The Most Important Thing In Macro: How Investors Can Dominate in Q4 w/ Caleb Franzen

Quick Overview

Caleb Franzen argues that despite recent CPI data suggesting disinflation, the underlying trend in shelter inflation is still accelerating, which contradicts market pricing for immediate Fed rate cuts and suggests a potentially more challenging macroeconomic environment than currently priced in for assets like Bitcoin.

Key Points: The market is pricing in Fed rate cuts (25 or 50 bps) for September, but underlying shelter inflation data suggests this might be overly optimistic. Caleb Franzen's analysis shows that shelter inflation (core CPI component) is accelerating year-over-year, unlike headline CPI which is decelerating. The 6-month trailing job creation data shows a significant deceleration: ADP payrolls went from +119.5k jobs/month (Aug 2024 basis) to +45.6k jobs/month (Aug 2025 data), indicating labor market weakness. The High Yield Credit Spreads indicator (inverse relationship) showed a significant drop (oversold condition) around the time of the Fed's first rate cut signal in late 2023, which historically precedes bullish moves for Bitcoin. The correlation between Bitcoin Market Cap and USD-Adjusted M2 (U.S., Japan, Canada, EU, U.K.) has historically been strong, but M2 growth is now sideways while Bitcoin continues to rise, suggesting a potential divergence. Franzen believes investors should focus on persistent inflation signals (like shelter CPI) and credit spreads over market expectations for immediate Fed cuts.

Context: The video features an interview between John Gillen of Milk Road Macro and financial analyst Caleb Franzen, founder of Cubic Analytics. The discussion centers on current macroeconomic data, particularly inflation and employment figures, and how these metrics influence market expectations, especially regarding Federal Reserve policy and asset prices like Bitcoin, utilizing charts to illustrate historical correlations and current divergences.

Detailed Analysis

The discussion begins with John Gillen noting that while many economists are expecting the Fed to cut rates soon (25 or 50 bps in September), recent data suggests caution. Caleb Franzen highlights that core CPI components, particularly shelter inflation (measured by CPI Less Shelter), are still accelerating year-over-year, which is inconsistent with the market's bullish pricing of immediate rate cuts. Franzen points out that shelter inflation is the most lagging component of CPI, historically taking 8-12 months to reflect real-time housing market data. He notes that even though headline CPI is decelerating, the sustained high shelter inflation provides a justification for the Fed to remain hawkish, contrary to market expectations. Franzen then shifts focus to job creation data, presenting figures showing a significant deceleration in job growth (e.g., nonfarm payrolls dropping from an average of -133.8k/month to -64.1k/month on the 2025 basis), indicating underlying economic weakness. He then analyzes a chart of High Yield Credit Spreads, noting that historical extreme readings (oversold conditions) have preceded bullish turns in Bitcoin. Finally, Franzen compares Bitcoin's market cap against a composite USD-Adjusted M2 (U.S., Japan, Canada, EU, U.K.), observing a recent divergence where M2 growth is sideways while Bitcoin continues to rise, suggesting Bitcoin's price action is decoupling from broad money supply growth, potentially due to factors like credit spread movements.