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

Source: https://www.youtube.com/watch?v=KMapCTlyrMI
Recap page: https://rapidrecap.app/video/KMapCTlyrMI
Generated: 2025-10-15T00:09:36.496+00:00

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## 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.

![Screenshot at 13:28: Caleb Franzen displays a FRED chart comparing the 1-month and 3-month Treasury yields against the Effective Fed Funds Rate, showing the current inversion pattern that historically precedes Fed rate cuts, but highlighting the discrepancy with his thesis.](https://ss.rapidrecap.app/screens/KMapCTlyrMI/00-13-28.png)

**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.

### Macroeconomic Indicators Analysis

- PPI data showed a sharp decline, shocking analysts, while labor data revisions were the worst in history; Fed is expected to slash rates while gold and stocks hit all-time highs
- The core issue is lagging shelter inflation (33% of core CPI) accelerating YoY, contrasting with decelerating headline CPI
- Job creation has decelerated significantly, with trailing 6-month ADP payrolls dropping from 119.9k to 45.6k jobs/month.

### Yield Curve and Credit Spreads

- The 1M and 3M Treasury yields falling below the Effective Fed Funds Rate signal an impending rate cut cycle, which has historically preceded bullish moves for Bitcoin (indicated by low readings on the 60-day oscillation indicator)
- The credit spread inversion (High Yield vs. Treasuries) is currently not signaling an immediate crisis, but historical context suggests caution.

### Bitcoin and Global Liquidity

- Bitcoin Market Cap is decoupling from USD-Adjusted M2 of major economies (US, Japan, Canada, EU, UK) as M2 growth has flattened while Bitcoin continues to rise
- Franzen notes that Bitcoin's 20% YTD gain occurred while global M2 growth has stalled, suggesting Bitcoin is not purely following liquidity expansion.

### Market Expectations vs. Reality

- The market is pricing in rate cuts, but underlying data (especially shelter CPI) suggests inflation may re-accelerate, contradicting the market's dovish outlook
- Franzen suggests focusing on credit spreads and lagging inflation data rather than the market's current sentiment.

![Screenshot at 0:00: Introduction of John Gillen \(@MilkRoadMacro\) and guest Caleb Franzen \(@calebfranzen\) for the macro discussion.](https://ss.rapidrecap.app/screens/KMapCTlyrMI/00-00-00.png)
![Screenshot at 0:13: John Gillen introduces the topic, mentioning PPI data suggesting possible inflation deceleration and labor data revisions being the worst in history.](https://ss.rapidrecap.app/screens/KMapCTlyrMI/00-00-13.png)
![Screenshot at 1:29: John Gillen welcomes Caleb Franzen, who quit his corporate job in 2020 to launch independent research on X and Substack.](https://ss.rapidrecap.app/screens/KMapCTlyrMI/00-01-29.png)
![Screenshot at 2:42: Caleb Franzen begins technical analysis, stating every market environment has risks, and the current market is no different.](https://ss.rapidrecap.app/screens/KMapCTlyrMI/00-02-42.png)
![Screenshot at 6:33: Caleb Franzen displays a chart of the Dow Jones Industrial Average \(DJI\), highlighting consistent upward breakouts after multi-month consolidations.](https://ss.rapidrecap.app/screens/KMapCTlyrMI/00-06-33.png)
![Screenshot at 10:59: The discussion shifts to the relationship between Bitcoin Market Cap and USD-Adjusted M2 of major economies, noting a recent divergence.](https://ss.rapidrecap.app/screens/KMapCTlyrMI/00-10-59.png)
![Screenshot at 17:16: Caleb Franzen displays a chart of the BofA High Yield Credit Spreads Index, noting that its current low level suggests risk appetite, but it has not yet triggered the extreme low signal seen in previous cycles.](https://ss.rapidrecap.app/screens/KMapCTlyrMI/00-17-16.png)
![Screenshot at 22:23: Caleb Franzen displays FRED data showing the year-over-year change in CPI Less Shelter, emphasizing that shelter inflation is the most lagging component and is still accelerating, which is critical for the Fed's decision-making.](https://ss.rapidrecap.app/screens/KMapCTlyrMI/00-22-23.png)