Accelerating Inflation is the Elephant in the Room
Back in early October I posted a commodities chart. On that chart I shared my thesis that Gold's 6-year breakout in May would retest and commodities would follow on the next leg up. I later posted that "unofficial QE would add fuel into inflationary forces". With Gold breaking out of its healthy correction, inflation hitting 9-year highs, the Fed saying they will not raise rates until they see and significant and sustained increase in inflation and the fundamentals deteriorating, I see the potential for a huge surge in inflation in 2020 and 2021. Especially because its the trade that is most unhedged. Most investors are prepared for deflation - aka if stocks and real estate fall. Almost none are prepared for a rally in inflation, falling dollar, and surging commodities.
Strong breakout in TIP with very strong volume. The TIP Bond ETF is a way to hedge yourself against rising inflation and as a way to visualize inflation sentiments in the market.
Notice the 3 lows at support coincided with Gold's low in 2013, generational low in 2015, and then in late 2018 when the Fed was being very hawkish, talking about autopilot QT and 4 rate hikes in 2019. Additionally, the moving averages and volume are showing there's more room for growth.
The more I look at the facts, rates of change, and the charts, the more I'm convinced the US dollar simply cannot maintain its current level. The Dollar has been flat at 96-97 in 2019, which is impressive given all that has happened.
Fed promising to not raise rates until we see a significant and sustained rise in inflation. Federal debt is growing at an unsustainable rate. All-time high twin budget deficits. Additionally, the Fed did a massive U-turn and provided massive liquidity to the market in 2019 due to the 3 rate cuts and QE on emergency levels. Silent QE is growing faster than during official QE. The fiscal stimulus from record spending and tax cuts plus the massive monetary stimulus has helped push us to 9-year highs in rate of change for CPI inflation. Since Q4 2018, Gold has increased from 1180 to 1550 with a high correlation to the TIPS ETF and gold stocks have outperformed the S&P500. The inflation move has already started and few are seeing it, but most investors remain oblivious or unprepared for a significant and sustained increase in inflation.
With the rate of change for inflation rising and the relevant fundamentals deteriorating and 2020 being an election year for Trump, this inflation or "reflation" trend that began in Q4 of 2018 looks to pick up speed in 2020. The Fed wants a cheaper dollar to satisfy the Repo market and Trump wants a cheaper dollar to "stimulate" the economy enough to get reelected. With these strong fundamental drivers and technical confirmations, look for the DXY to continue to build a downward trend as it heads to 93 and lower. Those that think central banks can do QE forever without creating inflation and devaluing the currency are wrong.
Commodities have shown signs of life at times over the last few months - platinum, silver, copper, some agriculture.
I just want to reiterate - with the fundamentals worsening and the rate of change for inflation increasing - in addition to a break out on the TIP chart, highly bullish breakouts in Gold, breakout in Feds balance sheet, and breakout in government spending- there's a good chance we can get big surges in inflation assets in 2020 and 2021.
Things to watch out for:
- Pay close attention to interest rates and the Fed. The better we can understand the Fed's intentions the better we can trade and invest accordingly.
- The Fed has said they will not raise rates until they see significant and sustained inflation. Keep an eye on how fast inflation rises. If inflation surges and the Fed doesn't hike and potentially cuts, gold and commodities will fly.
- The "market" needs debt expansion to keep itself sustained. Keeping rates flat and doing a certain amount of QE per month will eventually be insufficient to keep stocks and bonds propped up and rates suppressed. Over the next 6-12 months keep an eye on the Fed's operations, any changes or growth, and any liquidity crunches. The Fed may front-run any liquidity crunch by announcing an official QE program. This is bullish Gold. Watch what they do. If they are slow to act or become hawkish, they could deflate the bubble.
- Watch the price action and trend shifts on the DXY.
Strong breakout in TIP with very strong volume. The TIP Bond ETF is a way to hedge yourself against rising inflation and as a way to visualize inflation sentiments in the market.
Notice the 3 lows at support coincided with Gold's low in 2013, generational low in 2015, and then in late 2018 when the Fed was being very hawkish, talking about autopilot QT and 4 rate hikes in 2019. Additionally, the moving averages and volume are showing there's more room for growth.
The more I look at the facts, rates of change, and the charts, the more I'm convinced the US dollar simply cannot maintain its current level. The Dollar has been flat at 96-97 in 2019, which is impressive given all that has happened.
Fed promising to not raise rates until we see a significant and sustained rise in inflation. Federal debt is growing at an unsustainable rate. All-time high twin budget deficits. Additionally, the Fed did a massive U-turn and provided massive liquidity to the market in 2019 due to the 3 rate cuts and QE on emergency levels. Silent QE is growing faster than during official QE. The fiscal stimulus from record spending and tax cuts plus the massive monetary stimulus has helped push us to 9-year highs in rate of change for CPI inflation. Since Q4 2018, Gold has increased from 1180 to 1550 with a high correlation to the TIPS ETF and gold stocks have outperformed the S&P500. The inflation move has already started and few are seeing it, but most investors remain oblivious or unprepared for a significant and sustained increase in inflation.
With the rate of change for inflation rising and the relevant fundamentals deteriorating and 2020 being an election year for Trump, this inflation or "reflation" trend that began in Q4 of 2018 looks to pick up speed in 2020. The Fed wants a cheaper dollar to satisfy the Repo market and Trump wants a cheaper dollar to "stimulate" the economy enough to get reelected. With these strong fundamental drivers and technical confirmations, look for the DXY to continue to build a downward trend as it heads to 93 and lower. Those that think central banks can do QE forever without creating inflation and devaluing the currency are wrong.
Commodities have shown signs of life at times over the last few months - platinum, silver, copper, some agriculture.
I just want to reiterate - with the fundamentals worsening and the rate of change for inflation increasing - in addition to a break out on the TIP chart, highly bullish breakouts in Gold, breakout in Feds balance sheet, and breakout in government spending- there's a good chance we can get big surges in inflation assets in 2020 and 2021.
Things to watch out for:
- Pay close attention to interest rates and the Fed. The better we can understand the Fed's intentions the better we can trade and invest accordingly.
- The Fed has said they will not raise rates until they see significant and sustained inflation. Keep an eye on how fast inflation rises. If inflation surges and the Fed doesn't hike and potentially cuts, gold and commodities will fly.
- The "market" needs debt expansion to keep itself sustained. Keeping rates flat and doing a certain amount of QE per month will eventually be insufficient to keep stocks and bonds propped up and rates suppressed. Over the next 6-12 months keep an eye on the Fed's operations, any changes or growth, and any liquidity crunches. The Fed may front-run any liquidity crunch by announcing an official QE program. This is bullish Gold. Watch what they do. If they are slow to act or become hawkish, they could deflate the bubble.
- Watch the price action and trend shifts on the DXY.
Komen:
New highs so far this year
Idea Berkaitan
