StatWeek

  Is copper a good hedge against inflation? But that isn’t copper’s only superpower .  Because of how copper is tied to the world economy, it provides an excellent hedge against inflation. This happens for two reasons. Firstly, copper prices tend to rise before general consumer prices rise, and so the commodity can be bought as a proactive inflation hedge. Secondly, since copper is used in many products, its price increases can be passed down into final consumer products, which will then undergo inflationary pressures. As copper is used across the economy, these pressures can be felt in every sector, once again leading to consumer price rises. A  Bloomberg analysis  completed in 2017 shows that for every 1 percent rise in the consumer price index from 1992, copper prices rose an equivalent 18 percent. The red metal outperformed all other major asset classes (excluding  energy ) and impressively rose twice as much as gold.

  After sliding off the peak for the better part of last year, investor flows into stocks finally turned negative, signaling a critical shift in investor sentiment.     The chart above from  Yardeni Research  tracks total investor flows into equity-oriented mutual funds and ETF over the last 10 years. As of the end of December, investors aren’t simply buying less stocks… they’re now net sellers. Markets could be entering a “Risk-Off for Real” environment. Capital is headed for the sidelines. And I see three big risks looming over investor’s heads that will make cash king over the coming months.

  The interest rate is shown as a percentage of money borrowed or saved for a relevant period. By way of example, if you put £1,000 into bank savings account with a 1% interest rate, you would have £1,010 in a year. Source: Bank of England – 300-year History

  Source: Federal Reserve Data Now, look at the chart again. This time, notice that when inflation (again, in red) spikes, the Fed Funds rate (in blue) has had to climb  above  the CPI spike in order to rein it in. Reminder… The current Fed Funds target range is 4.50% - 4.75% and the latest Consumer Price Index reading is 6.4%. If Druckenmiller is right that “once inflation goes above 5%, it has never come back down without the Fed Funds Rate exceeding the CPI,” then I’d ask bulls to answer why this time is different.

 Inflation coming down Fed Rate above CPI Rate Once inflation goes above 5%, it has never come back down without the Fed Funds Rate exceeding the CPI. As a reminder, the latest CPI report shows year-over-year inflation coming in at 6.4%.

The Nasdaq’s peak 2023 gains have been halved… the S&P’s gains were trimmed to one-third of their prior max… and the Dow had lost all its gains and more.

It remains to be seen whether we’ll see a new peak in inflation (it’s unlikely). But a reversal of inflation declines shouldn’t raise an eyebrow. All you have to do is look at a long-term chart of inflation in the 70s and early 80s to see this clearly illustrated. Let’s jump back to Curtin’s opinion piece from last spring: Prices and wages will continue to spiral upward until the cumulative erosion in inflation-adjusted incomes causes the economy to collapse in recession… This situation has been termed “inflationary psychology.” Consumers purposely advance their purchases in order to beat anticipated future price increases. Firms readily pass along higher costs to consumers, including the future cost increases that they anticipate. That’s what happened in the last inflationary age, which started in 1965 and ended in 1982: Expected inflation became a self-fulfilling prophecy.

  Check out today’s heat map: 8 of 11 sectors closed green. Consumer discretionary (+1.21%) led, and utilities (-0.66%) lagged. 💚 In economic news, U.S. core capital goods orders and shipments rose more than expected in January, with certain sub-measures being weighed down by Boeing’s weakness. The Dallas Fed manufacturing index showed that activity contracted for the ninth straight month in January. And pending home sales saw their largest monthly increase since June 2020, up 8.1% in January, but were still down 24% YoY. 📝 Internationally, the U.K. and European Union (EU) agreed to a new trade deal that remedies problems caused by the Northern Ireland Protocol. Leaders say the Winsor Framework is “the beginning of a new chapter” for the two regions’ relationship. 🤝

 

  During the first 30 days of 2023, investors had clearly been in risk-on mode. Cyclical stocks vastly outperformed Defensive ones. Small-caps rallied more than Large-Caps. And Growth stocks surged relative to Value. These types of starts preceded much better returns than years when the risk-off factors prevailed.

  Following a sharp rise from early fall into January and a reasonable pullback, many believe that gold stocks are poised for another significant leg up. And given the volatile nature of this sector and its current oversold status, it is possible. Still, several objective indicators suggest this admittedly intriguing sector may struggle in the months ahead. GDX Optix reversed from an extreme : Gold stock trader optimism understandably rose sharply as GDX rallied from September into January. Unfortunately, it may have gotten a bit overdone. The chart and table below highlight those times when: The 50-day average for GDX Optix dropped below 60 While GDX was above its 150-day moving average GDX Breath signaled an overbought condition : The chart and table below highlight when the GDX Breadth (% > 200 Day Avg) indicator was above 94%. The most recent unfavorable signal occurred on 2023-01-26, and the results above also suggest the potential for poor GDX performance as 2023 progresses.

  Today we're going to focus on current asset prices relative to their prior cycles highs. The first one is a great example. Here is the US Financials Index Fund overlaid with the US Home Construction Index Fund. As we all know, both of these peaked between 2006-2007 and went on to completely collapse and bring the rest of the market down with them: After failing at those same highs in 2018 and 2020, prices ultimately broke out and finally went on to make new all-time highs.

  here's the one that has yet to break out above its prior cycle's highs - Gold Futures: I believe that ultimately, the price of Gold will be able to exceed its prior cycle's highs, in this case from 2011.

 Next Week Sunday 26th Feb 2023

  Meanwhile, House Republicans bought $9.1 million of their top 10 stocks. They focused on a mix of sectors and targeted companies like Energy Transfer, Dow, AT&T, and PayPal. Over at the Senate, it’s a similar story. In 2022, members of the Senate bought $8.3 million worth of their 10 preferred stocks. And as you can see, the top 10 stocks were in the technology sector, followed by infrastructure. Specifically, the top four companies were giants Microsoft, PayPal, Intel, and U.S. Steel. While Democrats made up most of the investments in the House, Republicans were responsible for nearly 70% of the buying in the Senate last year…

Where Congress Members Invest Their Money Last year, members of the House bought $41.7 million worth of their top 10 preferred stocks. The following chart highlights each of these 10 companies… As you can see, House members overwhelmingly favored the technology sector. The top five companies are well-known names: Apple, Tesla, Alphabet (Google’s parent company), and Nvidia. What’s more, Democrats did 78% of the buying, at $32.6 million. Their favorite stock was Disney, with $6 million worth of investments. Apple came in second to Disney, equaling just under $6 million worth of investments.  

HeatMap Thu 23 Feb 2023 - good tech lead  Check out today’s heat map: 7 of 11 sectors closed green. Technology (+1.64%) led, and utilities (-0.50%) lagged. 💚 In economic news, Russia is reportedly planning to cut oil exports by 25% in an attempt to drive crude prices higher for the west. Meanwhile, Eurozone inflation was slightly higher than originally estimated, at 8.6% YoY. The U.S.’s Q4 GDP estimate was revised lower to 2.7%, weighed down by weaker consumer spending. Lastly, the U.S. labor market remained historically tight as initial and continuing jobless claims dropped by 3,000 and 37,000, respectively. 📝

  This is classic behavior for bull markets. You can see the revisions trend rising as the price of the S&P500 keeps heading higher: As investors we all have that herding mentality. It's perfectly natural. We've thrived as a species for many reasons, but one of them certainly being our ability to stick together and work together. Our ancestors used this to fight off neighboring tribes or wild animals. But we don't have those problems these days. Our brains, however, are hard-wired to think this way.

In the US, the federal government will continue to cede power to the states. The US is split evenly at the federal level, but the red vs. blue state map is much more definitive. Source: Mehlman Consulting Geopolitics will continue to evolve. Future conflicts will focus on points of vulnerability. As an example, think about the US and Europe marching toward full electrification. Battery-powered cars for all, of course, but that’s just the start. States are mandating electric heat and even electric cooktops.

 IPO timings are essential The IPO class of 2020/21 For fast-growing startups, an  IPO  is often the ultimate goal, a milestone after which the company has officially “made it” — but how is the class of 2020/21 getting on?

  Check out the dollar index: I watch this every day. It's the dollar against the major currencies with the Euro holding a 55% weight. When oil goes down.. and stocks go down... dollar up.

  Look, the average Price to Earnings… This is a measurement of how overvalued the market is… Well, even AFTER the double digit tumble last year, the S&P is STILL at nearly record highs...      As you can see - there’s far more room for downside left than upside… Stocks are TWICE as expensive as they were 10 years ago. 

  S&P Market Intelligence predicts the demand for copper will double between 2022 and 2035. Moreover, supply isn’t catching up with this soaring demand. How do we know it? If you look at copper inventories at exchanges like COMEX, you’ll see they are running at multi-year lows. COMEX copper inventories have dropped from their 2018 peak of 253,000 lbs to 22,332 lbs. That’s a 91% drop. These inventories are almost wiped out. This is a massive catalyst for the copper price. But there’s something else this setup is telling me. Copper Leads the Real Estate Cycle In my book  The Secret Life of Real Estate and Banking , I said:

  Check out today’s heat map: 3 of 11 sectors closed green. Basic materials (+0.73%) led, and real estate (-0.91%) lagged. 💚 Several layoff announcements made the headlines today, including Meta cutting 1,000 jobs, McKinsey letting go 2,000 employees, and NPR slashing 10% of its workforce. Meanwhile, some industries are still having to pay up to keep workers. For example, Toyota accepted its union’s request for the most significant wage increase in about two decades. 🧑‍🏭 Lidar maker Luminar’s shares rose nearly 30% today after announcing a multi-billion-dollar expansion of its Mercedes-Benz deal. 📈 Terran Orbital shares jumped 72% after it won a $2.4 billion contract to build communication satellites for Rivada Space Networks. 🛰️

  Here is the Nasdaq 100 (QQQ) weekly chart and you can see that we’ve had a period of higher highs and higher lows.  That sounds like an uptrend, right?  Based on open interest of the 17 MAR options contract, I’m seeing support at the typical “big numbers” - those that end in 0 or 5.  But the $293 put contract has 13,206 open interest, so I think we’re likely to find an area of support around that level. We can look at the same chart, but using the daily periods.  If we do trade lower than the shaded box, I’d look for a pivot at $280.  If we fall below $280, the trend pattern is no longer valid. Now, why might we rebound and trade higher if I just got done writing about the negative news from the Fed?  Well, trading and the economy don’t always align.  But it’s not going to be good news if the “riskier” Nasdaq falls apart from here.  We could see a run back to the defensive stocks if that happens. We will soon find out if the 2023 run higher is the start of something bigger or if this

  Each time following the same trigger event, and each time bringing major attention to Bitcoin.  And still, only a select few were able to catch onto the trend.  Those who did had the potential to cash in BIG.    Each time the phenomenon brought in more savvy investors into its success. 

  “The United States Common Market and the Constitution: How a Gigantic Free-Trade Zone Made America the World's #1 Economic Superpower.” This chart shows how America gradually dominated the world economy: Was it the Commerce Clause? One of the lawyers there suggested it was the Commerce Clause in Article I, Section VIII that is the secret to America’s success. The Commerce Clause gives Congress the power “to regulate Commerce with foreign nations, and among the several states, and with the Indian Tribes.” But Section VIII of Article I of the Constitution tells Congress what it can do, and that is  interfere  with commerce. Unfortunately, the Commerce Clause has been a major source of ever-increasing authority by Washington bureaucrats, which alone would not necessarily make America great. As I told the audience, you can drive a truck through Section VIII of the Constitution, which gives the Federal government virtually unlimited powers to tax, regulate, borrow money, print money a

Changing the CPI methodology Changing the CPI methodology   might sound like a dramatic move . But this isn't the first time we've seen this happen. In fact, the last change was in 2002... Back then, George W. Bush was the sitting president. And he was the one dealing with a struggling economy and upcoming elections. So, the 2002 White House needed to change how voters saw the economy .  It needed inflation growth to stay low so the Fed wouldn't raise interest rates . The BLS changed its CPI methodology that year. It adjusted the index weightings from a 10-year spending average to a two-year average. It said it wanted to reflect consumers' spending habits more accurately. The outcome was a slowdown in inflation growth... In the 10 years before the change, the average CPI increase was 2.7%. Heading into the 2002 midterms, though, the rate had dropped to 2.2%. Consumer sentiment, as measured by the University of Michigan, tanked from 2002 into early 2003... But by the tim

Presidential Election Cycle is normally bullish Sweet Spot of the 4-year cycle, the three-quarter span from Q4 of the midterm through Q2 of the pre-election where DJIA has gained 19.3% on average, S&P 500 20.0% and NASDAQ up an amazing 29.3% during the period.    

February normally a down month The yield curve is steeply inverted now and has been somewhat inverted for the better part of the past six months or so. And every recession in all of history has been preceded by an inverted yield curve.  

Economic Breakout Last week, the Citigroup Economic Surprise Index (CESI) closed at the highest level in six months, with the index above zero. The breakout occurred after the index cycled from a pessimistic reading of -50.  Breadth is more volatile, but thrusts remain compelling Whenever we look at something like breadth thrusts or evidence of overwhelming pressure either way, like last week, we get the usual poo-poos about their efficacy given high-frequency trading, zero-dated options, or a handful of other excuses. For over 20 years, we've acknowledged that breadth statistics are fluid and influenced by various factors. The most significant factor is one that few discuss anymore - the impact of decimalization when stocks ceased trading in fractions. It became easier for security to rise or decline instead of being considered unchanged on the day. The chart below shows the daily Up Issues Ratio (Up Issues / (Up Issues + Down Issues)) for the S&P 500 since 1950, along with it