TheBRRR’s Thoughts

GM.

Interesting week - the SEC approved 11 bitcoin ETFs, December’s consumer and producer price inflation data dropped, oil whipsawed on Yemen news, and uranium is surging on production concerns out of Kazakhstan.

We covered the bitcoin and inflation stories at-depth in the newsletter today. Have a great weekend.

Macro News

Inflation Data

WHAT HAPPENED:

• The producer price index (PPI) data, released on Friday, indicated a more subdued inflation scenario than what the recent consumer price index (CPI) suggested.

• The PPI report, which includes elements like health care services and portfolio management fees, is a precursor to the PCE price index - the Federal Reserve's primary inflation measure.

• Significant differences were noted between CPI and PPI data, particularly in health care and housing costs. For instance, while CPI reported a 0.7% rise in medical care services, the PPI showed negligible changes in hospital care costs.

• The overall CPI rose 0.3% in December, higher than expected, pushing the 12-month CPI inflation rate to 3.4%.

• Core CPI (excluding volatile food and energy prices) also rose more than anticipated, but its annual inflation rate dipped to 3.9%.

WHY IT MATTERS:

• The disparity between CPI and PPI data can significantly impact the Fed's inflation outlook and subsequent policy decisions.

• A more tame inflation reading from the PPI, particularly in core PCE prices, might lead to a less aggressive stance on rate hikes by the Fed.

• Markets reacted positively to this news, with the S&P 500 rising and Treasury yields falling.

• The Fed’s focus on core nonhousing services inflation and its divergence from CPI metrics is a crucial aspect for investors and economists in predicting future monetary policy.

Fed Policy Impact:

• Market expectations have shifted, now leaning more towards a series of rate cuts in 2024.

• The core PCE inflation gauge, which the Fed prioritizes, showed a comparatively lower annual rate, suggesting that the Fed might opt for a softer policy approach in the coming months.

Stock Market Response:

• The S&P 500, which is sensitive to inflation data and Fed policy speculations, showed resilience, indicating investor optimism about a less hawkish Fed and potentially lower interest rates.

This contrast in inflation measures highlights the complexities in economic indicators and their influence on Federal Reserve policies, market expectations, and investment strategies.

IBD 

Crypto News

Bitcoin ETFs Approved & Trading Begins

Synopsis:

Yesterday was the inaugural day of spot bitcoin ETF trading.

Leading the charge, the Grayscale Bitcoin Trust recorded the highest-ever first-day turnover for an ETF at $2.3 billion. BlackRock's iShares Bitcoin Trust followed suit with a substantial $1 billion in trades. Amidst this fervor, Bitcoin's price soared past $49,000, a peak not seen since 2021, before selling off to under $44,000 today.

Accessibility to these ETFs varied across platforms, with some major brokers like Vanguard opting out, while others like Robinhood and Charles Schwab welcomed the new products.

Concurrently, a fee war erupted among ETF issuers. The battle for marketshare has driven fees down to ~0.2% annually for most of the products.

BRRR’s Take:

Gauging by trading volume, the launch was successful. While bitcoin has sold off since the ETFs began trading, we’ll see long-term passive flows into bitcoin with these new low-fee products.

Interestingly, sell pressure picked up at 9:30 am ET today when markets opened. The selling was most aggressive on Coinbase - the exchange responsible for physical custody of the bitcoin for these new ETF products.

Could the issuers be selling physical bitcoin because they overestimated the supply they’d need to seed the ETFs?

We’ll see how it trades over the weekend.

One note on the the SEC’s approval process and botched rollout.

Gary Gensler and the SEC did the industry no favors - between enabling Tuesday’s hack by not having 2-factor authentication enabled on their X account, to delaying the approval for a decade, it’s hard to argue that the SEC has fulfilled its mission to protect investors, and to promote orderly and efficient markets.

Now, we get to run back the entire process and newsflow for the proposed Ethereum ETF - as BlackRock CEO Larry Fink publicly pronounced that he “sees value” in providing access to such a product.

The Block

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The BRRR is meant for informational purposes only. It is not investment advice. Please consult with your investment, tax, or legal advisor before making any investment decisions.