Week of January 13, 2025

The previous week was a bit of a rollercoaster, as the fools on Wall Street are still trying to determine if there is inflation. Here’s a hint: everyone west of the East River knows there is. This past week has shown the abosolute disconnect between financial markets and reality. This has been accelerated since the Great Financial Crisis in 2008, which, at this point seems like a lifetime ago.

The Chart Everyone is Watching.

After the jobs report came out on Friday with the US adding 265k jobs in December, markets frantically started to price in the idea that the Federal Reserve wasn’t going to cut rates as much as once thought. This is irritating, to say the least, because the data of higher for longer has been there all along. There is a lesson here, which is that markets are often “wrong.” However, don’t lose money being “right.”

The chart I am referring to, of course, is going to be the ten-year yield in America. This chart has shown that people are sometimes better off parking their cash, and foreigners of course will be looking to take advantage of a strengthening US dollar, weakening local currencies, and that juicy yield. Retail traders don’t think in the same terms, because a 4.763% yield on a $2,000 account isn’t much. However, the people that move this chart are trading millions, if not billions. Its a totally different game to them.

At this point, I would expect the ten-year to do what it can to reach the 5% level. We just had a technical breakout on Friday, so follow-through would be needed, but there is nothing on this chart that makes me doubt this will happen. This leads to an even stronger US dollar.

So, you might ask about the interest rates in the UK. Yes, they are rising. However, this is because people are worried about the budget situation in Great Britain. The chart looks as such:

While the rates remain high and people would think it would be good for the GBP, the reality is that people do not want to lend to the British, and this is bad. Really bad. This should continue the massive bifurcation between the United States and almost anyone else, but especially anyone even close to Europe.

When you consider that Mr. Trump appears determined to reestablish US dominance in numerous areas, the trajectory of this situation becomes clear. In fact, I’d say that’s his complete focus in the latter part of his life. Say what you will about him, but he gets results. Contrast that with the politicians in the European region, and there is no real doubt as to who will win, at least for the foreseeable future. Trump has tapped into something that reminds me a lot of 1980.

The Main Events this Week.

There are two things that I will be watching this week. The first one is the Core CPI numbers due 1.30 pm GMT on Wednesday. Expected to be 0.2%, but if it comes out hotter than expected, this will only cause more pain on Wall Street and more strength in the US dollar.

The second thing I am watching is the Core Retail Sales report on Thursday, due at 1.30 pm GMT. Expected to be 0.5% month-over-month, this is going to be almost as influential as the Wednesday data. Quite frankly, I haven’t noticed too many people weening from their shopping here in Columbus, so I would expect it to be at least 0.5%, if not higher. Again, this would have the same effect as a stronger than expected CPI number, but perhaps a little less influential. This will be especially true if that CPI number is higher than expected.

So, My Crystal Ball Says…

Here are some major themes I am looking for in the next few months:

• Crude will continue to rally. WTI at $80 is a thing eventually.

• EUR/USD will hit parity in H1 2025.

• GBP/USD will hit 1.20 in H1. (To be honest, it could be next week at this rate.)

• Bitcoin will continue to climb, eventually. You should be accumulating it. If it falls through support, even better. As a general rule, if it has a really bad day, I buy some.

• AUD/USD will do its best to get to 0.60, and faster than people think.

• Many retail traders will get blown up trying to “pick the bottom” in EUR/USD, AUD/USD, and GBP/USD. This isn’t much of a prediction though, if I am being honest.

• Even more foreign inflows into the US stock markets. In other words, the markets could pullback, but wealthy Asians, Arabs, and Europeans will be more than willing to buy into those dips.