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The Macro Situation
weather report (noun):
- an observation about the current weather;
- a prediction about future weather;
- in economics and finance, definitive news that something will happen, followed by an anxious period of waiting for it to happen.
― New Entry in the Updated Devil’s Dictionary
The minutes from the Fed’s meeting this week were positive: ending rate hikes seems appropriate; it’s mostly a question of when reductions will begin.
But that doesn’t mean the road to rate cuts will be smooth and friendly.
The markets entered midweek by pricing in the Fed minutes. Yet by week’s close, confidence wobbled as the initial jobless claims were less than forecast (202,000, a three-month low). Unemployment remained even at 3.7% while 216,000 jobs were added last month compared to November’s 199,000.
As a result, the prospect of higher rates for longer were a downer for the New Year start, apparently the worst since 2016.
While Gold suffered from the end of the rate hike news, it gained a little back just before the jobs market data was released on Friday, most likely owing to economists’ prediction that the added jobs in December would be down from November. But in the end, Gold’s price (2051.90) reflected worries about what a resilient economy may mean for interest rates and the US dollar (102.44).
In the meanwhile, economic consensus on what the Fed will do in March has shifted, with more economists than last week (33.8%) leaning towards no rate reduction (see image below).
Crude Oil (73.86) continues to feel downward pressure as reports of slumping demand made headlines. According to JP Morgan, demand is at its lowest in 9 months.
Long-term bond ETF prices have been falling; their yields rising. The 10-year US Treasury yield was well below 4% last week. It closed this week at 4.051%.
It’s like long-term bonds are waving a white flag in the face of an unflagging economy. But patience might be rewarded.
- Todd Mei, PhD and Sebastian Purcell, PhD
AI Sentiment Report
The following sentiment scores use ChatGPT as part of the AI tech stack to track sectors as leading indicators. (Lesson 4 of The Art of The Bubble covers the selection of lead indicators for bubble trades). The scores are most indicative for the next day of trading (a Monday), but they appear to set the general tone for the next week.
The methodology employed is based on this peer reviewed academic article, which produced 550%+ results in back tests over a 2 year time frame. We consider 4 and 5 scores to be positive, but please bear in mind that the AI model is still in its validation phase.
-The Research Team:
Dom Viera, Samantha Russell, Nicole Zinuhova, Aiza Malik
Free Stuff!
The team is calculating winners for the Holiday Season Airdrop on Discord. We'll be airdropping ETH as rewards to participants.
Happy Trading!!
-The Team
The 1.2 Labs Edge
Our paid plans make use of the same base algorithm that our hedge fund, 1.2 Capital Management does, but modified in timeframe so you don’t have to stare at your screen all day.
Below are two of our data service offerings for stocks. The Bubble Portfolio has never had a down year and the Leveraged Portfolio should be 3x the QQQ (so negative), but it’s outperforming by better than 12%.
This newsletter is provided for educational and entertainment purposes only and should not be relied upon for business, investment, taxation, or legal advice. You should consult your own advisors for those matters. References to any securities or digital assets are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Furthermore, this content is not directed at nor intended for use by any investors or prospective investors, and may not under any circumstances be relied upon when making a decision to invest in any fund managed by 1.2 Capital Management. (An offering to invest in a 1.2 Capital Management fund will be made only by the private placement memorandum, subscription agreement, and other relevant documentation--all of which should be read in their entirety.) Any investments or portfolio companies mentioned, referred to, or described are not representative of all investments in vehicles managed by 1.2 Capital Management, and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results.
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