nasdaq Comp up 1.00, Russell 2000 up 0.73%.

As for last yesterday’s session, US equity averages closed higher: Dow by 0.3%, SP500 up 0.7%, SP500 Equal Weight up 0.5%, Nasdaq 100 up 1.2%, Nasdaq Comp up 1.2%, Russell 2000 up 1.0%.

This morning the VIX sits at 13.31, down 1.70%.

Oil futures are up 0.95%, gold's up 0.14%, silver's up 2.00%, copper futures are up 2.07% and the ag complex (DBA) is up 0.05%.

The 10-year treasury is up (yield down) and the dollar is down 0.48%.

Among our 34 core positions (excluding options hedges, cash and money market funds), 31 -- led by MP Materials, URNM (uranium miners), SLV (silver), HACK (cyber security stocks) and DBB (base metals miners) -- are in the green so far this morning... The 3 losers are AT&T, JNJ and Albemarle.

Tom Petty on trading stocks 😎:
“Workin on a mystery, goin wherever it leads"


Hey, might as well ↓

Have a great day!

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