Is Inflation Finally Over?

This week we're bringing you a special Friday discussion with our co-founder and CEO! 

The reason for the special chat was that yesterday was a monumental day for the economy.

Here are the 4 key things we went over: 

• Why the market reacted in a fairly low-key way to yesterday's massive inflation news

• How China & Russia could be gone in 10 years from now

• Why the US is bringing back manufacturing to the US & Mexico

• When we could potentially see a big Fed pivot

And if you're too busy to listen to the entire recording, below we included a compact summary of what went down. But if not just click the video above to get started or you can also listen to this recording either through:

• Apple Podcasts: Click here

• Spotify: Click here  

To get all the juicy details, just listen to the entire podcast! And now, onto the summary.

Overview:

Like we said at the beginning of the week, this was a MASSIVE CPI report with huge implications for all of 2023. 

The fact that the CPI reduced almost directly in line with Wall Street expectations isn't super ideal -- but is ultimately still great news after 5 straight months of reasonable decline. 

The issue is that this modest reduction in inflation is basically priced in at this point.

With the brutal rate raises the Fed has been hitting the market with -- if we weren't seeing this much of a slowdown, that would be a catastrophe. 

However, the main issue that market makers are concerned with is that since inflation has been driven on the supply side of the economic equation -- there is a potential that the Fed may still not be able to get this under control.

This CPI print demonstrates that the Fed is doing a decent job of guiding the market out of an economic calamity -- but we're not even close to out of the woods yet. 

There's a lot more detail to comb through, so just listen to the recording for the facts you can't miss!

Why We're Still Worried About Inflation:

Basically, food and energy prices are decreasing enough to drive inflation back down. But since energy prices can be really volatile, one bad month could put us right back on track toward catastrophe. 

That's why the markets didn't really blow up on the news of this report. But we want to see core inflation go down more in order to buffer the economy against fluctuations in energy prices. 

However, the CPI is a lagging indicator. We're talking about December's inflation in the middle of January. Two big drivers of inflation going down have been the prices of used cars and rent. Both of those decreases have accelerated in January, which is a really encouraging sign moving forward.

Barring a break in energy supply chains, we may see the CPI decelerate further next month. 

The main issue after the CPI becomes more consistent is watching the Fed for a potential pivot.

We have no indication from the Fed right now that they will stop raising rates in 2023 -- only a potential that they will raise them by smaller increments. 

Since so much of our economy is fueled by debt -- this is the main factor keeping money out of the markets right now.

So we're going to watch the FOMC meeting at the end of this month really closely (just like the rest of the market) to see if Jerome Powell is feeling like there's an end in sight here. 

Supply Chains Are Still Really Wild:

Meanwhile, by the end of the year, inflation might not be the biggest issue we're talking about.

2022 was a year of massive new investment in EVs, green energy, and a lot of material-intensive projects that are going to become VERY competitive in 2023.

Get ready for lots of heated conversations about Lithium, Graphite, Cobalt, Nickle, and even more niche elements like Cadmium.

All of the biggest economies in the world are pivoting hard to more renewable energy sources and all of those newfangled energy capture methods require huge amounts of rare earth elements.

Supply prices here are going to take deep bites out of EV margins potentially. 

Meanwhile, we're going to watch a global economy become more localized in 2023.

Maybe not really big short-term shifts there, but we will see the beginning of a bifurcation of Russia, China, and the US.

American manufacturing is coming back to North America in a big way and there are huge structural issues hitting the Chinese economy that they may have a hard time surmounting. 

All of these factors are genuinely hard to predict but will have interesting effects on our market in the year to come.

Don't expect any big resolutions too soon though as these are massive issues that will play out across the next decade, not the next quarter.   

Wrapping this Up:

We're really excited that some aspects of the market are getting back on track.

Our next big task as investors is finding areas where folks will continue to invest so we are able to ride the wave effectively and not overinvest in areas where all the big capital moves have been completed.

We're watching a softening China for potential tech investments, as well as tightening up our pharma portfolio just in case that industry as a whole was overbought. 

All-in-all, 2023 is shaping up to be a complicated year to be an investor, but we are starting to be way more confident that we are going to leave this year in a lot better shape than when we entered it.