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Know Your Alphabet

Updated: Jul 20, 2023

AOC, CPI, FTX, CFTC, GLD, USD, OPEC and RG



Hooray!— we survived the elections and have set the table for the AOC/Fetterman ticket that we all want to see in 2024. Plus, special congratulations are in order for the state of Montana:


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The soft October core Consumer Price Index (CPI) print released two days after the elections delighted financial markets, for it offers the Fed a powerful justification to slow the pace of rate hikes going forward. More widespread disinflation across goods sectors and in medical care services helped bring down inflation in October.


However, the cost of health insurance didn’t really magically plunge from September to October. The CPI for health insurance tanked 4% in October, a 6.1 percentage-point swing from September’s print (+2.1%), due to the Department of Labor Statistics’ periodic adjustment. It might not seem like a big deal because they “adjust” all the time, but it was-- by far-- the biggest month-to-month plunge in the Bureau’s data in 17 years.


Perhaps now that the election is over, the marionettes over at BLS will be less pressured to release “data with a twist.” Lord knows they can’t continue to claim that the job market is fine:


And we can add 10,000 more from Amazon to the list this morning.


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A couple of weeks ago, it seemed that everyone was negative on the market, what with persistent inflation, climbing interest rates and all kinds of other bad stuff. Nevertheless, while the CPI report was a bit of a joke, there are positive catalysts lurking. A Fed pause. A truce in Ukraine. An end to China’s lockdowns.


We're familiar with bulls' arguments regarding these catalysts, but the fact remains that the Fed has never successfully hiked its way into a soft landing. Ever.



Gold (GLD, GLDM, etc.) is surging because it knows what happens after the rate hikes end. Well… OK, it might also be surging because of crypto’s complete and utter collapse this week. FTX, Sam Bankman-Fried's crypto empire, filed for Chapter 11 bankruptcy following a frantic race by FTX users to withdraw their assets.


Unfortunately, Bankman-Fried’s espoused "effective altruism" turned out be nothing more than a smokescreen behind which criminal masterminds committed massive fraud while woke virtue signalers provided them with cover. It’s not at all surprising that FTX stopped processing withdrawals the day after the election when one considers that Bankman-Fried was the sixth-largest donor in this year’s midterm election cycle, giving some $40 million to mostly Democratic candidates, especially those on the Commodity Futures Trading Commission (CFTC). The only billionaire who gave more than Bankman-Fried in this election cycle was George Soros; it would have been unseemly for him to get busted before the election.


For crypto investors, there is a lesson. As the renowned aviation expert Paul F. Crickmore famously said, “You've never been lost until you've been lost at Mach 3.”


Of course, the dollar (USD) finally relented on all that CPI news, which wasn’t bad for gold, either. The dollar’s plunge on Thursday and Friday was the biggest 2-day drop since March, 2009. Down five of the last six days, the world's reserve currency has lost over 5% against its fiat peers and is now down to 3-month lows.


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Stocks last week looked to many as if they’d priced in a dovish Fed without considering that a dovish Fed will only be that way if the economy completely melts down. Just a week before, when asked about the possibility of a soft landing for the economy, Powell didn’t sound like they were even trying:


“I think to the extent rates have to go higher and stay higher for longer it becomes harder to see the path. It’s narrowed. I would say the path has narrowed over the course of the last year, really.


And I just think that the inflation picture has become more and more challenging over the course of this year, without question. That means that we have to have policy being more restrictive, and that narrows the path to a soft landing, I would say.”


In other words, we are going to break the economy to slow inflation.


Our primary investment thesis continues to be that the Fed and OPEC+ are at odds, and that’s a fight the Fed cannot win because it cannot control supply-- the Fed’s only lever is to suppress demand. OPEC, on the other hand, controls the world’s oil supply, and they have proven to not give a hoot about the West’s economy. …Quite the contrary, in fact.


Now that the Strategic Petroleum Reserve has been depleted, McKinsey reports that spare capacity in the system is too low to absorb any supply-side disruptions. We think oil prices will continue to climb because they are an element of inflation that cannot be controlled by rate hikes.

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We suggested in the first week of October that stocks were likely to trade up for the rest of the month but that the move would be a trading bounce within the confines of an ongoing bear market. It’s with a similar rationale that we expect stocks to trade modestly higher through the end of the year. Since 1930, following mid-term election week, the S&P 500 is up an average of 1.3% through year-end.


We believe a more business-friendly government will help stocks short-term but that we won’t hit the low until 2023 due to recession, lower valuation multiples and higher interest rates. So, for the risk tolerance of most of our clients here at RG, buying stocks now would feel akin to picking up pennies in front of a steamroller, and maintaining an outsized cash position along with a healthy allocation to energy and gold stocks is likely to be a better option for them than chasing short-term gains through the end of the year.




Click here to invest with Chad.



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