CPI Report

Hey everyone and thanks for jumping back Into the macroverse today we're going to Talk about the most recent CPI report if You guys like the content make sure you Subscribe to the channel give the video A thumbs up and check out the sale on Into the cryptoverse premium at into the Cryptoverse decom inflation came in at 3.1% uh which is it's a better number Than last month so last month it it came In just a bit hotter you can see if we Zoom in we we've Fallen headline Inflation you know couple of a couple of Tenents there down to 3.1% or so which Is at least a move in the right Direction but the expectations were that It would move down to 2.9% uh so it did certainly come in Hotter than expected and then core Inflation came in about the same as Where it was last month the headline Number well the you know the main number They're reporting for core CPI is of Course 3.9 you can see last month it was At 3.91 this month that came in at 3.87 So of course CPI remained relatively Unchanged and the expectation was that It was going to go down to 3.7% so inflation remains sticky and We've talked a lot before about how you Know making that last jump from 3% to 2% Is going to prove tricky and it's going To be the hardest percent to ACH achieve I mean you know going from 9 to8 or 8 to

Seven Isn't nearly as difficult to go from That 3% number down to that 2% number And look I mean so far the fed's job has Been relatively Straightforward and that's to raise Rates and to keep rates elevated and you Know I I I think that they haven't Really had much of a choice in the Matter especially after the whole you Know inflation is Transitory um Dilemma but now that we are getting Further further and further into the Business cycle at some point you would Have to imagine there's going to be some Tradeoffs right the labor market has Remained relatively strong um you know Throughout the entire business Throughout the entire hiking cycle and That's why I say it's left the FED with Very little choice you know and that's To to raise rates and to keep them Higher for longer but as long as Inflation remains at 3% and without Really showing a durable move to 2% you Have to wonder you know what is the Likelihood that the FED is going to cut As soon as as the market thinks and the Market's constantly changing what they Think just a few months ago the market Thought they were going to cut in March Then they thought they were going to cut In May and now it looks like the market

Thinks they not going to cut until June Right so the the timeline on these Nebulous rate cuts it just simply gets Continued to be you know it's pushed Further and further out every time we Get this data and if you think about What pal was saying he said that they Don't think they're going to have enough Data between the January meeting and the March meeting to Warrant a rate cut I Mean he basically came out and said that Which was telling considering he Normally doesn't like to advertise what They're going to do but he was pretty Convinced himself it sounded like that There's not going to be enough progress Made on inflation between January and The March meeting And certainly this most recent print has You know solidified that case that There's no guarantee that inflation is Going durably back to their target Especially if they were to Pivot now um You know if you go back to the 1970s and Pal has referenced this many times if You pivot too soon you run the risk of Getting another wave of inflation and I'm sure you've seen all the charts Posted to Twitter Twitter or X where People are sort of overlaying the 1970s To the current day and showing that look If if if we were to repeat what happened Back then then we run the risk of Another wave of inflation and of course

That's true I mean if the if the FED Were to Pivot too quickly then it could You know I mean it could lead to the to The economy reaccelerating even more and Leading to a second round of inflation You can kind of imagine what happened Over here right inflation started to Come back down the Fed got you know Somewhat optimistic pivoted too quickly And then we just got another round of Inflation and the same thing just kept Happening over and over and over again Until finally vulker came in and and Raised rates well above I imagine what Most people were Expecting and then ultimately durably Brought inflation back down to their 2% Target and they even overshot it all the Way down to 1% or so but it took a lot I Mean it took and and I think that was When they finally realized what it was Going to take to get it there you I Think before if you were to go take a Look at at let me just overlay interest Rates this is the S&P 500 overlaid with With interest rates if you were to go Back to the 197s and you can just see like you know All the rate hikes and pivots in here Right and then I think finally they were Just like all right well to hell with This we're just going to raise rates Until inflation really is You know durably back to Target and then

We'll finally rates and you can see That's exactly what they did right I Mean they they they pivoted too quickly And then they had to raise rates again And pal has said that they want to avoid That scenario right they want to avoid The scenario where they cut and then Have to and then a few months go by and Then you see the economy start to re Accelerate you see inflation start to go Back up and then you run the risk of Having to go to a higher a higher rate Pal has said said that 52% is likely the Terminal rate that was my expectation You know almost 2 years ago was that 52% Would be the terminal rate for this Business cycle but if they were to Pivot Too soon and let's say go back down to Like 4% or something and if inflation Were to re accelerate then they might Have to go up you know to an even higher Interest rate right like to 6% or Something I imagine they want in in a in Say like a future business cycle I Imagine they would like to avoid that But I guess we're going to find out if The FED really means what they say and If they will keep rates high enough Until inflation is durably back going Back to Target and right now I don't Think anyone can look at this data and Definitively say that inflation's going Back to Target it could be right I mean There's a chance that if they were to

Pivot now that it could go back to Target but we don't know right like I Mean there's not any clear Path here that shows that it's going Back to 2% and again going back to the 1970s we can see periods where it got Down to 3% or even 5% and then just re Accelerate it so that is something I I Think we have to you we have to keep in Mind now if you were to look at per Category right so this is this is per Category we're going to go through all Of them so here's headline okay it it Came down really quickly down to to 3% But then it's basically been at 3% since June of 2023 hasn't really Moved food and beverages continues to go Down right so it was at 2.72 now it's a 2.55% so it continues to come down I got To remind people I I wish I didn't have To remind people of this but you know There's even like leaders that that say This sort of stuff I'm like how can you Not know this it's just because Inflation is coming down does not mean That prices are coming down okay we have To remember that if the the in if food And beverage inflation is 2.55% right that doesn't mean food Prices are going down it just means They're going up less quickly okay means Are going up 2% a year instead of you Know what we were getting which was Around 10 to 11% a year so try not to

Mistake disinflation With deflation right disinflation is Just where the rate of change of Inflation it's still above zero right It's still above zero but you're still You still have some level of Inflation there are some categories that Have experienced deflation meaning it's Gone below zero and prices have Theoretically come down although a lot Of people would dispute that housing is Not one of them housing remains Relatively elevated continues to move in In the direction that you might expect Right now it dropped from 4.83% down to 4.66 but it's still going relatively Slowly and of course this is one of the Major contributors to CPI apparel is Something that is now basically back to Zero I mean you can see that last month It was at 1.38% before that it was at 2.71 so this one has come all the way Back down to zero so what you have is You have some categories that are really Elevated like housing in terms of Inflation but other categories seem like They're already back to Target now some People might make the case that if the FED were to Pivot now the other Categories would eventually make it to Target but I think the issue is that While you may be true about that Assertion I don't think that the FED is Willing to take that risk right you

Might be willing to take that risk but I Don't think the FED is willing to take That risk and that's why I think they Will you know little likely not cut in March um transportation is one that went Deflationary not too long ago but now Now it's back to being inflationary by About 2% or so but transportation is Something that has often gone Deflationary um it tends to be a little Bit more volatile than some of the other Data series Medical Care also Theoretically went deflationary although I know a lot of people would dispute That I'm not going to argue with you I'm Just looking at the data back up to 1% Right so some of these that were defl And we're helping to detract from CPI Have now started to contribute again to It so while you do have things like Housing going down still you have things That were Deflationary now becoming inflationary Again like transportation and Medical Care Recreation was probably one of the Bigger store points of this report Because it went back up right it was it Has been moving down but it found at Least a local bottom in November at 2.49% then it went to 2.71% in December And then back up to 2.77% in January so This is a metric that continues to go in The wrong direction and and that's two Months in a row now which I'm sure the

Fed's not going to be happy to see Education and communication was Deflationary a couple of months ago Month or two ago now it's back to being Slightly inflationary but still near 0% And then finally other goods and Services has remained sticky as well and Has gone up from 5.55% to 5.7% and this Has been one of the stickier series that We've had I mean you can see that hasn't We haven't really made a ton of progress I mean we've moved up from a high of 7.02% to 5.7% not a lot of change in the grand Scheme I mean think about that like the FED went from basically 0% rates to 5 And a Half% and other goods and services Inflation has only dropped from you know 7% or so to 5.7% so not a lot of Progress there so if you're looking at At this right if you're looking at these Categories whether you're looking at Headline inflation whether you're Looking at at core inflation whatever it Is you're looking at I don't think you Can look at it and say that the FED Needs to cut again I'm not saying that That's necessarily the right choice There is a path that exists in a Theoretical Universe where the FED starts to cut in March and it turns out to have been the Right decision because all the other

Categories are just simply lagging and While the FED might cut you know 25 Basis points or something it's not going To have a mere material effect and it Could help you know could help the Economy when it needs it most but I Don't think the fed's going to do that I I don't think they're in the business of Trying to predict where things are going To go they're more in the business of Reacting to where things do go and Honestly that's you can't really blame Them if they were going based on what People were predicting you know I mean People are predicting all sorts of Things for the last two years it didn't Come true um So core inflation still sticky you know It's still near 4% well above their Target of 2% First Rate cut has potentially been Pushed out to June what does that mean As an investor well remember as an Investor the further you get late Business cycle The further you get especially as it Continues to get extended out higher Risk assets continue to bleed to lower Risk assets and again you know if you Were to go look at like I mean so the S&P is is down a little bit today but The the Russell is down 4% I mean the Russell is actually down 4% today and You have to wonder right like why is the

Russell down so much and my argument and I I've said this many times is that the Smaller mic you know the smaller Companies that don't have the luxury of Having like you know tens of billions of Dollars on their balance sheet because They're newer companies they just Haven't really taken off like some of The bigger ones they are starved for QE And for lower rates they need lower Rates to to Really perform well or they Need to at least see some type of Normalization where they can expect Lower rates in the not so distant future Remember markets are forward looking They don't necessarily wait until Something happens to start pricing in That thing happening so over the last Few days the Russell was moving up and Then look what happened today I mean It's basically wiped out you know two And a half days of gains in a single Day because like one of the reasons here Right if we were to go up here and and Look at at rate cuts the rate cut that Was potentially going to come in May is Now delayed until June and So it's got to be hard right for a lot Of smaller companies that were hopefully You know counting on rate cuts to start And then you have to wonder like if You're a company and you're you're Trying to you're trying to save on Expenses and whatnot you're doing

Everything you can to to potentially not Lay people off which again that would Cut cost you can just lose steam right You sort of run out of options and and Then you have to start doing things you Don't necessarily want to do like laying People off if if the FED can't cut soon Enough and so we always you know each Business cycle we run into this dilemma Where will the FED cut soon enough to Delay something like that happening one Of the things to look at is is when you Look at like the Russell against the S&P 500 you can see that it was starting to Outperform the S&P for a few days in a Row right but then today it's giv back a Lot of that it's down the russle is down 2.3% against the S&P 500 on a day where The S&P is down 1.7% Itself so you know this is why I've said Before right like the higher risk plays Right like the smaller market cap Companies if it's true that rate Cuts Come soon then the market likes to run With that and start pricing that in and You'll see the market sort of go back up But the minute that those rate Cuts get Pushed further and further out those Companies like to just give back those Gains right and that's one of the risk Of of the higher risk stuff is that you Really you just don't know when the Pivot is actually going to come and so What ends up happening is the lower risk

Stuff continues to outperform right like The NASDAQ and the S&P are only down 2% Today but the Russell is down down 4% Today so you can see it pretty clearly With these companies and one thing to Sort of keep in mind if you were to look At at say like the Russell divided by The S&P 500 and you were to Overlay um What's a good thing to Overlay let's Overlay bankruptcies so let's overlay Bankruptcies onto this chart of course Um uh United States bankruptcies uh is What I'm want to look At so if you do that I mean you can see That bankruptcies have have really been Moving up since about mid 2022 still Relatively low given all the history I Mean like it's not and this is just Going back to where the Russell but I Mean still relatively low all things Considered but still moving in the wrong Direction right let me pull up the S&P 500 so we can see this chart perhaps a Little bit further out so this purple Line here shows shows bankruptcies right So you can see bankruptcies are on the Rock But they're actually still lower than Where they were back over here right Before the financial crisis now again They are moving up quickly and my guess Is that they will continue to move up so Long as the FED refuses to Pivot right Because the companies are still going to

Say well where's the QE where are the Lower rates so this is the sort of the Conundrum that we're in is That inflation is is sticking But markets really want looser monetary Policy I mean you know you could argue The S&P doesn't really need looser Monetary policy You could argue the NASDAQ you know they've been pushing to New highs right do they necessarily need Looser monetary policy probably not but Smaller market cap stuff does right I Mean the Russell hasn't pushed new highs And and it's continued to struggle here For a long time and it's been bleeding Back to the to the lower risk companies Which were more confident can survive The business cycle every few weeks You'll see another company that you Might recognize declare bankruptcy or Lay people off and you know for a long Time the market ignores it remember the Things that we've said before is that The S&P it loves climbing the wall of Worry until it has a reason not to do so And the two main reasons other than Geopolitical risks are the Reacceleration of inflation or the labor Market softening up so far inflation Hasn't re accelerated I mean it's it's Been flat right I mean I know some People are are are saying that it's Reaccelerating and I'm not saying it Can't turn into that but at this point

It's still relatively flat you know Since June of 2023 headline and core Still slowly is moving down so you have Inflation that has not re accelerated so That's one risk has not re accelerated So the S&P continues to come to well of Worry the other risk of course is the Unemployment rate right which by the way Still Remains relatively low right the Unemployment rate is at 3.7% so again right now the FED has an Easy Choice unemployment rate at secular Lows inflation sticky you don't Cut what do they do let's say in May or June if the unemployment rate is Starting to move higher and inflation Isn't yet moving lower that's I think You know sort of a problem that you know We'll have to address if it happens but Um that I I think is is going to be a a Market reaction there's going to be some Type of Market reaction there right if Like you know if the unemployment rate Is starting to move higher later this Business cycle but inflation is still Not moving lower and then we'll test the Fed's result right then we'll see do They actually mean what they say or was It all just words um so so far again the Market has sort of pivoted over to Thinking that no rate Cuts until June And um I don't know we'll see if they Can we'll see if they can make it that Long they've already said before they

Only plan on cutting three times this Year so if they cut in June and July um And then the market has them potentially Pausing in September and then one in November it looks like the market is Still thinking they'll they'll cut four Times going down in December as well but Maybe it's worth considering that the FED can't pivot that aggressively with Inflation where it is today so just Something to Consider you know and you you could also Make the same sort of arguments for for The altcoin market against Bitcoin right And and you know we've talked before About how Bitcoin absorbs more of that Market share the further business cycle We get I still think that's going to be The case so as an investor the whole Idea is that the lower risk stuff within That asset class outperforms the higher Risk stuff within that asset class and I I still think that'll continue to be the Case if you guys like the content make Sure you subscribe to the channel give The video a thumbs up and again check Out the sale on into the cryptus premium At into the Crypt .c I'll see you guys Next time bye