Friday Chart Book
From hereon, I am inviting a good friend and fellow macro enthusiast, “Macro D”, to chip in with his timely thoughts and observations.
You know, looking at the world through more than one lens always adds value, and Mr. D, as I call him, has been an invaluable source of ideas and thoughts for my own purposes over many years. He is way more philosophically minded but usually hits the investing “Zeitgeist” with immaculate accuracy.
So I asked him whether he’d like to contribute his thoughts to my readers, which he graciously accepted. I am blessed and I hope you will be too. The floor is yours, D.
Jay said on Tuesday (April 16th) that recent data shows a lack of further progress on the inflation front.
Now, the mighty governor warns us sailors that the Federal Reserve will only cut rates when it has confidence in declining inflation.
Evidently, this trust does not exist now.
This state of affairs makes a short-term interest rate cut unlikely.
Powell says in order to have confidence in a sustainable decline in inflation towards the 2% target (level sought by the Fed, ed.), "it will probably take more time".
Jay also opined that “The latest data shows solid growth and continued labour market strength, but also a lack of further progress this year in returning to our 2% inflation target.”
Since July 2023, the Fed has kept its key interest rate within a target of 5.25% to 5.5%, the highest in 23 years, and this is also the result of 11 consecutive rate hikes starting in March 2022.
What happened?
We were all well hidden behind the market door, listening and placing the first orders, and then suddenly the music changed. On Wednesday, April 10th, the inflation bell rang.
The result?
Someone fainted, someone else was stunned, and someone else is still in front of the screens wondering:
What if the FED's next step isn't a rate cut but a rate hike?
Let's think this through and start with the graph that the Federal Reserve cannot do without.
It must be recognized: it seems that the destination of this line is the moon.
Well, where did this latest pandemonium originate? It was born when the graph below was formed.
And now, some pressing questions:
Are we sure that this graph reflects the reality of things?
Are we certain that there are no anomalous underlying trends behind this graph?
Not so long ago, I remember dramatic testimonies that told of food prices now close to skyrocketing and, therefore, a large part of the American population now close to a forced fast. It's time to see some more updated graphs pass by, and as if by magic, it would appear that our fellow Americans' refrigerators are once again full of food.
What if even this 3.5% inflation was a false alarm?
The former Italian Prime Minister, Giulio Andreotti, loved to repeat:
“It is a sin to think badly of others, but one often guesses.”
So, let's try to imagine a different scenario:
What if the Federal Reserve Board had simply said to itself:
“Do you know what is there? Why don't we let Europe act as a guinea pig this time? Let's leave it up to them to lower interest rates first. We're here to see. Let's see how it goes. We have time.”
Someone within the committee may have said:
“Yes, but with what excuse are we backing out now when everyone expects three consecutive cuts between now and the end of the year?”
“How do we do it?” Powell might have replied, well, and perhaps he smiled.
Powell knows perfectly well that the core PCE index so loved by the Fed does not take into account some data that are anything but useless and not worthy of consideration.
For example.
Car insurance costs have risen dramatically this month. Still, the PCE index does not give this data the importance it deserves and does not recognize the implications that this data has on the financed markets (even more so in this historical moment). The PCE index offers the car insurance component a minimum weight of only 0.5%, while it is lower because the compensation requests are subtracted from the premium amount. While this element is weighted at only 0.5% for the CPI, it is worth 3% for the CPE.
Let’s now turn our attention to the charts. By now, most of you will be familiar with the models and their signals. If not, please study the guide I have published. I have now also recorded a brief video tutorial, which you will find further below.
The full book of 250+ charts covers the whole asset spectrum from equities, bonds, commodities, FX and Crypto to give you the most extensive view. On average, it will generally provide a good 5-10 set-ups on a weekly basis.
A reminder that you can now also use my models in TradingView scripts, which I made available for subscribers to use on their charts for a fee. If you are interested, ping me an email with your TV username. Note that only paying subscribers will be granted access. No exceptions.
Let’s go!