SuperCore CPI +0.5%, 4.08% YoY

Equities higher, Crude Selling Off

So the FRB will have an interesting time with their meeting tomorrow as the J Powell favorite metric SuperCore CPI which is Services less Shelter was +0.5% MoM. We know Powell will not be happy with this and it will force his hands to stay hawkish and stay on the “higher for longer” path. We believe they understand that the short rate is not as restrictive post $6T stimulus and its the kind of thing that buys a lot of time for the markets to adjust. We often say that interest rates don’t matter, and they really don’t, in fact we believe that the markets are proving this with 500bp plus rise in Fed Funds and the Nasdaq up nearly 50% on the year!

Case closed, rates don’t matter, its all about liquidity and with excess reserves sitting near $3.5T and the RRp at $800B let’s just say there is ample liquidity to continue to fuel this fire. Here is the SuperCore chart from Zerohedge:

We know the FRB will have a problem with this because many of the journalists have asked questions about this metric and Powell has always answered that we are on the right trajectory in reducing inflation, well this chart says things have started to turn. The last thing the FRB wants is for inflation “expectations” to rise, this is something they really cannot control with policy in the short term, they know it and we know it. So all in all expect Powell to not like what this report had to say. We will get the PPI report before the FOMC meeting so at least one more data point for them to consider.

We know the equity markets do not care about rates right now, its all about flows and getting the markets to close out the year with a beautiful Santa rally! We painted this picture a month ago when we felt by the end of the year the SP500 futures could hit 5k and we are getting closer with every passing day:

The market that we see signaling a healthy contraction in economic activity is of course the Crude Oil market, where it continues to probe support levels. A break of this area lower will lead to an exodus below $60:

Alright so today saw a decent reopening for the current US 30Yr bond as the auction was well received with a 0.3bp stop thru (indicative of solid demand) and a reversal of the record tail at the quarterly auction last month. We figured this would be the case here as bonds have rallied sharply since the recent lows which indicates large players suspecting the 5.20% area was too high and now 4.20% too low. This shows you how uncertain even the big boys are of the FRBs ability to control things. One thing is clear for now, the range has been set for 2024 which if we break 4.20% means the bond boys are expecting the rate cut cycle to commence and the longer time stagnates, we will drift higher to meet that 5.25% Fed Funds floor:

Alright, lets take a look at today’s settlements with the Nasdaq continuing its strength and Crude today’s contract biggest loser:

The Magnelibra Futures Model Tracker saw no changes today and is still relatively neutral in regards to overall positioning:

When we look at our MEGA8s Tracker as noted yesterday our short call hedge would be stopped out with a trade up to 4.50 and that was the case today. We will not hedge the long side tracker her for the foreseeable future as the bulls are firmly in charge and the equities have higher levels in mind. The FRB may stall this move out a bit tomorrow, but barring any significant change in verbiage, it will be a short term derailment of what has clearly become, a quest to end the year on the highs:

We also wanted to leave you with our annual Federal Reserve asset expansion and inflation data. The Federal Reserve is the source of inflation as it has an annualized asset expansion rate over the last 25 years of 11.21% and your US dollar value has plunged 42.5% over this time as well. We feel its important that our readers understand where real value is and how it is distorted by this expansion and subsequent and resulting inflation:

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