Ramp Report #2

Together with:

⤴️ Behind The Curve: The Fed is now "behind the curve". For the uninitiated, a central bank gets behind the curve when it is not raising interest rates at a pace fast enough to keep up with inflation. Conversely, the Federal Reserve can get ahead of the curve by increasing interest rates at a pace faster than inflation suggests it should be.

Friday on CNBC, DoubleLine Capital CEO Jeffrey Gundlach said the Federal Reserve is failing in its battle against a spike of inflation, and the central bank is likely to accelerate its rate hikes this year. Gundlach said he’s doubtful that the red-hot inflation will decelerate as much as the central bankers are expecting due in part to extended supply chain challenges.

“One thing we can all agree on is inflation just continues to surprise on the upside. The Fed is obviously behind the curve. It’s going to have to raise rates more than the market still thinks. My suspicion is they are going to keep raising rates until something breaks, which always happens.”

The spread between the Federal funds rate and the 2-year is at the highest level since the 2004 tightening cycle.

In true Winter Olympics spirit, the 2-year yield chart decided to print the infamous half pipe formation--one so steep that it even makes Shaun White feel timid.

Per the CME's Fed Watch tool, the probability for a target rate increase to 50-75 bps has gone up dramatically this week after the CPI data came in hotter than expected. They are now predicting a 93.8% chance for the target rate to be between 50-75 bps--a complete flip from the 3% chance predicted a month ago.

🌶 Inflation:  The CPI data released on Thursday showed that prices are climbing at the fastest pace in 40 years and broadening to touch nearly every corner of the American economy. It's getting tougher and tougher to sugarcoat this one, even after factoring the 16 cents we saved over 4th of July last year.

When I asked my boss on Thursday how my raise was looking for this year, they said it was definitely less than 7.5%. Down horrendously.

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🚘 Bull Market In Used Cars: I joked last May that vehicles were now appreciating assets, but the prices we are seeing now have gotten out of hand rather quickly. The prolonged inventory crunch of dealership lots and chip shortages has turned the U.S. used-car market upside down.

As you can see from the CPI data for used cars and trucks, it has gone vertical, increasing by more than 50% since the start of the pandemic (and 40.5% in January from a year ago) after staying relatively steady for 30 years.

As reported on by the WSJ:

Cars are traditionally depreciating assets. But a slowdown in new car production among auto manufacturers has created high demand for used vehicles—and led to sticker shock for buyers expecting to find deals on second-hand models. 

The average transaction price for a three-year-old used Dodge Grand Caravan, for example, surged by 69% (nice), according to data from automotive research company Edmunds, rising from just over $15,000 in January 2021 to nearly $26,000 last month. 

As the old saying goes: Depreciation Appreciation begins as soon as you drive off the lot.

🍁Pot Jobs: According to a new report from Deloitte, the cannabis sector has generated more than $15 billion in direct and indirect tax revenue for Canadian and provincial governments, while creating more than 151,000 jobs since Canada legalized recreational use of the drug in Oct. 2018.

Canada's cannabis industry has contributed $43.5 billion to the country's economy between legalization and 2021, Deloitte said. The industry has directly invested roughly $4.4 billion in the economy, while $29.3 billion was sourced from "indirect" economic contributions, and $9.8 billion in "induced" contributions, the report said.

🏠 Inventory: For those looking to purchase a home this year, good luck. The low housing inventory continues to be a major problem for those looking to make an affordable purchase. With rising demand coming from millennials and the work from home (anywhere) movement, many experts anticipate the real estate market to remain extremely competitive in 2022.

As reported on by Fortune: The number of homes for sale last spring hit the lowest level in more than 40 years. Bidding wars hit an all-time high—with 72% of homes getting multiple offers in April 2021. And that frenzy saw home appreciation climb to the highest level in tabulated history.

Altos Research calculates the housing inventory slightly differently than the NAR but the chart below tells an interesting story nonetheless. You can read here about how they calculate their number.

🪵 V-shaped Lumber: Lumber has had a wild ride in the past month. After going limit down 6 days in a row and 8 out of 10 in mid to late January (and bottoming around $900) it then proceeded to hit limit up 8 days in a row before reversing on Friday (from the everything selloff because of WW3?). This sharp rise in lumber, even from the lows of 2021 have added significant cost to new builds, with some estimating an additional $34,000 to the price of a new home.

👹 Monster Beverage is a Monster Company: Most people like to daydream about putting $10,000 into the Apple or Amazon or Microsoft IPO. But those pale in comparison to Monster Beverage's performance since their IPO on January 10, 2003.

If you had put $10,000 into the MNST IPO you would currently be sitting on more than $11.5 million, nearly double the amount had you put that same $10,000 into Apple. Of course there is no gain without a little pain--you would have had to sit through multiple drawdowns where your gains were cut in half to achieve this goal.

Lesson: Buy and throw away the key. Circle back in 30 years.

Before you go, check out the Diamond Hands blog post I wrote for Ycharts last week.

That's all for this week. Thanks for subscribing and sharing.