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Supercore Inflation is Worth Watching, but it is Probably Not a Good Policy Target

Although headline inflation continues to fall and unemployment is near a 50-year low, the Federal Reserve still faces some tricky policy decisions over…

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Although headline inflation continues to fall and unemployment is near a 50-year low, the Federal Reserve still faces some tricky policy decisions over the next few months. Many of these have to do with the unusual volatility of relative prices during the 2021-2022 inflation, a topic that I wrote about in a recent commentary. This piece picks up where that one left off. It focuses on the behavior of the subset of prices that constitute the so-called supercorerelative to prices that are more flexible.

Supercore prices have been in the news lately because some observers think the Fed is targeting them. This commentary will argue a focus on supercore inflation may have led to a more-than-prudent degree of monetary policy tightening by late 2022 and early  2023. The fact that high interest rates appear to have been a contributing factor to the banking crisis that was touched off by the failure of Silicon Valley Bank in March only strengthens the case.

So, what is the supercore?

So, what, exactly, is the supercore? The notion of ordinary core prices is familiar enough. The core consumer price index, for example, is the ordinary CPI with the highly volatile prices of food and energy removed. The personal consumption expenditures index, a CPI alternative, also has a core version that removes the same two sectors. Measures of the supercore go further by removing still more items.

The impression that the Fed is targeting supercore inflation was reinforced by a press conference held on February 1 by Chairman Jerome Powell. In answering a reporter’s question, Powell divided prices into three sectors. “In the goods sector,” he said, “you see inflation now coming down because supply chains have been fixed … In the housing services sector, we expect inflation to continue moving up for a while but then to come down … So, in those two sectors, you’ve got a good story. The issue is that we have a large sector called nonhousing service — core nonhousing services, where we don’t see disinflation yet.” Although he does not use the term, what Powell calls core nonhousing services is what others call the supercore.

It is almost as if Powell is treating the problem of inflation the way a frontline surgeon might treat a wounded soldier. “We’ve stopped the bleeding in his leg; we’ve got the bullet out of his shoulder; now all we’ve got to do is get that pesky piece of shrapnel out of his neck.” But is continuing to tighten monetary policy until supercore prices, too, stop rising really a good idea? Read on.

Why supercore prices are sticky

Economics 101 teaches us that market prices rise or fall in response to changes in supply and demand. True enough, but some prices respond faster than others. At the flexible end of the spectrum, the prices of oil or wheat quoted on commodity exchanges change by the minute. At the sticky end of the spectrum, prices like city bus fares or college tuitions are likely to change just once a year, if that often.

Economists suggest a variety of reasons for price stickiness. Some point to the costs of announcing and implementing price changes, such as a restaurant’s cost of printing new menus or a laundromat’s cost of adjusting the coin mechanisms on its washers and dryers. Others emphasize strategic considerations, such as the fear that the first seller to raise prices might lose market share to competitors who are slower to change. Marketing considerations like the fear of annoying loyal customers may be another factor. And prices that are subject to long-term contracts often can change only when those contracts expire.

The Atlanta Fed publishes monthly indexes for a flexible CPI and a sticky CPI. Using an admittedly arbitrary cutoff, it classifies flexible prices as those that change, on average, at least once every 4.3 months and sticky prices as those that change less frequently. That division makes about half the prices in the CPI flexible and half sticky. If weighted by value, the split is about 30 percent flexible and 70 percent sticky.

The bulk of the sticky CPI consists of services. The Atlanta Fed derives a “core sticky CPI” by removing its only food or energy element, “food away from home.” It then derives a measure called “core sticky CPI ex shelter” by further removing the category “owner equivalent rent.” That index, more than 90 percent of which is made up of services, covers 45 percent of the full CPI.

In what follows, I will use the Atlanta Fed’s core sticky CPI ex shelter as a measure of the supercore. It is probably not the exact measure of “core nonhousing services” to which Powell referred at his press conference, but if not, it is very close.

Figure 1 shows year-on-year data for the rate of change of the Atlanta Fed’s sticky and flexible price indexes since 1967. Not surprisingly, the flexible index is the most volatile. At major turning points, changes in the sticky price inflation lags visibly behind changes in flexible price inflation by an amount ranging from half a year to well over a year.


The relative supercore index

Let’s turn now from the inflation rate of supercore prices to the value of the supercore relative to the flexible CPI. Figure 1 showed the long-term trend of inflation rates, but nothing about the relative level of sticky and flexible prices. Figure 2 provides the missing information. For easy comparison, the top line, measured on the left-hand vertical axis, repeats the rate of flexible price inflation as shown in Figure 1. The lower line, measured on the right-hand vertical axis, shows the ratio of the level (not the inflation rate) of supercore CPI to the level of the flexible CPI, with January 1967 equal to 100. I will refer to this ratio as the relative supercore index. A value above the trendline shows that the nonhousing services in the supercore index are more expensive than usual relative to the goods in the flexible index. Similarly, a value below the trendline shows that increases in the prices of the items in the supercore have fallen behind those of more flexible goods.


Two features stand out in Figure 2.

First, as the trendline indicates, the ratio of supercore to flexible prices has increased by about 20 percent over time when cyclical ups and downs are smoothed out. My best guess is that this trend is largely due to the “Baumol effect.” As William Baumol and W. G. Bowen noted in a 1965 paper, there is a tendency for labor productivity to increase more rapidly in goods markets than in service markets. (It takes far fewer farm workers to harvest a ton of wheat than it did in the 19th century, but the same number of musicians to perform a Beethoven string quartet.) Because of slower productivity growth, the prices of services tend to rise faster than the prices of goods. Since more than 90 percent of the flexible CPI consists of goods while more than 90 percent of the supercore consists of services, the Baumol effect provides a plausible explanation of the upward trend of the relative supercore index.

Second, even a casual look at Figure 2 suggests that the relative supercore index tends to drop below its trend during periods when flexible prices are especially volatile. The stagflationary 1970s are one example. The supercore dropped below trend again in the years around the global financial crisis of 2007-2008, when the flexible-price inflation rate was highly variable, even though not as high as in the 1970s. In contrast, during the period of relative stability from the mid-1980s to the early 2000s – the Great Moderation – the supercore recovered relative to the flexible CPI.[1]

Implications for policy

Back now to our main theme – does targeting supercore inflation make sense? I can think of three reasons why it might not. 

Lags matter. The first reason is that monetary policy operates only with a considerable lag. Raphael Bostic, president of the Atlanta Fed, wrote recently that “a large body of research tells us it can take 18 months to two years or more for tighter monetary policy to materially affect inflation.” A recent paper by Taeyoung Doh and Andrew T. Foerster of the Kansas City Fed suggest that because of changes in the way the Fed implements tightening, those lags may be shorter now than they used to be. Even so, the new estimates show a lag of a full year for the effect on inflation and as much as three years for the effect on unemployment, with a wide range of uncertainty.

The Fed did not start its program of rate increases until March 2022. Taken at face value, that would mean we won’t feel the full effects of recent tightening until the fall of 2023 – or later this spring, at the earliest, if the new estimates hold up. Of course, the lag is less for some prices than others. Since supercore prices, by definition, are among the stickiest, it would seem that they would be subject to a lag toward the long end of the estimated range.

Lags matter for policy. If you want to nip an inflationary outbreak in the bud, the time to act is not when you see the relevant numbers starting to climb, but months in advance. Similarly, if you want to head off an impending recession, then you should not wait for unemployment to start rising or for inflation to fall all the way back to its target. You should ease off well before that point.

By that reasoning, critics may be right to say that in retrospect, the Fed would have better controlled inflation had it started to tighten earlier than the spring of 2022. However, continued tightening into 2023 could equally turn out to be a mistake. To see why, we need to understand the role the inflation expectations play in the making of monetary policy.

Forecasting and expectations. In a world with lags, optimal policy calls for action in advance of economic turning points. For that reason, some economists maintain that “inflation targeting” should instead be called “inflation-forecast targeting.” Under such a policy, central banks would cautiously adjust interest rates to keep inflation as close as possible to its forecast path, rather than waiting to raise rates until inflation got out of control.

That being the case, one argument for targeting core inflation is that the core reflects underlying trends in the economy. In contrast, indexes that are strongly affected by the flexible prices of items such as food and energy are more subject to random exogenous shocks. At the same time, central banks should closely monitor inflation expectations, which can be thought of as the inflation forecasts of consumers and producers.

In a methodological paper linked from the home page of the Atlanta Fed’s sticky price index, Michael F. Bryan and Brent Meyer argue that sticky prices have especially close links both to expectations and to future inflation outcomes. In particular, they show that an index of sticky prices provides more accurate forecasts 3, 12, and 24 months ahead than does an index of flexible prices.[2]  However, the correlations they observe do not necessarily constitute an argument for using either sticky prices in general or supercore prices as a policy target, nor do they make such an argument.

In particular, it seems questionable whether the relatively high rate of supercore inflation in early 2023 was primarily driven by expectations. Look at the far-right tail of the supercore series in Figure 2. Between May 2021 and May 2022, the relative supercore index dropped by 25 points – its sharpest drop ever. Although it began to recover just a bit in the second half of the year, by February, the relative supercore index had recovered only about a third of the amount by which it had dropped below trend. That being the case, ongoing price increases in the supercore sector may not, after all, reflect service providers’ expectations of ongoing inflation in the economy as a whole. Rather, they may simply be trying to get their heads back above water after two years in which their own prices spectacularly failed to keep up with the rise of  wages and the prices of material goods.

If observed correlations among supercore prices, expectations, and near-term inflation outcomes turn out to not to be causal in nature, any attempt to use supercore prices for forecasting or targeting risks running afoul of Goodhart’s law. According to that principle, statistical relationships tend to break down when they are used for policy purposes. The demise of the quantity theory of money and the subsequent abandonment of money-supply targets by central banks are often cited as a case in point.

The health of the supercore. But Goodhart’s law to one side, shouldn’t we welcome the Fed’s efforts to smother inflation in the last stronghold where it survives? As consumers, don’t we consider low bus fares and manicure prices good things in themselves? The answer, I think, is yes – as long as firms remain able to provide a steady supply of high-quality services. But if relative prices of supercore services stay low indefinitely even while their costs have risen, suppliers will sooner or later come under real pressure.

Consider wages. According to the most recent data, 85 percent of privately-employed workers are employed in the service sector and just 15 percent in the production of goods. However, since workers are free to move back and forth between the two, relative wages in the goods and service sectors tend to be more stable than relative prices. In fact, between mid-2021 and mid-2022, while the relative supercore price index was dropping like a stone, wages in the service sector as a whole actually rose fractionally relative to wages of goods-producers.

Clearly, the combination of stable relative wages and dramatically falling relative prices puts the service sector under pressure. Add to that the fact that service firms need many non-labor inputs, such as fossil fuels and motor vehicles, that are sold by goods-producers. Further, add the fact that demand for goods recovered more rapidly from the pandemic than did the demand for services, and you get a picture of a sector at risk. Its cost-price squeeze is going to continue until relative supercore prices claw back at least a good part of the amount by which they have fallen below trend. It hardly seems like the right moment to single out nonhousing service prices for special restraint.

The bottom line

On the whole, I am enthusiastic about the Fed’s incipient moves away from old-style Phillips curve models that lump all prices together as a single variable, whether that is the CPI, the PCE, or something else. In that regard, Powell’s division of prices into goods, shelter, and nonshelter services is a step in the right direction. More detailed models could divide prices into a greater number of buckets, add input-output relationships among sectors, and include other details.

In my opinion, such models are likely to strengthen the case for a more flexible approach to inflation targeting in times of high relative price volatility like the past few years. Yes, it would be great to “Whip Inflation Now,” as a mid-70s policy slogan put it. However, if the current pattern of relative prices is out of whack, freezing it in place may not be a great idea. It would be worth considering giving more leeway for relative price adjustment even though that might slow the rate at which overall inflation returns to target. If the market turmoil that followed the failure of SVB causes the Fed to rethink its plans for further monetary tightening, that may turn out to be a good thing.


[1] A statistical test confirms the visual impression that low values for the relative supercore index are associated with volatile flexible-price inflation. The standard deviation over a moving two-year period of the monthly increase or decrease in the flexible CPI can serve as a measure of volatility. The correlation between that measure and the relative supercore index is negative and statistically significant (R = -.78).

[2] Their paper was published in 2010. It will be interesting to see how their results hold up when more recent data is include

 



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Bitcoin on Wheels: The Story of Bitcoinetas

Meet the Bitcoinetas, a fleet of transformative vehicles on a mission to spread the bitcoin message everywhere they go. From Argentina to South Africa,…

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You may have seen that picture of Michael Saylor in a bitcoin-branded van, with a cheerful guy right next to the car door. This one:

Ariel Aguilar and La Bitcoineta European Edition at BTC Prague.

That car is the Bitcoineta European Edition, and the cheerful guy is Ariel Aguilar. Ariel is part of the European Bitcoineta team, and has previously driven another similar car in Argentina. In fact, there are currently five cars around the world that carry the name Bitcoineta (in some cases preceded with the Spanish definite article “La”).

Argentina: the original La Bitcoineta

The story of Bitcoinetas begins with the birth of 'La Bitcoineta' in Argentina, back in 2017. Inspired by the vibrancy of the South American Bitcoin community, the original Bitcoineta was conceived after an annual Latin American Conference (Labitconf), where the visionaries behind it recognized a unique opportunity to promote Bitcoin education in remote areas. Armed with a bright orange Bitcoin-themed exterior and a mission to bridge the gap in financial literacy, La Bitcoineta embarked on a journey to bring awareness of Bitcoin's potential benefits to villages and towns that often remained untouched by mainstream financial education initiatives. Operated by a team of dedicated volunteers, it was more than just a car; it was a symbol of hope and empowerment for those living on the fringes of financial inclusion.

The concept drawing for La Bitcoineta from December 2017.

Ariel was part of that initial Argentinian Bitcoineta team, and spent weeks on the road when the car became a reality. The original dream to bring bitcoin education even to remote areas within Argentina and other South American countries came true, and the La Bitcoineta team took part in dozens of local bitcoin meetups in the subsequent years.

The original La Bitcoineta from Argentina.

One major hiccup came in late 2018, when the car was crashed into while parked in Puerto Madryn. The car was pretty much destroyed, but since the team was possessed by a honey badger spirit, nothing could stop them from keeping true to their mission. It is a testament to the determination and resilience of the Argentinian team that the car was quickly restored and returned on its orange-pilling quest soon after.

Argentinian Bitcoineta after a major accident (no-one got hurt); the car was restored shortly after.

Over the more than 5 years that the Argentinian Bitcoineta has been running, it has traveled more than 80,000 kilometers - and as we’ll see further, it inspired multiple similar initiatives around the world.

Follow La Bitcoineta’s journey:

Twitter: https://twitter.com/labitcoineta

Instagram: https://www.instagram.com/bitcoineta/

El Salvador: Bitcoin Beach

In early 2021, the president of El Salvador passed the Bitcoin Law, making bitcoin legal tender in the country. The Labitconf team decided to celebrate this major step forward in bitcoin adoption by hosting the annual conference in San Salvador, the capital city of El Salvador. And correspondingly, the Argentinian Bitcoineta team made plans for a bold 7000-kilometer road trip to visit the Bitcoin country with the iconic Bitcoin car.

However, it proved to be impossible to cross so many borders separating Argentina and Salvador, since many governments were still imposing travel restrictions due to a Covid pandemic. So two weeks before the November event, the Labitconf team decided to fund a second Bitcoineta directly in El Salvador, as part of the Bitcoin Beach circular economy. Thus the second Bitcoineta was born.

Salvadoran’s Bitcoineta operates in the El Zonte region, where the Bitcoin Beach circular economy is located.

The eye-catching Volkswagen minibus has been donated to the Bitcoin Beach team, which uses the car for the needs of its circular economy based in El Zonte.

Follow Bitcoin Beach:

Twitter: https://twitter.com/Bitcoinbeach

South Africa: Bitcoin Ekasi

Late 2021 saw one other major development in terms of grassroots bitcoin adoption. On the other side of the planet, in South Africa, Hermann Vivier initiated the Bitcoin Ekasi project. “Ekasi” is a colloquial term for a township, and a township in the South African context is an underdeveloped urban area with a predominantly black population, a remnant of the segregationist apartheid regime. Bitcoin Ekasi emerged as an attempt to introduce bitcoin into the economy of the JCC Camp township located in Mossel Bay, and has gained a lot of success on that front.

Bitcoin Ekasi was in large part inspired by the success of the Bitcoin Beach circular economy back in El Salvador, and the respect was mutual. The Bitcoin Beach team thus decided to pass on the favor they received from the Argentinian Bitcoineta team, and provided funds to Bitcoin Ekasi for them to build a Bitcoineta of their own.

Bitcoin Ekasi’s Bitcoineta as seen at the Adopting Bitcoin Cape Town conference.
Bitcoin Ekasi’s Bitcoineta as seen at the Adopting Bitcoin Cape Town conference. Hermann Vivier is seen in the background.
South African Bitcoineta serves the needs of Bitcoin Ekasi, a local bitcoin circular economy in the JCC Camp township.

Bitcoin Ekasi emerged as a sister organization of Surfer Kids, a non-profit organization with a mission to empower marginalized youths through surfing. The Ekasi Bitcoineta thus partially serves as a means to get the kids to visit various surfer competitions in South Africa. A major highlight in this regard was when the kids got to meet Jordy Smith, one of the most successful South African surfers worldwide.

Coincidentally, South African surfers present an intriguing demographic for understanding Bitcoin due to their unique circumstances and needs. To make it as a professional surfer, the athletes need to attend competitions abroad; but since South Africa has tight currency controls in place, it is often a headache to send money abroad for travel and competition expenses. The borderless nature of Bitcoin offers a solution to these constraints, providing surfers with an alternative means of moving funds across borders without any obstacles.

Photo taken at the South African Junior Surfing Championships 2023. Back row, left to right:

Mbasa, Chuma, Jordy Smith, Sandiso. Front, left to right: Owethu, Sibulele.

To find out more about Bitcoineta South Africa and the non-profit endeavors it serves, watch Lekker Feeling, a documentary by Aubrey Strobel:

Follow Bitcoin Ekasi:

Twitter: https://twitter.com/BitcoinEkasi

Fundraiser: https://support.bitcoinekasi.com/

Europe: Bitcoineta Europa

The European Bitcoineta started its journey in early 2023, with Ariel Aguilar being one of the main catalysts behind the idea. Unlike its predecessors in El Salvador and South Africa, the European Bitcoineta was not funded by a previous team but instead secured support from individual donors, reflecting a grassroots approach to spreading financial literacy.

European Bitcoineta sports a hard-to-overlook bitcoin logo along with the message “Bitcoin is Work. Bitcoin is Time. Bitcoin is Hope.”

The European Bitcoineta is a Mercedes box van adorned with a prominent Bitcoin logo and inspiring messages, and serves as a mobile hub for education and discussion at numerous European Bitcoin conferences and local meetups. Inside its spacious interior, both notable bitcoiners and bitcoin plebs share their insights on the walls, fostering a sense of camaraderie and collaboration.

Inside the European Bitcoineta, one can find the wall of fame, where visitors can read messages from prominent bitcoiners such as Michael Saylor, Uncle Rockstar, Javier Bastardo, Hodlonaut, and many others.
On the “pleb wall”, any bitcoiner can share their message (as long as space permits).

Follow Bitcoineta Europa’s journey:

Twitter: https://twitter.com/BitcoinetaEU

Instagram: https://www.instagram.com/bitcoinetaeu/

Ghana: Bitcoineta West Africa

Embed: https://youtu.be/8oWgIU17aIY?si=hrsKmMIA7lI6jX4k

Introduced in December 2023 at the Africa Bitcoin Conference in Ghana, the fifth Bitcoineta was donated to the Ghanaian Bitcoin Cowries educational initiative as part of the Trezor Academy program.

Bitcoineta West Africa was launched in December 2023 at the Africa Bitcoin Conference. Among its elements, it bears the motto of the Trezor Academy initiative: Bitcoin. Education. Freedom.

Bitcoineta West Africa was funded by the proceeds from the bitcoin-only limited edition Trezor device, which was sold out within one day of its launch at the Bitcoin Amsterdam conference.

With plans for an extensive tour spanning Ghana, Togo, Benin, Nigeria, and potentially other countries within the ECOWAS political and economic union, Bitcoineta West Africa embodies the spirit of collaboration and solidarity in driving Bitcoin adoption and financial inclusion throughout the Global South.

Bitcoineta West Africa surrounded by a group of enthusiastic bitcoiners at the Black Star Square, Accra, Ghana.

Follow Bitcoineta West Africa’s journey:

Twitter: https://twitter.com/BitcoinetaWA

Instagram: https://www.instagram.com/bitcoinetawa/

All the Bitcoineta cars around the world share one overarching mission: to empower their local communities through bitcoin education, and thus improve the lives of common people that might have a strong need for bitcoin without being currently aware of such need. As they continue to traverse borders and break down barriers, Bitcoinetas serve as a reminder of the power of grassroots initiatives and the importance of financial education in shaping a more inclusive future. The tradition of Bitcoinetas will continue to flourish, and in the years to come we will hopefully encounter a brazenly decorated bitcoin car everywhere we go.

If the inspiring stories of Bitcoinetas have ignited a passion within you to make a difference in your community, we encourage you to take action! Reach out to one of the existing Bitcoineta teams for guidance, support, and inspiration on how to start your own initiative. Whether you're interested in spreading Bitcoin education, promoting financial literacy, or fostering empowerment in underserved areas, the Bitcoineta community is here to help you every step of the way. Together, we will orange pill the world!

This is a guest post by Josef Tetek. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.

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Digital Currency And Gold As Speculative Warnings

Over the last few years, digital currencies and gold have become decent barometers of speculative investor appetite. Such isn’t surprising given the evolution…

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Over the last few years, digital currencies and gold have become decent barometers of speculative investor appetite. Such isn’t surprising given the evolution of the market into a “casino” following the pandemic, where retail traders have increased their speculative appetites.

“Such is unsurprising, given that retail investors often fall victim to the psychological behavior of the “fear of missing out.” The chart below shows the “dumb money index” versus the S&P 500. Once again, retail investors are very long equities relative to the institutional players ascribed to being the “smart money.””

“The difference between “smart” and “dumb money” investors shows that, more often than not, the “dumb money” invests near market tops and sells near market bottoms.”

Net Smart Dumb Money vs Market

That enthusiasm has increased sharply since last November as stocks surged in hopes that the Federal Reserve would cut interest rates. As noted by Sentiment Trader:

“Over the past 18 weeks, the straight-up rally has moved us to an interesting juncture in the Sentiment Cycle. For the past few weeks, the S&P 500 has demonstrated a high positive correlation to the ‘Enthusiasm’ part of the cycle and a highly negative correlation to the ‘Panic’ phase.”

Investor Enthusiasm

That frenzy to chase the markets, driven by the psychological bias of the “fear of missing out,” has permeated the entirety of the market. As noted in This Is Nuts:”

“Since then, the entire market has surged higher following last week’s earnings report from Nvidia (NVDA). The reason I say “this is nuts” is the assumption that all companies were going to grow earnings and revenue at Nvidia’s rate. There is little doubt about Nvidia’s earnings and revenue growth rates. However, to maintain that growth pace indefinitely, particularly at 32x price-to-sales, means others like AMD and Intel must lose market share.”

Nvidia Price To Sales

Of course, it is not just a speculative frenzy in the markets for stocks, specifically anything related to “artificial intelligence,” but that exuberance has spilled over into gold and cryptocurrencies.

Birds Of A Feather

There are a couple of ways to measure exuberance in the assets. While sentiment measures examine the broad market, technical indicators can reflect exuberance on individual asset levels. However, before we get to our charts, we need a brief explanation of statistics, specifically, standard deviation.

As I discussed in “Revisiting Bob Farrell’s 10 Investing Rules”:

“Like a rubber band that has been stretched too far – it must be relaxed in order to be stretched again. This is exactly the same for stock prices that are anchored to their moving averages. Trends that get overextended in one direction, or another, always return to their long-term average. Even during a strong uptrend or strong downtrend, prices often move back (revert) to a long-term moving average.”

The idea of “stretching the rubber band” can be measured in several ways, but I will limit our discussion this week to Standard Deviation and measuring deviation with “Bollinger Bands.”

“Standard Deviation” is defined as:

“A measure of the dispersion of a set of data from its mean. The more spread apart the data, the higher the deviation. Standard deviation is calculated as the square root of the variance.”

In plain English, this means that the further away from the average that an event occurs, the more unlikely it becomes. As shown below, out of 1000 occurrences, only three will fall outside the area of 3 standard deviations. 95.4% of the time, events will occur within two standard deviations.

Standard Deviation Chart

A second measure of “exuberance” is “relative strength.”

“In technical analysis, the relative strength index (RSI) is a momentum indicator that measures the magnitude of recent price changes to evaluate overbought or oversold conditions in the price of a stock or other asset. The RSI is displayed as an oscillator (a line graph that moves between two extremes) and can read from 0 to 100.

Traditional interpretation and usage of the RSI are that values of 70 or above indicate that a security is becoming overbought or overvalued and may be primed for a trend reversal or corrective pullback in price. An RSI reading of 30 or below indicates an oversold or undervalued condition.” – Investopedia

With those two measures, let’s look at Nvidia (NVDA), the poster child of speculative momentum trading in the markets. Nvidia trades more than 3 standard deviations above its moving average, and its RSI is 81. The last time this occurred was in July of 2023 when Nvidia consolidated and corrected prices through November.

NVDA chart vs Bollinger Bands

Interestingly, gold also trades well into 3 standard deviation territory with an RSI reading of 75. Given that gold is supposed to be a “safe haven” or “risk off” asset, it is instead getting swept up in the current market exuberance.

Gold vs Bollinger Bands

The same is seen with digital currencies. Given the recent approval of spot, Bitcoin exchange-traded funds (ETFs), the panic bid to buy Bitcoin has pushed the price well into 3 standard deviation territory with an RSI of 73.

Bitcoin vs Bollinger Bands

In other words, the stock market frenzy to “buy anything that is going up” has spread from just a handful of stocks related to artificial intelligence to gold and digital currencies.

It’s All Relative

We can see the correlation between stock market exuberance and gold and digital currency, which has risen since 2015 but accelerated following the post-pandemic, stimulus-fueled market frenzy. Since the market, gold and cryptocurrencies, or Bitcoin for our purposes, have disparate prices, we have rebased the performance to 100 in 2015.

Gold was supposed to be an inflation hedge. Yet, in 2022, gold prices fell as the market declined and inflation surged to 9%. However, as inflation has fallen and the stock market surged, so has gold. Notably, since 2015, gold and the market have moved in a more correlated pattern, which has reduced the hedging effect of gold in portfolios. In other words, during the subsequent market decline, gold will likely track stocks lower, failing to provide its “wealth preservation” status for investors.

SP500 vs Gold

The same goes for cryptocurrencies. Bitcoin is substantially more volatile than gold and tends to ebb and flow with the overall market. As sentiment surges in the S&P 500, Bitcoin and other cryptocurrencies follow suit as speculative appetites increase. Unfortunately, for individuals once again piling into Bitcoin to chase rising prices, if, or when, the market corrects, the decline in cryptocurrencies will likely substantially outpace the decline in market-based equities. This is particularly the case as Wall Street can now short the spot-Bitcoin ETFs, creating additional selling pressure on Bitcoin.

SP500 vs Bitcoin

Just for added measure, here is Bitcoin versus gold.

Gold vs Bitcoin

Not A Recommendation

There are many narratives surrounding the markets, digital currency, and gold. However, in today’s market, more than in previous years, all assets are getting swept up into the investor-feeding frenzy.

Sure, this time could be different. I am only making an observation and not an investment recommendation.

However, from a portfolio management perspective, it will likely pay to remain attentive to the correlated risk between asset classes. If some event causes a reversal in bullish exuberance, cash and bonds may be the only place to hide.

The post Digital Currency And Gold As Speculative Warnings appeared first on RIA.

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Aging at AACR Annual Meeting 2024

BUFFALO, NY- March 11, 2024 – Impact Journals publishes scholarly journals in the biomedical sciences with a focus on all areas of cancer and aging…

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BUFFALO, NY- March 11, 2024 – Impact Journals publishes scholarly journals in the biomedical sciences with a focus on all areas of cancer and aging research. Aging is one of the most prominent journals published by Impact Journals

Credit: Impact Journals

BUFFALO, NY- March 11, 2024 – Impact Journals publishes scholarly journals in the biomedical sciences with a focus on all areas of cancer and aging research. Aging is one of the most prominent journals published by Impact Journals

Impact Journals will be participating as an exhibitor at the American Association for Cancer Research (AACR) Annual Meeting 2024 from April 5-10 at the San Diego Convention Center in San Diego, California. This year, the AACR meeting theme is “Inspiring Science • Fueling Progress • Revolutionizing Care.”

Visit booth #4159 at the AACR Annual Meeting 2024 to connect with members of the Aging team.

About Aging-US:

Aging publishes research papers in all fields of aging research including but not limited, aging from yeast to mammals, cellular senescence, age-related diseases such as cancer and Alzheimer’s diseases and their prevention and treatment, anti-aging strategies and drug development and especially the role of signal transduction pathways such as mTOR in aging and potential approaches to modulate these signaling pathways to extend lifespan. The journal aims to promote treatment of age-related diseases by slowing down aging, validation of anti-aging drugs by treating age-related diseases, prevention of cancer by inhibiting aging. Cancer and COVID-19 are age-related diseases.

Aging is indexed and archived by PubMed/Medline (abbreviated as “Aging (Albany NY)”), PubMed CentralWeb of Science: Science Citation Index Expanded (abbreviated as “Aging‐US” and listed in the Cell Biology and Geriatrics & Gerontology categories), Scopus (abbreviated as “Aging” and listed in the Cell Biology and Aging categories), Biological Abstracts, BIOSIS Previews, EMBASE, META (Chan Zuckerberg Initiative) (2018-2022), and Dimensions (Digital Science).

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