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The Macro Situation

laggard (noun):

• a person who is slow in progressing or falls behind;

• a fancy way to refer to slowly updating factors in the economy.

― New Entry in the Updated Devil’s Dictionary

A few laggards hanging about can be cause for worry. But their delayed result can also have some unexpectedly positive effects.

Let’s have a look at two significant ones on the “laggard radar”. First, the Producer Price Index (PPI).

The PPI was up 0.5% in April, which was higher than expected. To recall, in March it fell 0.1%. The rise last month not only shocked the experts, but it seems to be out of kilter with the Consumer Price Index (CPI).

The CPI rose modestly by 0.3%, which is up 3.4% on a 12-month basis and has been taken by investors to be a sign that inflation is cooling.

So why should the PPI rise be high and the CPI rise low? After all, if it costs more to produce things due to the higher price of so-called “first stage products” — such as lumber, natural gas, and metals — why shouldn’t that translate into higher consumer prices measured by the CPI?

One reason is that the PPI looks at adjusted revenue streams to track business growth, while the CPI tracks adjusted income and expenditure streams in view of the cost of living. While they are not expected to correlate, it could mean a lag is waiting to manifest in next month’s CPI result.

Second, debt is up, which has people worried, but so also is the available income to service that debt (a lagging number). Wolf Richter summarized this state of affairs by writing that while the era of “free money” is over, the US consumer was never much of a “drunken sailor” anyway and so will be unaffected.

For example, apart from the COVID year, house debt delinquencies over 90 days is at the lowest it’s been in more than 20 years.

These features are reflected in macroeconomic data. Looking at the Fed Watch tool, which tracks the prices of various futures contracts related to interest rates (particularly the federal funds rate), we’re still just below 50% for the first rate cut in September.

Up to the week ending on May 10, 2024, the ANFCI has moved to -0.55, which is a good sign for the investment climate.

Core Assets Update

Gold (2419.80) investors holding a short position experienced a bit of a squeeze as gold prices reacted sharply to the CPI data.

Crude Oil (80.00) rose due to a fall in inventory and seasonal expectations just ahead of the summer travel season.

The 10-year Treasury yield (4.422%) initially dropped midweek on the positive outlook following the CPI report. However, Thursday’s news about a 0.9% increase in import prices pushed the yield back up.

Finally, capital flows into the crypto space are bouncing back, which is positive news.

Overall, the trend has remained strong, using a smoothed 5 week indicator (we may smooth more yet to ensure we can pick out a signal from quite a bit of noise).

                                                              - 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 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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