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The Macro Situation

play action pass (noun):

• in American football, a play designed to look like a run that turns out to be a pass;

• in economics, a play utilizing something other than interest rates to control inflation.

― New Entry in the Updated Devil’s Dictionary

The CPI rose 0.4% over March and 3.5% over the prior year. Meanwhile, the longevity of a high-interest rate environment is affecting the big banks (e.g. JP Morgan, Wells Fargo, Citigroup), whose net interest income has dropped significantly.

Hence, markets were not happy this week. Yet, the Fed remained somewhat unperturbed.

The Fed commented that while the recent hot inflation data is disappointing, it signals a reduction in the sense of urgency to ease rates. There’s more to this stance than meets the eye.

Some interesting play-calling is in the works. Instead of focusing solely on rates, the Fed can slow its asset runoff. These are the assets that are due to mature and not be replaced.

Asset runoff is a form of quantitative tightening that reduces the amount of money the Fed provides to banks. So, slowing its process is a way to ease quantitative tightening – which has been one of Powell’s stratagems since December 2023. 

Will it work? Maybe in September, when 44% of economists polled think the first rate cut will happen.

Up to April 5, 2024, the ANFCI has indicated a slightly more “risk friendly” environment, increasing from -0.52 last week to -0.55.

Core Assets Update

Gold (2360.20) at one point broke well above 2400. However, it suffered a precipitous drop on Friday afternoon, possibly reflecting bullion’s fading appeal in a high-interest rate environment.

Crude Oil (85.45) prices closed down as tensions in the Middle East were not enough to outpace sluggish demand. Stocks in this sector could serve as a “hedge” against war-time inflationary pressure, but as of Friday, all, save for the oil majors, were in the red.

10-year Treasury yields (4.518%) initially spiked midweek due to the surprising CPI data but declined by the end of the week as the bond market adjusted to the prospect of less urgency to cut rates in the immediate future.

It’s worth noting that “war stocks” such as NOC and LMT were down as of Friday’s close. This indicates that the market was not at that point expecting wider conflict.

- Todd Mei, PhD & Sebastian Purcell, PhD

AI Sentiment Report

The following sentiment scores use AI 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, 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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