Inflation VS NYSEComparing Inflation to Previous trends trying to see if I see growth shrinking or if stocks are just overpriced.
USIRYY trade ideas
Us Inflation cooling down but trend upUs Inflation is in an up trend well defined but at this point has got some cooling down mainly due federal reserve tighting policy. For moment the analysis says CPI will be bettween 8.9 - 7.0 but the TREND IS UP! SO higher prices expected to resume later!
The unwinding of the global excesses will be epic (not here yet)I was just looking at some data and put this chart together. Pay attention to how the dynamics of USD assets have changed over the past 3+ years - and the excesses built into the global economy since the 2008-09 GFC.
As much as I want the global to navigate a soft-landing process, I see the excesses of the past 8+ years unwinding in a somewhat extended format through 2025 or beyond.
Because of this expectation, I believe the US/Global markets may enter a period of extreme consolidation over the next 4+ years before attempting to shift back into a longer-term bullish price trend. This means we need to stay focused on assets that provide safety and security while attempting to navigate a broad global capital unwinding process.
Bitcoin and other speculative assets may see massive revaluation events - same with Technology and Innovation sectors.
Traders will get chopped up unless you are able to target quick profits and/or ride our shifting capital trends in various global assets. Passive investing may seem like the safe play - but I believe CASH and HEDGING will outperform almost everything else over the next 3+ years.
Follow my research and learn how to spot these bigger cycle trends. The peak in the US markets is not here yet - but when it happens, be prepared for extreme market volatility.
Testing 100 year old US inflation trend lineIn the last 100 years the Inflation trend line has been tested 3 times and each time it was followed by a depression/recession. Will this time be different? Probably not. Will there be a total calamity and massive lines at the soup kitchen? Probably not. Will you own nothing and be happy? Definitely!
The US May See More Inflation Spikes The yellow drawing is an example of what I believe inflation may look like throughout the rest of this decade.
Note that since the great depression, the US has experienced five bursts of inflation above 8.0%.
With current inflation running at 8.30%, the 6th spike may be occurring now.
History shows that when inflation spikes above 10.0%, a second higher spike soon follows.
To paraphrase, I heard respected investor Felix Zulauf once say that the second inflation spike is usually much worse than the first.
Takeaway: If the 2022 inflation numbers stretch above 10%, then the odds of something worse coming after 2024 will increase dramatically, in our view.
The Ukraine conflict is another inflationary shock for the worldAlas, it is settled. Inflation is not transitory. Its persistent uptick has serious implications for the global economy. The ongoing conflict, in addition to all the suffering it is causing in Ukraine, has created a further inflationary shock for the world. How are investors hedging themselves?
Don’t be surprised by what the pandemic has done
Post-pandemic inflation is not a new phenomenon – that is not to say the COVID-19 pandemic is completely behind us. In the aftermath of the 14th century Black Death, the world faced a breakdown in trade, as efforts were made to contain the spread of the plague, and a shortage of workers – given the astonishingly high death toll. The world has, since then, become a lot more complex, and much more interconnected.
In the UK, airlines including British Airways and Easyjet are scrambling to hire more workers as they struggle to meet the rampant growth in travel demand with a depleted workforce. London’s Heathrow airport recently stated that it is stretched as it races to hire 12,000 new staff ahead of summer1. The first lesson in economics 101 would tell us that this means high demand and tight supply, a perfect recipe for rising prices – inflation.
How the conflict has complicated things
The conflict has exacerbated the inflation problem. It has exposed fault lines in already fragile global supply chains. Russia is among the largest producers of commodities including oil, natural gas, palladium, aluminium, nickel, and wheat among others. In certain cases, direct sanctions have been introduced. This is the starkest case of supply disruption. For example, sanctions from the US and UK on Russian oil and gas. For other commodities, there is a question mark. Direct sanctions may not have been introduced but several buyers are exploring alternatives. In an already tight global commodity market (see figure below), and options limited due to commodity supply being a function of natural resources, this is not necessarily easy.
It goes further. Ukraine is the world’s biggest exporter of corn, wheat, and sunflower oil2. Not only have the flows of these commodities out of Ukraine largely stalled, but spring planting for the next season could also be significantly hampered given the dislocation of people and destruction of infrastructure.
Moreover, Russia and Ukraine together export 28% of fertilizers made from nitrogen and phosphorus, as well as potassium3. Fertilizer shortages pose a danger to crop yields further tightening the supply of agricultural commodities and augmenting food price inflation.
What can central banks do
Central banks can’t send 12,000 new employees to Heathrow Airport. They can’t put an end to the conflict. And they certainly can’t ensure food or energy security. They can, however, cut back on monetary accommodation – the only lever at their disposal. Tightening monetary policy aims to control inflation by reducing growth. Higher rates should mean fewer people seeking new mortgages or maxing out their credit cards.
But monetary policy accommodation alone didn’t create inflation and its withdrawal alone won’t solve the problem.
What are investors doing?
Investors have been on the move in the last twelve months – even when the US Federal Reserve was clinging on to the ‘inflation is transitory’ narrative. In the last twelve months, there have been over $18bn in flows into broad based commodity basket exchange traded products worldwide. Almost $8bn of which, have come in the last three months, suggesting the trend is accelerating4.
We see investors turning towards broad commodities for three distinct reasons. First, commodity market tightness is at the heart of the inflation conundrum. There is, therefore, a natural relationship between rising commodity prices, and rising prices more widely. Investors are seeking commodities exposure as an inflation hedge. Second, broad commodities help capture the structural demand growth for metals from the energy transition. And third, they offer diversification – not just against equities and bonds but also within the basket given the heterogeneity among the different commodity sectors.
Not a question of if, but how
Until last year, whether there is a strong case to add inflation protection was still a dilemma for many investors. Now, focus seems to have shifted towards how best to hedge against it. Commodities aren’t the only solution. They do appear to be the favoured solution right now for many.
Sources:
1 news.sky.com
2 www.bloomberg.com
3 Source: Morgan Stanley as reported by CNBC: www.cnbc.com
4 Source: Bloomberg, as of 14 April 2022.
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Everything has changed.People ask me, "but why is Bitcoin doomed to fall back to Earth?"
People ask me, "but why has Bitcoin risen so much the last 12 years then?"
People ask me, "but why don't you want me to have a lambo?"
I tell people, "Bitcoin is a failure of its own success. Blockchain is the internet of things. It has worked so well that governments are now developing their own versions and realizing they need to regulate."
I tell people, "Bitcoin did so extremely well because (-) real interest rates caused any excess liquidity to flow into new pockets of the economy. Look at the yellow box. Most bond holders have been losing money in real terms even though bond prices were going up. You can see that all the growth since 2012 has been artificially pumped up.
I tell people, "These last 10-12 years are the quintessential example of a Wave 5 Elliott wave. The sellers had all left. Volume and fundamentals remained low even though prices kept rising. Bubbles formed and whole new markets developed (crypto) as a result of monetizing the debt.
So no, this is not like 2018, 2014, or 2011.
You cannot compare this next cycle to the previous ones.
Either the Inflation Rate (red line) crashes, or BTC and markets crash.
(Not Financial Advice. This is my opinion.)
Inflation breaking Demand Line from 1920?Will the Inflation Rate break the demand line beginning back from the 1920's? Watch out if it does...
The inflation cycle & an interesting fractal.I believe that there is a pretty clear fractal or at least a cyclical repeating pattern in inflation.
This is a very very long-term view here, so it wouldn't surprise me that nobody has noticed this because everyone is trading 15m and 5m charts.
We can see that there are two distinct cycles here with a very similar structure that seems to display some clear wave patterns.
I know I'm not using a strict Elliot Wave principle here, but that's not the point.
The point is that there is a very similar pattern emerging between the 2000-2008 expansion cycle and the 2015-2022 expansion cycle.
We have an inflation spike which looks very similar to the spike which began in 2007
If this is a fractal as I suspect, then this will resolve within 1 year and my instinct is that the forthcoming fiscal tightening regime which is being put into action by the FED is going to be the catalyst for another "event" the scope of which is unknown at this juncture.
This does signal that inflation is likely to peak right about now. That's the good news. The bad news is that this "peak" isn't going to signal happier times in the economic sense.
In fact, I am on the record as saying that the only way for the FED to get rid of inflation is to crash the assets markets.
We are also very close to a de-facto inversion in the yield curve which I think is a reflection of both the inflation panic and also the general geopolitical tensions in the bond market.
Whichever way you look at the yield curve, it is pretty clear that the bond market doesn't believe that we're going to tip back into economic expansion and especially not because the FED is embarking on fiscal tightening.
Do your own research. Happy trading.
Inflation rate hits CENTURY OLD trendline resistanceI think inflation has topped if TA works in this area. There is fundamental deflationary macro economic forces at play as well that could see a reduction in inflation by next year and the rest of this decade. The current war and supply shocks due to trade war are interim.
US inflation outlookThis analysis is based purely on technicals! Since the 1920 high us inflation has been on a long term downtrend. I connected the 1920 high with the 1947 high and the 1980 high touched the trend line and reversed with no overshoot. Now price is touching the trend line for the 4th time and we’ll have to wait and see if the long term downtrend continues or if we’re headed towards economic turmoil.
Inflation: long term top or century breakout?Inflation Hits Fastest Pace Since 1981, at 8.5% Through March
Gasoline weighed heavily in the increases, while prices moderated in several categories. Some economists say the overall rate may have peaked.
Inflation hit 8.5 percent in the United States last month, the fastest 12-month pace since 1981, as a surge in gasoline prices tied to Russia’s invasion of Ukraine added to sharp increases coming from the collision of strong demand and stubborn pandemic-related supply shortages.
Fuel prices jumped to record levels across much of the nation and grocery costs soared, the Labor Department said Tuesday in its monthly report on the Consumer Price Index. The price pressures have been painful for American households, especially those that have lower incomes and devote a big share of their budgets to necessities.
But the news was not uniformly bad: A measure that strips out volatile food and fuel prices decelerated slightly from February as used car prices swooned. Economists and policymakers took that as a sign that inflation in goods might be starting to cool off after climbing at a breakneck pace for much of the past year.
In fact, several economists said March may be a high-water mark for overall inflation . Price increases could begin abating in the coming months in part because gasoline prices have declined somewhat — the national average for a gallon was $4.10 on Tuesday, according to AAA , down from a $4.33 peak in March. Some researchers also expect consumers to stop buying so many goods, whether furniture or outdoor equipment, which could begin to take pressure off overtaxed supply chains.
By Jeanna Smialek NYT
April 12, 2022
What would happen if Inflation pass 8.5%..!In this chart, you can not see Inflation (7.9%), however, it is still below the red line..!
Based on my forecast if YOY inflation passes 8.5% it will fly far above it and soon it will be double..!
Notice: We are going to experience a super volatile week: Interest Rate + Economic Projection + Quadruple Witch..!
Best,
Dr . Moshkelgosha M.D
DISCLAIMER
I’m not a certified financial planner/advisor, a certified financial analyst, an economist, a CPA, an accountant, or a lawyer. I’m not a finance professional through formal education. The contents on this site are for informational purposes only and do not constitute financial, accounting, or legal advice. I can’t promise that the information shared on my posts is appropriate for you or anyone else. By using this site, you agree to hold me harmless from any ramifications, financial or otherwise, that occur to you as a result of acting on information found on this site.
GOLD highs coincide with returns vs TreasuriesThe light blue line is the price of gold against M2 money supply in order to show it on the chart more easily. Mainly, take note of the highs on this line.
The purple line represents returns on the 30 year treasury after removing loses from inflation. Inflation normalized returns.
The blue line represents the return on GOLD. Namely, it maintains it's value through inflation, thus it's return is the rate of the inflation minus the inflation in gold itself through mining. It is estimated that the inflation of GOLD is approximately 2% per year.
Notice the occasions when the blue line is above the purple line. These periods are when GOLD returns more than the 30Y. They are brief, but more than often coincide with highs in the price of GOLD, whether local highs, or the ATH.
At the present, please take a look at the blue line. Enjoy.
Inflation rate TA - very strange convergenceCheck out the century plus pattern emerging on inflation rate YoY
FEDFUNDS severely lagging inflationNormally, when inflation is high, the Federal Reserve will increase the FEDFUNDS rate which discourages banks borrowing money in order to fund investments. This in turn discourages lending and generally increases borrowing costs across the economy - including borrowing costs for the national debt.
When you subtract it from the YoY inflation numbers, you can see inflation before and after a government response. Notice in the 70s, inflation peaked before the FED kicked into gear and raised rates. Today, we are at a much higher inflation before a FED response. You would think if they wanted to respond, they would have earlier than the they did in the 70s, but today, it is later. Why? I think they are trying to gain control over inflation through talk only. When rates go up, so do interest payments and we'll see a systemic collapse of asset prices / GDP, and in turn government revenue followed by insolvency.
Good luck, FED.
Big Four Macro Overview: Part 5For more detail please refer to the first four pieces in the series (linked below) and the accompanying charts.
Markets entered 2022 with well established trends and trading ranges, but I believe that the coming year holds significant potential for change. This is particularly true in the equity and treasury markets. Because much of the outlook hinges on inflation (see below) it will be particularly important to monitor inflation related markets.
Importantly, while it's easy to make the case that rates should rise significantly this year, modern financial history suggests that rising rates are likely to break the most vulnerable financial link. If that link has the ability to create systemic disruption, rates will fall again, even if inflation is high, as the market runs to the quality of treasuries.
In my opinion, the most important trend of the last four decades has been the decline and subsequent quiescence in the inflation rate. Falling and low inflation allowed Treasury rates to decline. Falling Treasury rates supported equity valuations and home prices. They also enabled the wholesale financialization of the economy and allowed both public and private entities to add leverage without consequence. Importantly low and steady inflation also created the negative correlation between treasury and equity. Without that correlation 60/40 and risk parity strategies may well be in danger.
Inflation: My working thesis has been that many of the trends that supported disinflation have reversed and that rising inflation will act as a headwind to investment for the next decade. Going into 2020 I believed that the stage for higher inflation had already been set and that higher inflation would result in higher rates and ultimately equities.
Consider that in early 2020:
• The output gap had closed for the first time since the Great Financial Crisis.
• The economy had just reached full employment with a U-3 Unemployment rate @ 3.5%.
• Wages as measured by the Employment Cost Index were rising @ +4.4% YOY rate.
• The Cleveland Fed Median CPI had recently set a 10 year high.
If not for the pandemic, by early 2021. the Federal Reserve would have been forced to respond to rising inflation by increasing rates. Instead, Covid crushed the demand side of the economy, derailing the growing inflation. Now the extreme fiscal and monetary response combined with disruptions in logistics and labor have combined to create very high inflation. While I think that many of the issues creating this burst of inflation are moderating, the same set of factors that were reversing in 2020 are still in place. In short, I believe that the broader trend has changed and that when everything settles out, will end up significantly in excess of the Feds 2% average target.
Bottom Line: Above trend growth in inflation and monetary/fiscal tightening suggest higher volatility and a significant chance that many of the trends that have defined the last few decades will falter. My sense of the economy is that the best growth has already occurred as the result of historically supportive fiscal and monetary policies and now both paths are turning restrictive (see the second part of this series for a more in depth discussion) and markets will likely reflect that reality.
Rates:
• Bonds remain in a bull market defined by a broad declining channel, but rising inflation could easily change the trend. The most likely catalyst to end keep rates below 3.25% would be a financial accident created by higher rates.
Equities:
• SPX remains in a technical bull market and there are no overtly bearish behaviors evident in the longest perspectives. However short term weakness can easily morph into a bear market.
Commodities:
• Goldman Sachs Commodities index is in the center of a broad 14 year range, bounded essentially by the low set during the financial crisis and the resultant 2011 high. range. The most notable/useful current chart feature is the clear uptrend from the 2020 pandemic low. Until that uptrend is broken, the most immediate trend is to higher prices.
US Dollar:
• The wide macro range, 70.70 - 121.02 has contained price action over most of my trading career but volatility is more cyclical than price. These periods of low vol. set up conditions that often lead to explosive moves.
Now, back to the charts!
Good Trading:
Stewart Taylor, CMT
Chartered Market Technician
Shared content and posted charts are intended to be used for informational and educational purposes only. The CMT Association does not offer, and this information shall not be understood or construed as, financial advice or investment recommendations. The information provided is not a substitute for advice from an investment professional. The CMT Association does not accept liability for any financial loss or damage our audience may incur.
