Weekly Good Reads: 5-1-1
Sticky and Whack-a-mole Inflation, Stock Market Bubble (?), Feminization of Wealth, Trend-Following Strategy, Leap Year and Time
Welcome to Weekly Good Reads 5-1-1 by Marianne O, a 25-year investment practitioner and the author of
on investing, economy, and wellness in an intuitive voice. All the Weeklies are here, and here is the index of charts and terms. You can easily subscribe to my newsletter by clicking below.Thank you so much for your support🙏.
Market and Data Comments
The January US core personal consumption expenditures price index (core PCE, ex-food and energy), the Fed’s preferred inflation measure, rose higher than expected at 0.42% m-o-m and 2.8% y-o-y (6m annalized at 2.5% and 3m annualized at 2.6%) (see graph below). Seasonal factors were at work.
At the same time, US January real personal spending dropped 0.11% on the month while the February Manufacturing PMI dropped unexpectedly to 47.80 (contractionary and payback from the January surge) and February new orders were at 49.2 (contractionary).
These data confirmed the Fed’s stance to be cautious and patient about lowering rates too quickly while at the same time did not suggest any re-acceleration in the economy. This cautious stance is also repeated in Europe as inflation proves a bit stickier. However, for Japan, the next rate move will be up given the inflationary pressure and the need for monetary policy to normalize.
San Francisco Fed Governor Daly reiterated the Fed’s balancing act - they want to avoid holding rates until inflation hits 2%, which could cause the economy and jobs to tip over. The Fed’s overall job is restoring price stability, being data-dependent (not data-point dependent), and listening to the community about how input costs, product prices, and workers’ stability are trending.
The stock market continued to surge, led by growth/high-tech stocks with AI-fuelled optimism and better earnings. The top graph shows the Nasdaq 100 not looking bubblicious yet with the rate of change much below the bubble years in 1999-2000. (Also read Ray Dalio’s piece on the stock market bubble in Econ/Invest. #3).
The interest rate futures have also ratcheted down the Fed’s cut expectations to less than 4 cuts this year (from 7 cuts early in the year); however, US government bond yield in all parts of the curve dropped this week, signalling both the stock and bond markets are happy that the economy is working and are comfortable with about 3 interest rate cuts this year (one economist even said no interest rate cut this year as he said the economy is reaccelerating and inflation is too resilient.)
Keen observers would also notice the surge in Bitcoin price by about 23% and almost 50% YTD (see Weekly Change table below).
explained even with the huge outflow out of the Grayscale spot ETF (due to Genesis’ authorization to sell its 9,750 bitcoin or about ~$600 million for bankruptcy settlement reasons), inflows to the other spot ETFs (led by BlackRock’s) of $700 million completely offset the outflow, leaving bitcoin prices hardly moved.This coming week, we will monitor Fed’s chairman Powell’s monetary policy testimony to the House and Senate on Wednesday and February non-farm payroll and unemployment rate on Friday, the UK a budget plan on Wednesday, the European Central Bank interest rate decision on Thursday, and China’s important National People’s Congress meeting to set annual economic goals starting on Tuesday (market expectation is 5% GDP growth for 2024).
Economy and Investments (Links):
We’ve Been Looking at Inflation the Wrong Way (Washington Post via archive.com)
Sticky Inflation (Axios Macro)
Are We in a Stock Market Bubble? (Ray Dalio on LinkedIn)
Our readings suggest that, while equities may have rallied meaningfully, we’re unlikely to be in a bubble.~Ray Dalio
Finance/Wealth (Link):
Why Not 100% Equities (Or “I Can’t Believe We Are Doing This One Again”) (Cliff Asness)
+ Longer-Living Women Will Reap Windfalls in the $80 Trillion Great Wealth Transfer. The ‘Feminization of Wealth’ is Poised to Reshape Society (Fortune)
Wellness/Idea (Link)
Does Anybody Really Know What Time It Is? (Robert Roy Britt on Medium or via Archive.com)
If leap days hadn’t been plugged in regularly over the centuries, by now those of us in the Northern Hemisphere might be snow skiing in summer and running the AC in winter. Time, at least across time, wouldn’t make any sense.~Robert Roy Britt
+ The Majority of Food We Eat is Surprisingly Addictive and Deadly (Robert Roy Britt on Medium or via Archive.com)
One Chart You Should Not Miss: “Whack-a-mole” Inflation
Economist Constance Hunter recently penned a piece in the Washington Post (see Econ/Invest. #1 above ) about why less than 40% of Americans think they have a “good economy” despite a robust jobs market, lowering inflation, and decent economic growth.
It is about that inflation number that has stuck in consumers’ minds - prices have gone up about 20% (18%) since the Pandemic with some such as gas prices up 35%. Then there are spikes in inflation like car rentals and gas prices that have kept happening one after next (see above chart).
One Term To Know: Trend-Following Investing
As investment firm AQR explained in this piece, a trend-following investment strategy is one where one goes long markets with recent positive returns and shorts those with recent negative returns, essentially trading a security’s momentum.
In particular, Trend traders enter a long position when a security is trending upward, characterized by higher swing lows and higher swing highs. Trend traders may enter a short position when an asset is trending lower, characterized by lower swing lows and lower swing highs.
AQR concluded the following:
Trend-following investing has performed well each decade for more than a century, as far back as we can get reliable return data for several markets [equities, fixed income, commodities, currencies]. Our analysis provides significnat out-of-sample evidence acorss markets and asset classes beyond the substantial evidence already in the literature.
Further, we find that a trend-following strategy peformed relatively similarly across a variety of economic environments and provided signigicant diversification benefits to a traditional allocation. This consistent long-term evidence suggests that trends are pervasive features of global markets.
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