Latest / Inflation and Your Money with Fexingo: Protecting Purchasing Power and Beating Inflation / How SpaceX IPO Is Reshaping Inflation Hedges
Transcript
- Lucas: So gold is at a six-month low, CPI ticked up again in May, and SpaceX just filed for what could be the biggest IPO in history. Those three things are actually connected. Luna: Connected how? I mean, gold falling while inflation is still sticky — that's been the head-scratcher for a few months now. Lucas: Right. And the standard answer has been 'high real rates hurt gold.' But there's another factor this week: a massive IPO is sucking up investor attention and capital. Luna: SpaceX. They're targeting a $2 trillion market cap, raising $75 billion. That's not a typo. Lucas: Not a typo. And if today's conversation helped you think about this differently, honestly, if it was worth a coffee to you, there's a link — buy me a coffee dot com slash fexingo. That kind of listener support is what keeps the show ad-free. Luna: Yeah, it makes a real difference. And we mean that. Lucas: So let's pull the thread. Gold is down nearly 3% in the last five days. The SPDR Gold Trust — ticker g l d — is at $386. That's off about 2.5% in the same window. Meanwhile the Russell 2000, the small-cap index, is up over 3%. Luna: Money is rotating out of gold and into risk assets. Specifically into the IPO hype. Lucas: Exactly. But here's the inflation angle. The 10-year breakeven inflation rate — that's the market's expectation for average inflation over the next decade — has dropped to 2.29%, down from 2.34% just a few days ago. Luna: So even though CPI is still running hot — the May reading came in at 334.0, up from 332.41 — the bond market is saying inflation expectations are cooling. Lucas: Which sounds contradictory. But the bond market is forward-looking. And a huge IPO like SpaceX changes the calculus. It signals that capital is flowing into innovation and growth, which could boost productivity and keep a lid on long-term inflation. Luna: Or it could just be that investors are chasing the hot story and ignoring the inflation data. Both can be true. Lucas: Right. And that's the tension. The SpaceX IPO is a once-in-a-generation event. The company is coming to market at a valuation above $1.8 trillion. Retail investors are getting a low 20% allocation. There's FOMO built in. Luna: So where does that leave someone trying to protect their purchasing power? I-bonds? TIPS? Just sitting in cash? Lucas: Let's walk through it. I-bonds still offer a composite rate tied to inflation. If CPI stays elevated, the variable rate component adjusts upward. But the fixed rate is set at issuance — currently around 1.3%. Luna: And TIPS — Treasury Inflation-Protected Securities — they adjust principal with CPI. But you're buying them in a market where real yields are positive. A 10-year TIPS yields around 1.8% real right now. Lucas: Which is actually decent. But the problem is that when a $75 billion IPO hits, it draws liquidity. Hedge funds sell TIPS to free up cash for the IPO allocation. That depresses TIPS prices. Luna: So even a good inflation hedge gets temporarily hammered by market mechanics. Lucas: Exactly. And the same thing happens to gold. You saw it this week — gold down 2.8% to $4,214 an ounce. Not because inflation disappeared, but because the marginal buyer is selling gold to buy SpaceX stock. Luna: And the IPO hasn't even priced yet. It's expected to debut on the Nasdaq later this month. Lucas: That's the thing. The anticipation alone is moving markets. The prediction markets have SpaceX at a $2 trillion market cap on day one. If that holds, it'll be one of the five most valuable companies in the world instantly. Luna: And that kind of event reshapes portfolios. If you're a pension fund or an endowment, you're rebalancing to include this new mega-cap. Lucas: Which means selling something else. And given the macro environment, the thing they sell tends to be either bonds or gold. Both of which are supposed to be inflation hedges. Luna: So the irony is that the very tool meant to protect against inflation — a giant growth IPO — is undermining the traditional hedges. Lucas: Exactly. But let's zoom out. The Russell 2000's 3.1% weekly gain is also telling. Small caps are domestically focused, more sensitive to interest rates, and typically benefit when the Fed pauses or cuts. The Fed funds rate is at 3.63% — down from 3.64% in April. It's basically flat. Luna: But the market is pricing in cuts later this year. The effective rate being at 3.62% suggests the market expects the Fed to ease. Lucas: And that's why small caps are rallying alongside the IPO frenzy. Lower rates would reduce their borrowing costs. They're more leveraged than mega-caps. Luna: So we've got three things happening at once: a massive IPO sucking up capital, small caps rallying on rate-cut hopes, and gold falling despite sticky inflation. Lucas: And the 10-year breakeven dropping from 2.34% to 2.29% in a week — that's a meaningful move. It tells you the bond market is not worried about inflation spiraling. They see the IPO as a productivity event. Luna: Which is interesting because SpaceX isn't just a car company or a social media platform. It's space launch, satellite internet, potentially lunar missions. There's a real productivity argument. Lucas: There is. And that's the bull case. If SpaceX drives down the cost of space access, that could have deflationary effects in telecommunications, logistics, even materials science. Luna: But that's a long-term thesis. In the short term, inflation is still running above the Fed's 2% target. Core CPI is at 336.1, up from 335.42. Core PCE is at 129.6, up from 129.32. Lucas: Right. So the near-term inflation data hasn't broken. The bond market is looking through it. That's a divergence that could resolve either way. Luna: And for the average listener trying to protect purchasing power, what's the takeaway? Lucas: I'd say don't abandon your inflation hedges just because they're down this week. I-bonds and TIPS still work over time. But understand WHY they're down: it's not a rejection of inflation protection, it's a liquidity event. Luna: And don't chase IPO hype with money you need in the next year. SpaceX is going to be volatile. Lucas: Absolutely. The IPO pop might be huge, but the first few months of trading for a high-profile debut are almost always rocky. Remember how Uber or Coinbase traded after listing. Luna: Painful. So balance: keep your inflation hedges, maybe take a small speculative position if you're comfortable, but don't bet the farm. Lucas: And keep an eye on the 10-year breakeven rate. If it keeps dropping below 2%, that would signal the bond market expects inflation to be tamed. That would be a bigger shift than any IPO. Luna: Which would actually be good news for your purchasing power. Just not for your gold holdings. Lucas: Right. And we'll see how the SpaceX IPO impacts that breakeven rate once it actually starts trading. That's the next big data point. Luna: Alright, I'm going to go stare at the breakeven chart. Thanks Lucas. Lucas: You bet. Talk soon.