Headline of The Year | The Daily Peel | 12/28/22

We’ve all heard the (true) story of the blindfolded dart-throwing monkey that got better returns than stock-picking pros. You may have also heard that Elon’s Neuralink is equipping monkeys with intelligence-enhancing brain implants (Also true). So, is it really soooo crazy to think this could all be his evil plan to “outsmart the market”?

You be the judge. What’s clear is that the unpredictable stock market can make anyone go bananas. But there are alternatives. In fact, as stocks and DeFi crashed, one investment platform had 3 recent exits, realizing: +13.9%, +17.8%, and +21.5% net returns each.

It's called Masterworks. They’re unlocking the $1.7 trillion high-end art market for investors like you. Now, nearly anyone can invest in shares of multi-million-dollar art by names like Banksy and Picasso. Why art? Well, contemporary art prices:

• Outpaced the S&P 500 by 131% over the last 26 years.
• Have the lowest correlation to equities of any asset class, according to Citi
• Beat gold, real estate, and stocks in inflationary periods historically

Daily Peel readers are invited to skip the waitlist with this exclusive link. It's so easy, a monkey could do it.

See important Regulation A disclosures.

• Preliminary data shows retailers may have received exactly the gift they wanted, but unwrapping the data reveals more and more coal
• The Scrooge Rally is confirmed as global equity funds recorded their largest weekly outflows since the infamous month of March 2020
• Safe to say that China is sufficiently rattled by the new U.S. defense bill
• Get out of that post-Christmas depression and allow Fundstrat’s Tommy Lee to give you a desperately needed dose of bullishness

PCE Calls for Peace

Early data shows the war on inflation just might be a winning effort. Because they love to be quirky and different and confuse everyone that’s not a Ph.D. economist, the Federal Reserve’s preferred inflation measure is not real-time data or CPI or anything like that, it’s a little thing called the Personal Consumption Expenditure index, or PCE.

PCE differs from CPI in that it considers price levels from the perspective of consumers and businesses. In that sense, it’s worthwhile.

But just to make things even quirkier, JPow and the gang choose, for almost no valid reason, to strip the cost of food and energy as well. That metric of PCE minus food and energy is what people are referring to when they say “the Fed’s preferred inflation reading.” Tell me about it.

Now that we got that out of the way, we can all rest assured as “the Fed’s preferred inflation metric” slowed in the month of November, rising just 0.2% monthly and 4.7% from this time last year. Still far above the targeted rate of 2%, but hey, a win is a win.

Markets didn’t have a major reaction in either direction. That’s not due to a lack of importance of the metric compared to something like CPI but rather is likely due to the sheer confusion this data release carries with it.

Inflation is slowing, but markets are far from sure if this means one of the following:

• JPow will ease up
• JPow will think, “this whole raising rates super high super fast thing is working very well,” and cause continued/extended elevation of the economy’s base rate.

Nevertheless, one thing that was clear was that spending has largely shifted from goods to services. Good spending dropped across the economy by ~$60Bn, but you know Americans are never gonna stop swiping their credit cards, so services spending rose $80Bn to make up for it.

Generally, the Fed is thought to have more control over service-based inflation than goods. That’s mostly because service inflation is primarily wage driven, and with the Fed having far more sway over labor conditions than the price of oil or any other commodity, the hope is that we’re getting closer to the nail in inflation’s coffin on both the current level as well as the source of future inflation.

I know; two pieces of good news in a Macro Monkey about inflation is almost unheard of in 2022. Just to burst your bubble a little bit, I’ll just add that this slowdown in PCE coincides with far weaker-than-expected retail spending for the holidays. It’s not all sunshine and rainbows, but it’s not the eye of the storm anymore, either.

Casino Stocks ($WYNN, $LVS) ↑ 4.47%, 4.17% ↑

• Gambling on casino stocks paid off big yesterday, with names like Las Vegas Sands and Wynn Resorts getting dealt a royal flush. Each rose roughly 4% - 4.5% on an otherwise dreary day on Wall Street.
• Like a lot of macro investing this year, it was all about China. The continued relaxation of Zero C-19 policies frees up travel into the world’s most populous nation, and that, of course, includes the global gambling capital of Macau.
• With mandatory quarantines all but eliminated, investors are betting big that betting will come back big in the region. The more Macau exposure these stocks had, the better their day was yesterday.

Alibaba ($BABA) ↑ 4.90% ↑

• Alibaba and other Chinese tech names can, too, thank President Xi for a stellar day yesterday.
• Along with names like JD.com (+4.18%) and Tencent (+3.9%), the big tech gang over in China had a helluva day as optimism reigned supreme on—yup, you guessed it—continued Zero C-19 relaxation.
• In this case, however, the optimism comes from anticipated economic growth now coming faster than expected. There’s no direct benefit necessarily like for the gamblers described above, but less C-19 equals faster growth for the economy, which equals good news for big tech names. Although, that very well could prove to be much easier said than done.