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The Macro Situation
hiccup (noun):
- an involuntary spasm of the diaphragm;
- a snag or delay;
- a character from the How to Train Your Dragon film series;
- the moment when the circulation of wealth and investment has an unexpected stop.
― New Entry in the Updated Devil’s Dictionary
Inflation data is a typical cause of economic hiccups. In our current situation, most everyone is eyeing the horizon of rate cuts, not expecting inflation data to “misbehave”. But sure enough, December’s numbers were mixed, causing a diaphragmatic-like spasm for the markets.
- Consumer prices were 3.4% higher compared to 3.1% last month to dampen hopes of a March rate cut. Increases measured by the CPI involved services, new and used vehicles, energy, and food.
- However, wholesale prices fell 1% per the PPI, which painted a rosier picture and is taken to be a more reliable lead indicator.
Markets eventually resumed their pace, which was reflected by the 10-year Treasury yield. It spiked on Thursday’s CPI news (4.066%) and closed Friday at 3.939%.
76.9% of the economists polled think the March Fed meeting will initiate the first 25bps cut.
Wharton’s Jeremy Siegel believes rate cuts must be coming, especially if the Fed wants to avoid a recession. Waiting too long for lagging data to get in line with the 2% target rate may be a serious misstep.
“Inflation is beat,” Siegel said. “My big hope is that the Fed doesn’t get stuck on the downside and delay the way it did on the upside, tightening way too late.”
The main factor influencing Crude Oil (72.76) is US military escalation in the Red Sea against Houthi rebels. Friday morning alone saw more than 70 US airstrikes against Houthi targets in Yemen.
Gold (2053.60) has benefitted from the uncertainty in the Middle East. Its gain in the face of a relatively less clear path to rate cuts, and hence US dollar debasement, supports the view that the market remains optimistic about future cuts.
- Todd Mei, PhD & 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!
We've updated the Discord server rather dramatically, adding moderation, and increasing our active bots from 4 to 12. Additionally, we've added a give away section where the winners of the Holiday season will be announced (by Friday).
If you commented quite a bit, you're probably in the running and you should get your ETH wallet ready so that the team can send you funds.
We're obviously planning to do this regularly now.
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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