DJ Sol's Soft Landing Set

Good Afternoon,

We'll be kicking things off this week with a moment of silence for some of our fallen soldiers' free coffee. She got you through the worst of times. She stayed by you when free rides, gym memberships and "raises" moved out of town. She had loyalty and persistence that could only be matched by inflation. Speaking of inflation, we’re diving into just how right (but mainly wrong) forecasts were about this week's CPI print.

Bottom Line Up Front

• Core retail sales data warns household spending is tempering. The report was further complicated by the fact that applications for unemployment insurance dropped for the fifth straight week, suggesting demand for workers remains healthy.

• The World Bank announced Thursday that the global economy may face a recession next year. Despite their projections of an aggressive wave of policy tightening, they anticipate it will prove inadequate to temper inflation.

• U.S. mortgages rates climbed above 6% for the first time since 2008.

• Kanye West appeared on Thursday's CNBC Closing Bell to announce he’s terminating his rocky two-year-old partnership with the Gap because of “substantial noncompliance.”

• Adobe Inc. is nearing a deal to acquire online design startup Figma for a reported $15B+.

But first, a quick note from The BAD Investment Company.

Tired of ESG Bullsh*t?

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• Betting – Casinos, gaming, and online gaming operations – 33%

• Alcohol – Alcoholic beverage manufacturing and distribution – 23%

• Drugs – Pharmaceutical and biotechnology product development and manufacturing – 33%

  • Cannabis cultivators & distributors - 10% 

The case for these BAD industries remains strong for a simple yet important reason – they have historically offered attractive risk-adjusted returns. In addition to these industries overcoming government scrutiny, these industries have shown resilience during economic downturns because people tend to indulge in their vices, or what some call hobbies.

As a result, we believe these asset classes are typically underappreciated and therefore under-valued but the reality is that people will continue to consume alcohol, gamble, and need medicine in good times, and in BAD.

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Learn more about the BAD ETF fund details and sign up for our mailing list to get the latest fund insights and information.

The Crampionships

The only thing tanking harder than the markets this week is our meme king: Jim Cramer. If you've had your head buried in the CPI print press coverage this week and forgot what Twitter was, let's recap. (Also, if you could just never tell Kanye your secret to ghosting Twitter, we'd appreciate it. Our meme profit margin would never recover).

The Bureau of Labor Statistics released August’s inflation report this week, and someone let slip they weren’t invited to Biden’s Inflation Reduction Act party. And they didn't even wait to crash the party.

The report came in scathing, with the YoY CPI at 8.3%, 0.3% higher than the expert consensus of 8.0%. All core CPI (ex-food and energy) measures came in above forecasts. Oil prices dropped as expected, yet their decrease did not have the impact that analysts predicted. Financial markets were reeling after the CPI data was published, and they didn't recover from their tantrums for the rest of the week. (Housing started its own dumpster fire too, btw).

The report signaled the growing distance between political sentiment and reporting versus the reality for everyday Americans. The gap between Wall Street’s prediction accuracy and consumer reality is also growing deeper. So, back to our boy, Jim.

It's been over a decade since Twitter took the reins from John Stewart trolling Jim Cramer at any turn. On March 25th, he said the bear market was officially over. Since then, the S&P500 is down nearly 14%. After the CPI report, he said the bear market is not over. "Short Cramer's picks, copy Pelosi's" is every current TikToker's "not financial advice." If the markets have taught us anything this week, it is that there's plenty of alpha in fading Cramer, because not many have come close to correcting inflation.

That's why we're introducing the accuracy tier list we're calling...

The Crampionships

The only thing that's been around longer than Jamie Dimon is the man who he most likely watches in the morning while shadowboxing. Jim Cramer has seen everything, from Twitter wars to actual ones. It looked like he was finally close to an existential crisis when a trader pushed him a little too far on crypto. But he prevailed, and remains our rock -- even if that just means "dead when it comes to investment advice." So let's start with the legends he could never fathom being as accurate as:

ps - we're going to DJ Sol's LAVO set this saturday. tell us what coffee order to bring him.

1. Michael Burry: More commonly known as "Christian", Michael warned us in a June tweet that inflation would continue to change the game for investors. He then went on to advise that portfolio strategies that have paid off in recent years might fail to protect against the new (i.e. continued) threat.

His message was short, simple, and...similar to something he might've advised before? In short, think twice about piling into stocks in anticipation of a big rebound. Markets are facing rapid inflation for the first time in 40 years, meaning this downturn is different, in his view. Stocks extended their slump this week while the dollar continued its ascent, so it seems its currently 1 Batman - 0 your MD.

2. Dominic Chu & Sara Eisen: They may just report the news after our brains are still turning on at market open, but they're accurate. Plus, in August, Dominic Chu came out scathing on "Morning Joe" that "nobody has the guts" to say inflation has peaked because it has gotten "so pervasively bad."

3. Larry Summers: He got plenty of press from all of you who saw him at the U.S. Open, but it's warranted here. He warned in a letter earlier this year that the inflation risk was real. In his reasoning, it was possible the Fed could contain inflationary pressures by raising interest rates without damaging the economy. But, in the current environment, he also pointed to markets around the world that had been primed to believe that rates will remain very low for the foreseeable future. These behaviors, in his perspective, would make it very difficult for the Fed, especially given its commitment at the time to wait until sustained inflation was apparent before acting.

Every time the Fed has hit the brakes hard enough to slow growth meaningfully, the economy has gone into recession. In Living like Larry's words, "The history here is not encouraging."

1.  Olivier Blanchard: Like your favorite NBA ref, he'll blow plenty of the calls, but the best ones just stay out of the way so you don't notice. In this case, Blanchard did that in his February 2021 analysis of Treasury Secretary Janet Yellen's need to “go big” on a protection and stimulus package.

On the whole, he agreed with the package. But he also called out factors that have played themselves out in the state of today's economy. He had misgivings about the size of the Biden administration’s $1.9 trillion coronavirus relief plan. He also criticized them on the public's increasing concern about overheating and inflation. Blanchard flagged three main signals for today's economy that were "more right" than most on this list:

• The size of the output gap—i.e., the gap between actual and potential output in the economy.

• The size of the multipliers—i.e., the likely effects from the stimulus.

• How much inflation an overheating economy may generate.

2.  Jayconomics: We'll be honest. Not many people were right, and we wish we could've included your VP who's long on Adam Neumann in this predictions accuracy list. But that analyst's favorite financial influencer did have some good points about inflation heating up earlier this year.

3.  Paul Krugan: We love an honest king. And Paul was that earlier this year when he admitted he absolutely tanked predicting where inflation and housing would go. And honestly, that honesty wasn't evident for most below:

1.  Jack Dorsey: We were serious, it was hard finding people who didn't get inflation too wrong. Dorsey joined CNBC last year to weigh in on escalating inflation in the U.S. In his perspective, things were headed down a road where they get "considerably worse."

(The beard also grew on us).

2.  Mohamed El-Erian: Similar to Dorsey, Allianz's Chief Economic Advisor Mohamed El-Erian went on CNBC last year to flame the Fed. In his words, calling inflation transitory was a "historically bad move." El-Erian went on to say that the Fed’s recognition that price pressures aren’t going away was "essential" to making the proper policy decisions. Don't tell him what the latest CPI report had to say about those pressures.

3.  Jamie Dimon: Dimon warned us to "brace ourselves" in June as he analyzed the Fed's recent policy announcements. There were two main factors that had him worried. The first was so-called "quantitative tightening," which was scheduled to begin that month and ramp up to $95 billion a month in reduced bond holdings. He also noted concern over the Ukraine war and its impact on commodities, including food and fuel.

Interestingly, he made sure to flag that "Oil could hit $150 or $175 a barrel." Just two months earlier, WTI oil had spiked to $130. This is where we do agree you should brace yourselves: he admitted JPMorgan is "going to be very conservative with our balance sheet.” So, we kept him in B.

Plus, in the words of Kanye, “I don’t need people who have less money than me telling me about money.”

1.  Goldman Sachs: The stock market is reeling, and most economists expect a painful recession. But don't shift your asset allocation just yet folks, because everyone's favorite 2008 poster child is here to save the day. Goldman announced earlier this month that a "soft landing" is still achievable and not to worry.

To be fair to them, maybe they've cut news, TV and Bloomberg Terminal out of the budget too.

2.  Biden's Inflation Reduction Party: At least make it a private invite.

3.  U.S. Treasury Secretary, Janet Yellen: In a June interview with CNN, Yellen admitted she got the call on how severe inflation would be wrong. Last year, she indicated there would only be a "small risk" of inflation, and that it would be "manageable."She went on to blame the "unanticipated and large shocks to the economy" that subsequently boosted energy and food prices, as well as supply bottlenecks.

To summarize the interview: "At the time I didn’t fully understand it."

1.  The Fed: Transitory. Remember her? She was the girl from Mykonos nagging you last summer. You started hearing about her over your trip. You might have even seriously thought about her once or twice, but you weren't that interested. Then, you couldn’t stop hearing about her for the rest of the year and into this one. You found out she eventually graduated with her MBA and joined this July as your new manager.

2.  Elon Musk: The only explanation we have for his recent comments on the state of the economy is that he's trying to distract us all from Twitter. After this week's CPI report, Elon swooped in to save the day. Maybe in his mind, at least. He warned we should "start worrying about deflation."

No, don't leave to Google it. You're correct that prices are still growing at a four-decade high.

3.  The Fed, but in Jackson Hole: Do we need to say more here?

Lit's Pick

Go big or go home. That's why we're taking "Yes" on the federal funds rate being above 3.75% following the Fed's November meeting for $0.58. That's all for today, have a great weekend!

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