That Dang December CPI, Bitcoin ETFs, and Hertz’s Return to Gas
Editor’s Note: TGIF, my friends! I don’t know about you, but this is me going into the weekend:
However, before we start the party, we’ve got some headlines to cover!
Oops, the CPI Did It Again…
Yesterday the U.S. Bureau of Labor Statistics (BLS) gave its reading of the Consumer Price Index (CPI) for December.
And nobody was particularly happy.
In the last month of 2023, consumer prices rose slightly higher than expected, to 3.4% on a year-over-year basis. Economists had been expecting a 3.2% year-over-year increase.
That CPI growth was also higher than what we saw in November, when the inflation gauge rose by 3.1% year over year.
According to the BLS, the big culprit was rising shelter costs — which involve both rent and owners’ equivalent rent. These costs accounted for more than 50% of the annual increase.
Another issue was the fact that gasoline prices — which had fallen in November — flattened out last month.
Stripping out volatile food and energy costs, the so-called core CPI rose 3.9% on a year-over-year basis. That’s better than the 4% core CPI gain recorded for November.
And it was also the lowest core CPI growth we’ve seen since May 2021.
The stock market got the temporary jitters on the news before recovering.
Now, the unexpected gain in the CPI means that it’s likely we won’t see those six Fed Funds Rate cuts the markets had been hoping for in 2024.
“Looking through the small rise in headline inflation — which was due to energy prices rising — I think the message from this release is that core inflation is proving sticky,” Brian Coulton, the chief economist of Fitch Ratings, wrote.
“This will give the Fed grounds for caution, and they are unlikely to cut rates as quickly as the markets currently expect.”
Anyone who was hoping for a rate cut from the central bank should quickly banish the thought. And it’s looking less likely we’ll see one when the Fed meets in March, either.
Starbucks Invades India
Seattle-based coffee chain Starbucks (NSDQ: SBUX) announced this week that it is planning an expansion in India that would be the equivalent of opening one new store every three days for the next four years.
Having successfully conquered China — where the growing middle class has developed a caffeine addiction despite the sluggish economy — the coffee chain aims to add 1,000 locations in India by 2028.
Starbucks operates in India through a joint venture with Tata Group.
India is poised to become the G20 group of nations’ fastest-growing economy. The country’s gross domestic product (GDP) is expected to grow by as much as 7.3% in the current fiscal year… while most of the rest of the world stutters along.
Meanwhile, according to a report from Research and Markets, India and the rest of the Asia-Pacific region are set to become the fastest-growing coffee market in the world. Up to 2030, the market for joe is expected to grow at a projected annual rate of 15.3%.
Sounds like a match made in java heaven.
Bitcoin ETFs Explode Onto the Scene
Unless you’ve been living under a rock, you know that the U.S. Securities and Exchange Commission (SEC) approved the first spot Bitcoin (BTC) exchange-traded funds (ETFs) this week.
Now investing in the cryptocurrency is more accessible to institutional and retail investors alike. The first ETFs, from Cathie Wood’s Ark Invest, BlackRock (NYSE: BLK), Fidelity, and others, began trading yesterday.
“We think that the SEC approval, should we and others get it, is a green light for institutions. We’ve been talking to quite a few of them, and they’re much more interested now that the SEC effectively is paving the way,” crypto cheerleader and Ark Invest CEO Wood said this week.
However, SEC Chair Gary Gensler made it clear that he is still not a fan of Bitcoin and its kin.
“We did not approve or endorse Bitcoin,” he remarked. “Investors should remain cautious about the myriad risks associated with Bitcoin and products whose value is tied to crypto.”
What’s more, Gensler leaned into the oft-heard trope that Bitcoin is “primarily a speculative, volatile asset that’s also used for illicit activity including ransomware, money laundering, sanction evasion, and terrorist financing.”
Well… tell that to everyone who hopped into Bitcoin ETFs yesterday. On the first day of trading, these securities saw $4.6 billion in volume.
I think it’s safe to say that Bitcoin has gone mainstream now.
Hertz Goes Back to Gas
More evidence that the world isn’t quite ready for electric vehicles (EVs) yet: Hertz (NSDQ: HTZ) announced this week that it will sell about one-third of its electric fleet this year.
This may come as a surprise, considering that the car rental company announced that it would purchase 175,000 EVs from Detroit automaker General Motors (NYSE: GM) in 2022.
What’s more, Hertz plans to use the proceeds from the sales to buy some good old-fashioned gas guzzlers.
Why is Hertz making this “anti-green” move?
It all comes down to costs.
“Collision and damage repairs on an EV can often run about twice that associated with a comparable combustion engine vehicle,” CEO Stephen Scherr said.
In addition, a price war initiated by a certain EV boss has helped to drive down the value of Hertz’s EV inventory.
“The MSRP [manufacturer’s suggested retail price] declines in EVs over the course of 2023, driven primarily by Tesla (NSDQ: TSLA) have driven the fair market value of our EVs lower as compared to last year, such that a salvage creates a larger loss and, therefore, greater burden.”
Like all vehicle rental companies, Hertz regularly sells its used cars. The fact that Tesla models have depreciated so fast is no bueno for business.
According to an SEC filing, Hertz has estimated a loss of roughly $245 million thanks to EV price depreciation — about $12,250 per vehicle.
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