Oh My CPI | The Daily Peel | 1/13/22

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Market Snapshot

Stocks showed inflation who's boss yesterday. Despite getting the highest CPI reading since 1982 early in the morning, markets could not have cared less. Leading the day was the S&P with a 0.28% rise while the Nasdaq followed closely with a 0.23% rise and the Dow tagged along with a gain of 0.11%.

Let's get into it.

 

Macro Monkey Says

CP-High - If a broken clock is right twice a day, I guess economists can be right once in a while too. Experts had predicted price increases of 7.0% for the full-year ended in December and that is exactly what they got. Prices rose on average by 7.0% YoY, a record high going back to 1982, and 0.5% on a monthly basis.

Obviously, this comes with a few caveats. First of all, the methodology used in calculating this metric is widely regarded as hot trash. While it attempts to measure the average, exactly 0 people are truly "average", so it's measuring cost increases for a basket that no one bought. Moreover, 1/3 of the CPI is derived from a survey that seeks to measure "owner's equivalent rent", or how much homeowners would charge renters that lived in their house. While being survey based is bad alone, if you combine the OER with new and used car prices, that accounts for about 40% of the total CPI. So, if you didn't buy a car or move during the last year, 40% of the metric is automatically useless to you.

That said, this reading is still cause for concern. Everyone saw it coming, but this is exactly the kind of persistently high (and increasing) inflation JPow hinted at that could cause the Fed to tighten faster or more intensely.

One of the more striking aspects of the report was in seeing energy prices actually fall compared to the month prior. Still, energy costs are up almost 30% over the year, so don't celebrate too much yet. Food prices increased 0.5% over the month, bringing the annual rise to 6.3%. Remove these two inputs, food and energy, and you have what's called the "Core CPI", which rose 5.5% over the year.

There's a saying in modeling or any process where you take inputs and use them to derive one specific output: garbage in, garbage out. While garbage costs aren't actually a factor in the CPI, the indicator is exactly that. Take it with a grain of salt.

China - Let's check in our friends on the other side of the world. China has a lot on its plate right now and even more coming in a few weeks as the winter Olympics kick off in Beijing on February 4th, so let's check in on how things are going.

Well, it's not ideal. A bit of a COVID flareup is throwing officials for a loop. China has a notorious zero-tolerance policy for COVID cases and is certainly not stranger to punitive and draconian responses to any issues it faces. Sure this is good for the health of the world's most populous nation, but it's not great for global supply chains. Zero-tolerance means shutting down factories, restricting workers from going to their jobs, and restricting movement overall. With China holding the title of "The World's Factory", this doesn't look good for anyone.

But, there is more than COVID going down over there. For starters, the Evergrande disaster has only gotten worse. The company officially defaulted on coupon payments last month and is still working closely with CCP officials to pay off the $300bn. One move the firm just began making was the abandonment of it's corporate HQ, not a strong sign. 

And not to be outshone by the U.S., China just reported their most recent CPI numbers as well. Prices rose 1.5% from the year ago period, beating the hell out of the U.S. figures, while factory prices as measured by the PPI gained 10.5%. Both figures represent slowdowns in price increases from the month before.

All in all, things look ready to go for Feb. 4th. China will do what they gotta do at the end of the day, and with Xi's term up this year, he needs to save face to hold office.

 

 

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What's Ripe

Digital World Acquisition Corp ($DWAC) - Donald Trump's newest contribution to society: The Art of the SPAC. There's no book for this one, but all you have to is look at Digital World Acquisition Corp. Perhaps no price chart fits the term "mania" quite like this one. After surging over 840% followed by a nearly 50% fall to close out 2021, shares are up little over 38% so far in 2022. Nothing special has happened, but investors seem excited for the launch of TRUTH Social on February 21st, aka, President's Day. Shares were up another 11.7yesterday.

Tesla ($TSLA) - Tesla shares have been on low power mode thus far in 2022, but the stock, unlike the cars, was all gassed up yesterday. Shares rose 3.9% likely on account of the slew of upgraded ratings coming from sell-side analysts of late. This week alone, Morgan Stanley and Goldman both sizably juiced their price targets to $1,300 and $1,200, respectively. Remember when "$TSLA $1,000" sounded crazy? Good times.

 

What's Rotten

Biogen ($BIIB) - Biogen can't catch a break. Unlike some of its biotech colleagues, shares in the ~$33bn behemoth continue to disappoint. Down another 6.7% yesterday, investors can blame Medicare for not providing coverage to all users of Biogen's breakthrough Alzheimer's drug, Aduhelm. The Medicare coverage space is super confusing and esoteric, so save yourself some time and just know this is not good.

T Rowe Price Group ($TROW) - The unsung giant of asset management T Rowe Price looked like it was carrying a sack a bricks yesterday. Shares cratered 6.6%, and while I don't want to say there was no reason for it, but there was no reason for it. The only specific news of the day was a report detailing how the firm's AUM had grown "modestly" since November. That "modestly" is describing a $60bn increase to $1.69tn in assets under management.

Thought Banana:

Round 2 - Breaking News: The FTC still doesn't f*ck with Facebook. Despite failure to pursue a trial in 2021 and 2020, it looks like 2022 is finally gonna be the year that FTC Chair Lina Khan starts popping up in Mark Zuckerberg's nightmares.

Judge James Boasberg, from the same D.C. Federal Court in which he rejected the FTC's first suit, has now declined Facebook's request to have the amended lawsuit against them dismissed. If you recall, Judge Boasberg originally rejected the FTC's suit for not brining enough hard evidence to the table. Now, the same Judge has dismissed Facebook's request for dismissal. That's gotta be about as unbias as it gets.

Now, the FTC can sharpen their knives and get ready for war. The War of the Lawyers will likely begin getting underway over the next several months and maybe, just maybe, if we're lucky, we'll see Zuck back in front of Congress before 2023. 

Wise Investor Says

"When you invest, you are buying a day that you don't have to work." - Aya Laraya

 

Happy Investing,

Patrick & The Daily Peel Team

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Jan 13, 2022 - 6:15am

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