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The Macro Situation

indigestion (noun):

the state of feeling that one’s stomach is stretched out, upset, or bloated, as from internal pressure;

• a persistent economic state that seems to have no end;

• a financial state of pressure due to persistent price adjustment.

― New Entry in the Updated Devil’s Dictionary

The inflation that won’t go away? It’s economic indigestion left over from the smorgasbord of pandemic interest rate cuts.

More data was reported this past week indicating that, though down year-over-year, inflation still won’t budge closer to the 2% mark the Fed has targeted. This week’s Producer Price Index report noted the following factors.

• Unexpected rise in U.S. producer prices in February.

• Increase in core consumer goods prices, which exclude food and energy, for the first time since May.

• Rising energy costs, including a significant increase in gasoline prices.

• Strong demand and higher prices for used cars and clothing.

• Back-to-back increase in wholesale core prices, the biggest in a year.

At the same time, signs of a weakening economy can either suggest a lag in current data or that we may be due for stagflation (high inflation and a weakened economy).

• There was a decrease in pace of consumer spending and retail sales.

• The Empire State Manufacturing Index, which is a broad indicator for the health of the US economy, fell 18.5 points in March. It sits at -20.9, indicating deteriorating conditions in the manufacturing sector. 

• The drop was much larger than expected, suggesting a significant slowdown in manufacturing activity in New York State and perhaps the US more widely.

It will be interesting to see how the ANFCI accounts for this week’s news. But as far as last week’s measure (March 8), the ANFCI has indicated a more risk-friendly environment at -0.51. Last week was more risk-averse (-0.46).

According to Bloomberg, the earliest rate cut would be in June, but there is no consensus amongst economists, with some thinking the first cut might be in July or even November. Here’s the breakdown for the June meeting, with 55.2% anticipating the first 25 bps cut.

Core Assets Update

Gold (2159.40) soared last week but has taken a bit of a beating on the news of prolonged interest rates and a strengthening US dollar (103.45).

Crude Oil (81.00) remains up due to a combination of OPEC+ withholding supply, the hot inflation data (costs increasing), and the Spring season traveling on its way.

10-year Treasury yields (4.308%) are back up (their price is inversely down) due to long-term uncertainty about the first tax rate cut.

- 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" series 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, Michelle Milan

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This newsletter is provided for educational and entertainment purposes only. Robin Technologies and Analytics LLC is the firm that distributes The Art of The Bubble products. The firm does not provide individually tailored investment advice and does not take a subscriber’s or anyone’s personal circumstances into consideration when discussing investments; nor is Robin Technologies and Analytics LLC registered as an investment adviser or broker-dealer in any jurisdiction.

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Benchmarks and Data Sources

All data not otherwise specified (or obvious from context) is taken from TradingView.com.

The cryptocurrency benchmark used is an equally weighted mix of BTC and ETH. While the benchmark for stocks used is the Nasdaq 100.

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