Weekly Good Reads: 5-1-1
Long-term disinflation, Spot bitcoin ETFs, Dividend Kings, Oil Outlook, and Vibecessions
Welcome to Weekly Good Reads 5-1-1 by Marianne O, an investment practitioner and author of
about investing, economy and wellness ideas. Every week I include 5 links to relevant economic and investment, finance and wellness/idea pursuit as well as 1 important chart and 1 term to know. All the Weeklies are here and here is the index of charts and terms. You can easily subscribe to my newsletter by clicking below.👋 This year I will be sharing my interviews with female fund managers, investors, founders, technologists and more with the first one below! Subscribe to follow.
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Market and Data Comments
This week US released the December CPI and PPI reports; together they are consistent with the Fed’s 2% target through December. While the US December CPI rose higher than expected by 0.3% and 3.4% yoy (3.1% prior), core inflation (annualized) is around 3% (6m annualized at 3.2% and 3m annualized at 3.3%).
With a softer PPI than expected and a weakening labour market (spike in layoffs announcements across industries), Bloomberg expects core PCE, Fed’s preferred inflation gauge (next announcement on Jan 26), to reach 2% by March (6-month % change was solidly below 2%, and the Fed prefers to focus on the longer-term trend).
Watch the 2-year government yield (falling 24bp to 4.14% this week), which economist Paul Krugman said, is a predictor of what the Fed will do.
The bond market is now pricing in about 160bp of rate cuts this year (more than 140bp last week) and a 75% probability of a March rate cut.
Why March? If core inflation does fall to or below 2% in March, a real rate of 3.3% (5.3% effective funds rate - 2% core inflation) looks too restrictive and will compromise the Fed’s employment mandate, and the labour market has already been slowing.
The inflation fight may be set back by the US and UK air strikes in Yemen with the hope of deterring further hostile shipping attacks at the Red Sea, which have raised freight costs and oil prices and disrupted global supply chains.
Note that about two-thirds of disinflation last year was driven by the normalization of supply chain pressure, so geopolitical risks are likely the main risk factor for disinflation this year. Another geopolitical surprise this year, according to JP Morgan in their top 10 2024 surprises, will be Biden dropping out of the presidential race.
Meanwhile, the ECB will start lowering interest rates once it is convinced the 2% inflation goal is reached. China’s deflation persists for the third month with inflation dipping 0.3% yoy in December. Exports fell 4.6% in 2023 (first annual drop since 2016) although inflation rose 2.3% yoy in December. Most analysts expect China to cut the 1-year policy loan next week to ease debt financing pressures.
Taiwan has just elected pro-US Democratic Progressive Party (DPP)’s candidate La Ching-Te as president—the third presidential term for DPP although DPP lost its majority in the parliament.
SEC approved Bitcoin spot ETF, and 11 ETFs started trading. See reading below what you need to know and also read
‘s piece to see how the gold ETF launch (in 2004) informs what may happen to Bitcoin ETFs.This coming week we will monitor China's Q4 GDP growth, December retail sales, fixed asset investments and industrial production as well as the U.S. December retail sales on Wednesday. The week-long World Economic Forum in Davos will take place starting Jan 15.
Economy and Investments (Links):
50 Companies To Watch In 2024 (Bloomberg Businessweek or click here)
Can India, Indonesia and Saudi Arabia be the next great economies? (The Economist)
Spot Bitcoin ETFs Start Trading Today—Here's What You Need To Know (Investopedia)
+ Why the Cost of Money Is About to Go Up (Bloomberg or click here).
Finance/Wealth (Link):
Coca-Cola and Other Dividend Kings That Have Raised Their Payouts for 60 Years or More (Barron’s via Archive.com)
The below 15 US Dividend Kings are those companies which have raised their annual payments every year for 60 years or more as opposed to “Dividend Aristocrats” which raised their dividends annually for at least 25 years.
Not surprisingly, the 15 stocks have generally beaten the S&P 500 over the long haul. Coca-Cola, Procter & Gamble, Johnson & Johnson, and Colgate-Palmolive have all had annualized returns, including reinvested dividends, in the 12% to 13% range since 1988. That seemingly small gap relative to the S&P 500’s 10.8% annual return makes a big difference over an extended period.
The ability to boost dividends for 60 years is a sign of strength and a quality that investors may want to consider in a stock.~Barron’s
Wellness/Idea (Link):
The Most Fun Way to Learn a Language (The Atlantic via Archive.com)
One Chart You Should Not Miss: Top 10 Producers and Consumers of Oil (EIA)
While 98 countries in the world produce crude oil, the US became the top crude oil producer in 2018, maintaining its lead. The US produces oil in 32 states and the coastal waters (source: EIA).
In 2024, production is projected to increase by 0.6 million barrels/day while consumption will increase by 1.4 million barrels/day.
One Term To Know: Vibecessions
Coined by Substack’s author and economic educator Kayla Scanlon in June 2022, Vibecession enters into the pop culture dictionary and “is used to refer to a time when the economy is relatively good according to financial data and statistics, but the public is pessimistic about the current or future economic situation.”
Consumer opinion and outlook, or the “vibes” can enter a “recession” due to the negative views and outlook regardless of the actual state of the economy.
For example, despite improving economic growth data in the US, the University of Michigan’s Consumer Sentiment Index reached its trough in 2022 at 50 (now at around 70) still below February 2020 of 101. This is likely because of high energy prices, inflation at grocery stores and services, and housing prices, so a large part of the population feels they have been left out of economic growth.
FT quoted a study by NBER analyzing 170 years of digitalized newspapers saying the collapse of news-based economic sentiments in the US has been happening for 50 years, reflecting the negative news-reporting bias in media.
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Thanks @Amrita Roy for restacking!!
Thanks so much for sharing my post @My Weekly Stock!