Here's the Deal - January 20, 2025

Economy: In Slowdown

Market Cycle: Bullish Under Pressure

_{Week 3 of 52 for 2024: 5.77% of the way through 2025}

Table of Contents

• Weekly Note:

• Inflation still trending up, but less than expecte …

• This week in tariffs.

• Banks knocked it out of the park to lead-off Earni …

• Scott Bessent knocked it out of the park in his co …

• Home Prices overvalued?

• Happy Trails to Hindenburg and Nate Anderson.

• Significant Economic Data from the week:

• The Week Ahead

• WTF of the Week

  • Quote of the Week

Weekly Note:

It’s Inauguration Day!

One dude is out, and another one is back in the Oval Office.

While many news outlets and economic analysts will start reshaping their narratives simply because of this change, that’s not going to happen here. Why? Because the truth about the economy doesn’t depend on who’s in office. It’s found in the data, trends, and historical patterns. That’s how it should be if you want real insights. Therefor, it will continue to be the focus here.

Here’s the thing, I love politics. Not the current iteration of it, but politics in general. I’ve been following it closely since I was 16, which means nearly 30 years of observations, research, and learning. Over that time, one thing that has consistently frustrated me is how the economy (or anything) is covered in the press whether the President has a “D” or an “R” by their name. Suddenly, everything magically changes and is either great or terrible, depending on whose "team" they’re on. It’s infuriating, unprofessional, and dishonest. Frankly, it shows a lack of integrity and understanding.

So, you will not see that here.

The mission here is to call economic "balls and strikes", without letting personal political preferences cloud the analysis. If that means half of you get upset one group one day and the other group the next, so be it. The focus here is on delivering an honest assessment of the economy, tracking past predictions, measuring how often we get it right or wrong, and continuous work on improvement.

With that being said, I love fucking this country. Do we have some problems and demons from the past which need to be resolved? Absolutely! But that is always the case. If you show me something perfect, I will show you a lie. The real work is in recognizing problems, finding solutions to those problems, push to have those solutions implemented so that the most amount of people are positively affected, and nonstop striving for transparency.

What makes the United States special is its unique promise in the history of the world. It’s a place where anyone, whether born here or not, can pursue their dreams, contribute to society, and leave the world better than they found it. I want every administration, regardless of party, to succeed in making this country stronger, freer, fairer, and more welcoming.

So, nothing changes here based on who’s in office. Which is exactly the way it is supposed to be.

Inflation still trending up, but less than expected.

It was another week of good economic news. Unlike last week, the good news this week was indeed good news. The difference is last weeks good news showed an economy possibly re-heating before high inflation rates are finally put to bed for the cycle. Whereas this week, the good news helped by showing inflation readings, while still trending up, doing so less than expected.

Both PPI and core PPI came in below expectations.

Core CPI also came in below expectations, while CPI came in at expectations.

This is good news as the rate of inflation is slower than most thought it would be coming into the week. The bad news is that inflation rates continue to trend up, so still more work to be done.

This week in tariffs.

This past week, Canada readied tariffs on $105B of US products if Trump hits first.

While Trump says he is not going to be rolling back on his tariff policies, the incoming administration is also now reportedly looking at gradual tariff hikes under the Emergency Powers Act.

The problem with gradual tariffs is that it means less revenue, which leads to a larger federal deficit. Larger deficits with more tax cuts creates an even larger deficit. Larger deficits make for a continued rising of US debt levels. Should rising debt levels continue at this pace, US bond yields will continue to increase. Increasing bond yields make US government debt payments more expensive.

Eventually, something will have to give. Hopefully, it won’t be the economy. As that would negatively effect the most people in the worst ways.

Banks knocked it out of the park to lead-off Earnings Season.

Major U.S. banks reported strong earnings for the fourth quarter of 2024, exceeding analysts' expectations.

The six largest U.S. banks by assets are projected to have increased their earnings by 16% compared to the closing quarter of 2023.

This surge in profits was fueled by strong performance in trading due to higher volatility, deal-making activities (particularly following the U.S. presidential election) and lower interest rates.

Leading the way, as always, was JPMorgan Chase which recorded annual profits of $59.5 billion and a fourth-quarter net income of $14 billion.

Ultimately, the big banks continue to make huge profits and be a very strong sector. Something to keep an eye on as Financials, along with Energy and Materials, are thought to show relative strength as the economy peaks before rolling into a recession.

But for now, best to expect the Financial sector to continue to move higher in the markets.

Scott Bessent knocked it out of the park in his confirmation hearing.

Scott Bessent crushed it in his confirmation hearing. My biggest takeaway from watching it was just how intelligent and poised he is, even in the face of adversity.

Sure, he would be the first openly gay Treasury Secretary. However, he stated he would rather be known and judged on his professional accomplishments, rather than his sexual preference. Exactly as it should be.

A few key points he made:

• “Productive investment that grows the economy must be prioritized over wasteful spending that drives inflation.”

• He is in favor of extending provisions of the 2017 Tax Cuts and Jobs Act.

• Wants spending cuts and shifts in existing taxes to offset the costs that extending the tax cuts would add to the federal deficit.

Bessent also defended tariffs, disputing that tariffs would be entirely passed onto US consumers and businesses. Also stating:

• Historical data and optimal tariff theory do not support the idea that tariffs are simply a consumption tax increase

• A 10% tariff would typically result in only a 4% currency appreciation, meaning the full cost is not passed on to buyers

I see what he is trying to do here, but as a former salesman this is the type of answer you give when trying to avoid answering a direct question. While both statements appear to be true on the surface, a little digging tells us that it doesn’t paint the full picture. More like painting over a jalopy and claiming that it’s now good as new.

Although he is not getting the headlines, Scott Bessent appears to be one of the better choices Trump has made. Offering some hope on how the administration will handle and execute the economic policies in which they ran.

Home Prices overvalued?

According to some analysts, Housing could be overvalued by 10-25%. Exactly the sort of thing that happens when there is a lack of available housing units.

While at the same time, mass deportations and tariffs will lead to higher costs to build a home. Not to mention that their are now two huge swaths of the country, North Carolina and California, which now need to be rebuilt quickly. The result of which will put upward pressure on the costs of building supplies in the coming months.

So if you are hoping for affordable housing anytime in the near future, the headwinds just got a lot stronger.

Happy Trails to Hindenburg and Nate Anderson.

Famed short seller Hindenburg announced this week that they are calling it quits in a letter written by founder Nate Anderson. It was a truly epic 8-year run for the firm exposing some major frauds. Even going as far as shaking the pillars of power by reporting on Adnani, which is very closely associated with the Modi government in India.

Short sellers in general have a terrible rep. And in many of the cases, it is truly warranted as most simply post unsubstantiated and already known information in order to hit a companies stock price for a quick profit.

However, Hindenburg was the last of the good ones, publishing massive and thoroughly researched reports.

Good short sellers are a needed part of the economic system, as they do the jobs governments fail to do by weeding out malfeasance and accounting shenanigans for the rest of us.

Maybe I’m a little biased as Nate Anderson was a Wall St. outsider with limited contacts in the industry and limited formal training, while also being a graduate of a state college as opposed to an Ivy League school. Proving it can be done with obsessively hard work, grit, perseverance, and a dogged belief in himself in spite of having so much seemingly going against him.

In 2023, Hindenburg shook the pillars of power by accusing the Indian conglomerate Adani Group of "brazen" stock manipulation and accounting fraud. Leading to charges against Gautum Adani by the U.S. Justice Department in November 2023.

In 2020, Hindenburg accused electric truck startup, Nikola, of misleading investors about its technology. Ultimately leading to federal fraud charges against the company’s founder, Trevor Milton. Resulting in his conviction and 4-year prison sentence.

Other notable reports were launched against Icahn Enterprises, Clover Health and Super Micro Computers. The result of which came fines and additional investigations.

Markets are now a little less safe and more prone to chicanery without Hindenburg.

This Weeks Market Performance

Markets moved higher all week as good news continued to roll in Monday through Friday, on the heels of a surprising resolution to negotiations at the east coast ports a week ago Friday after markets closed.

For a week that is typically pretty volatile, the opposite occurred as volatility dropped all week while stock prices and indices ran higher. The result of which moved markets out of “Under Pressure” and back to “Bullish under pressure”.

The huge reversal for the S&P 500 came as it stuck its heels in the ground and pivoted back up after breaking below the triangle pattern. Looking like the breakdown was a false breakdown, and as the saying goes: “From false moves come fast moves in the other direction”.

The key now is going to be a break, hold, and confirmation of the upper trendline of that same triangle pattern. And as long as we stay above VWAP Anchored to the high, things look good.

Someone may have pointed out that things were looking good before markets ran higher…

The DJIA and the Nasdaq continue to hold their 100-day averages, which is consistent with Bull Markets and markets in a confirmed uptrend.

While small-caps held the 200-day and jumped back above its 100-day as well.

Even bonds participated in the gains this week.

Significant Economic Data from the week:

The Week Ahead

Markets typically perform well during the last 1/3 of January, so best to expect the same at this point.

Keep in mind that markets pretty much went straight up all week, so it wouldn’t be surprising to see a little softness at some point this week. However, I’d expect that to be another buy-able event into the first week of February.

If that does not happen, it will provide us with a significant piece of information on what to expect the rest of the year.

Economic Data to watch:

Earnings This Week

WTF of the Week

Quote of the Week

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