During this holiday season, we would like to express our gratitude to our clients and friends for the trust you place in us. Our best wishes for a Merry Christmas and Happy Hanukkah!
Will we have a Santa Claus rally this year? It is still early, but so far it is nowhere to be seen. It has been a dull month so far. Yesterday completed 12 negative breadth days in a row (more declining stocks than advancing stocks) for the Dow Jones which is the longest streak since 1978. Other indexes are making all-time highs (NASDAQ). The recent 12 days of negative breadth for the Dow isn’t necessarily a warning sign. Rather it just might be market consolidation after November’s stellar rise.
Here is our take on the important inflation readings released last week. The CPI was hotter than comfortable for the Fed but there was some good news under the hood. Rent growth decelerated sharply. The hot print for core CPI in November was entirely because of autos and other volatile categories like car rentals, flights and hotels. Other key categories slowed sharply, including services inflation. Using the details of the CPI and PPI releases, Wall Street economists estimate core PCE rose just 1.6% annualized. That would be a sharp slowdown versus the mid-3% annualized readings of the last couple of months. Inflation may still be a bit sticky but progress is being made.
The bond market expects a 25 bp cut today by the Fed (97% probability according to CME Fedwatch). We agree. We also expect a hawkish tone by Fed Chair Powell preparing investors for fewer cuts in 2025 than currently expected.
As bitcoin crosses the $100,000 level, the crypto ownership level is about 15% in the U.S. – twice the global average. Of course that means 85% of investors in the U.S. don’t own crypto – including us.
Since the election, bitcoin has jumped over 50% (and 150% YTD). President-elect Donald Trump positioned himself as the crypto-friendly candidate. There is hope among investors that a new Republican-led government will embrace crypto, possibly even buying it for the U.S. Treasury. In fact, there is a Senate bill called the Bitcoin Act which would establish a strategic bitcoin reserve allowing the government to buy and store crypto. The fact that this is actually in discussion is wild to us.
Readers of our commentary know we are not believers in crypto as an investment for serious minded investors. Its price depends solely on what buyers are willing to pay for it. There are no underlying fundamentals that support a given price (like cash flow and profits). Bitcoin’s extreme volatility makes it impractical as a currency for everyday purchases, and the ability to conduct transactions without a third party has proved more useful to criminals.
Many see bitcoin as an asset class here to stay, but we will continue to avoid it. While some analysts see it eventually topping $1 million, it could also tank 75% in a matter of months. That is not investing to us.