Soft CPI Drives Equities and Bonds Higher

Green Light is Lit! Technical charts included

Today’s October CPI came in at 3.2% with the expectations for a 3.3% print, MoM was unchanged and headline YoY dropped to 4.0%, the lowest in over 2 years. Yes many pundits are out there calling this a nothing burger and even that the numbers are so manipulated that this is just another fudging much like the BLS numbers. Well it doesn’t matter what people think, what matters is the market results and they continue to say risk is back on, the water is warm so jump on in.

What the markets are really saying is that there is so much money still in the system that rates DO NOT MATTER!

Its what we have said also for many months now, but in a different way, higher rates aren’t a deterrent to equities, but rather they are a benefit to the very players with massive cash hoards earning massive amounts of interest due to the higher rates.

Many large players are benefitting from the massive risk free net interest pick up from the high short rates such as Tbills paying an annualized 5.5% plus rate. This is leading to billions in new money being used to plow right back into the high flying MEGA8s as we like to call them. We also have known for a very long time that the equity markets are not an indication of fundamental macro economics, but rather a construct of financialization benefitting a very few, who are immune to the everyday inflation that plagues so many.

As we said on X today in response to a pundit, the wealthy class do not care if they pay $10 for a coffee at Starbucks, they do not care if they pay $25 for a cocktail on a night out on the town, they do not care if they spend $1k on TSwizzle tix to her concerts, they just don’t care, it doesn’t matter! Look at how large sports entertainment has grown, look at how much these franchises are worth, there is a reason for that. Why does Bentley make an SUV for mommies, there’s a reason for that, the reason is we live in a two tiered society and the equity markets are a reflection of the top tier and certainly not a reflection of the overall macro fundamentals! The people want entertainment and there is no expense spared when it comes to paying for a few hours of detachment from reality, who doesn’t love Taylor Swift? Peeps paying thousands for just a few hours, you can’t fight it!

Basically the equity markets are supported by never ending 401k contributions, never ending balance sheet leverage and a cohort that does not have to sell to maintain standard of living, i.e. the top 5% are the main players and they have far more capital than organic economics would ever able to threaten. So don’t listen to all the doomsday players out there. WE have learned long ago that these markets do not tell a fundamental economic story, but rather are an indication of overall risk appetite from a very few select players.

Here is what a high inflation slow growth environment looks like for some in our economy, measured by the YTD BK filings:

Then there is this chart of the Nasdaq, and how the perception is for the other much smaller subset of our economy as it rises nearly 40% this year:

So that is the tail of two economies in a nutshell, you can’t change it, we can’t change it, it just is what it is and the only thing we can do is react, adjust and place our most risk adjusted wagers. Our job is not to ask why this or that, because narrative is easy to sway one way or another, however the reality is always in the numbers and for now, the equity markets are on the receiving end of risk flows and that isn’t changing any time soon.