State of the Market (02/25/24)

By Todd Mei PhD | State of the Market | 25 Feb 2024

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The Macro Situation

colloid effect (noun):

  • when two substances that would not normally combine form a stable mixture due to a third element;
  • economically, when market and economic performances are either mismatched or have an inverse relation, yet are stabilized by a third element (e.g. denial).

― New Entry in the Updated Devil’s Dictionary

The state of the macroeconomy . . . is mayonnaise.

Mayonnaise is a colloid. Oil and vinegar do not mix, yet the addition of egg yolk helps to make a stable mixture which you can apply to bread or use as a dip for pommes frites.

The Oil

The economy is not doing as well as one would hope. Inflation is sticky, as we saw with last week’s PPI report. Jobless numbers hit a weekly low, falling by 12,000. Interest rate cuts have been pushed back to as late as June (see graphic below). The Fed worries that markets might be overestimating the battle with inflation.

The Vinegar

Markets are largely doing well thanks to the tech sector. Nvdia posted a strong adjusted earnings per share report with a revenue of $22.1B.

The respective states of the economy and the markets shouldn't be mixing. Yet, at the moment it might appear the best of both worlds: A resilient US economy with slight indications of inflation waning, and markets reaching record performances in the last few weeks.

Why is this strange colloid mixture existing? Can it last? Will it go “off”?

One way to help assess the situation is to look at the Adjusted National Financial Conditions Index (ANFCI).


Policymakers and market participants rely on financial conditions indexes (FCIs) to assess economic health and guide decisions. However, FCIs can be heavily influenced by economic conditions themselves. To isolate the specific impact of financial conditions separate from broader economic trends, the ANFCI was developed.

The usefulness of the ANFCI:

  • Given the state of the economy, it allows us to see if financial markets are acting in a way that's out of sync with economic reality. This can reveal potential risks (like bubbles) or indicate a deeper issue within the financial system itself.

Anything below 0.0 indicates financial looseness, which is typically good for risk-on type assets. Conversely, anything above 0.0 indicates financial tightness and a risk-averse environment. In the chart, you will see an instance of this in 2020, when the economy took a blow due to the pandemic.

In sum: As of the February 16th assessment above, nothing seems rotten in the state of the economy yet. Both the NFCI (not shown) and the ANFCI (above) reveal looseness in financial markets for the time being. The NFCI sits at -0.52, the ANFCI at -0.51.

Just as a change in ingredients can make mayonnaise break, unexpected shifts in either the oil or vinegar could have major implications for wider economic stability.

Core Assets Update

Gold (2045.80). Despite interest rates being higher for longer, gold investors took this as a positive: i.e., the recent Fed minutes underscored the end of the rate hike cycle and the first expected cut in June. Gold has benefitted while the US Dollar has weakened (103.96).

Crude Oil (76.57) has been strong all week, but had a slight dip at the end due to the pushback of the first rate cut to June.

10-year Treasury yields (4.248%) dipped on the Fed’s news, which bond investors took as uncertainty about the course of rate cuts.

- 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!

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Invitation Link.

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Happy Trading!!

-The Team

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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 (charts updated quarterly).

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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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Todd Mei PhD
Todd Mei PhD

Todd is a former Associate Professor of Philosophy with over 16 years of research experience in the philosophy of work and economics. He is currently the lead researcher and writer for the Web3 consultancy group, 1.2 Labs.

State of the Market
State of the Market

Weekly reports on the state of the macroeconomy, stocks, and crypto compiled by the 1.2 Labs Research team.

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