This week’s episode of Bulls Bears and BS is available now.
The Fed cut rates by 0.5% last week. Many commentators are seeing this as a signal that the economy is in recession. We completely disagree. In this week’s episode, Chief Market Strategist Graham Summers, MBA outlines why this time “is different” and what it means for risk assets, particularly stocks. Graham also provides a macro framework for the next 18 months, as well as where he sees stocks going before this bull market ends.
Finally, Graham dives into gold’s recent price spike, placing it in the context of two potential outcomes for what is happening in the financial system today. If you’re concerned that inflation might be returning, and want to learn about some of the potential warning signs Graham sees that this might be the case, you won’t want to miss this week’s episode!
To access this week’s episode of Bulls Bears and BS…
Japan is showing us the endgame for central bank insanity.
Ever since the Great Financial Crisis, the Fed has been following Japan’s playbook for propping up a financial system. Indeed, everything the Fed has done, Japan originally nearly a decade earlier.
The Fed first cut interest rates to zero in 2008. Japan did that in 1999.
Similarly, the Fed first introduced large-scale Quantitative Easing (QE) programs in 2008. Japan first did that in 2001.
My point is that Japan is the grandfather for central bank insanity. Because of this, the current situation in that country bears watching as it shows us the endgame for what will eventually unfold in the US.
I’m talking about the collapse of a currency.
Japan’s currency, the Yen, started collapsed in 2002. Since that time, Japan’s central bank, the Bank of Japan or BoJ for short, has begun intervening to prop up the currency.
As you can see in the below chart, every single one of these interventions has failed. The Yen is now hanging on to the edge of a cliff by its fingernails. If this last line of support gives way, it could enter a free-fall.
Put simply, the third largest economy in the world is on the verge of an outright currency collapse. And if you think this couldn’t happen in the U.S., you are mistaken. The Fed has already signaled that it will be inflating away the U.S. debt in the coming years.
This means the $USD slowly entering a death spiral… and inflation trades making fortunes.
There is a LOT of money to be made here… and if you’re looking for a means to to insure you profit from it, we recently published a Special Investment Report detailing three investments that will profit from the Fed’s inflationary mistakes. As I write this, all three of them are exploding higher.
Normally this report would cost $499, but we are giving copies FREE to anyone who joins our daily market commentary.
Since that time, the Fed has shifted to talking about easing monetary conditions.
This has ignited a second wave of inflation.
On an annualized basis, the 1-month change in inflation is 3.9%
On an annualized basis, the 3-month change in inflation is 4.4%
This resurgence in inflation has benefited former President Trump’s campaign as Americans by and large vote with their wallets.
Former President Trump has set his sights on the Fed.
Regarding #5, Trump is convinced the Fed plays politics to benefit the establishment/ leftists. He believes the Fed intentionally sabotaged the economy during his first term by raising rates aggressively from 2017-2019. He also believes the Fed is actively juicing the markets to help the Biden administration today (he’s not wrong there).
And unlike his prior attacks on the Fed, which largely consisted of tweets and interviews in which he mocked Fed officials, this time around, Trump is planning to take action if elected.
Trump’s advisors recently leaked a proposal to overhaul the Fed completely should Trump win in 2024. Among the various proposals:
Allowing Trump to fire Fed Chair Jerome Powell before the latter’s term is up.
Revising the Fed’s leadership structure to include the White House in decisions concerning monetary policy (including cutting or raising interest rates).
Using the Treasury to keep Fed policy “in check”
Let me be clear here: I’m not saying that I agree with Trump’s proposals or that a Trump win in 2024 would be a good thing. I’m simply pointing out, as a statement of fact, what Trump plans to do if he wins.
This terrifies the Fed. If there’s one thing policymakers DON’T like, it’s being told what to do, or worse still, being fired.
And thus the Fed is in a pickle. On the one hand, it wants to do everything it can to juice the economy/ stock market to insure Trump doesn’t win.
But on the other hand… juicing the financial system is highly inflationary, which makes it more likely that Trump will win!
So what does this mean for stocks?
Increased volatility.
Stocks are being pulled in two directions shifting from focusing on potential Fed easing, to worrying about higher inflation resulting in the Fed having to tighten again.
We’ve already gotten a taste of this in 2024.
Stocks came into the year roaring higher on hopes of the Fed cutting rates. Then inflation began to tick upwards, resulting in stocks falling on fears that the Fed wouldn’t be able to cut rates any time soon.
We’re not talking about small price swings either as the below chart illustrates.
What does this mean for investors?
Your best bet is to ride the inflationary impulse into the election. After that, everything hinges on who wins.
What investments will profit the most from this situation?
To answer that, we recently published a Special Investment Report detailing three investments that will profit from the Fed’s inflationary mistakes. As I write this, all three of them are exploding higher.
Normally this report would cost $499, but we are giving copies FREE to anyone who joins our daily market commentary.
Because, its efforts to loosen monetary policy to juice stocks and real estate higher to aid the Biden administration with its re-election campaign have unleashed another round of inflation.
Don’t believe me? See for yourself.
The Consumer Price Index (CPI) bottomed right around the time the Fed stopped raising rates. It has since flat-lined and is now turning back up.
The same is true for the Fed’s preferred inflation measure, core-Personal Consumption Expenditures or core-PCE.
That little uptick doesn’t look like much, but as economist Jason Furman notes, if you annualize the 1-month and 3-month changes in core-PCE, the situation the second wave of inflation becomes clear.
Annualizing the 1-month MoM rate of change in Core-PCE gives you inflation of 3.9%.
Annualizing the 3-month MoM rate of change in Core-PCE gives you inflation of 4.4%.
Still not convinced? Take a look at what gold is doing.
As a general rule, Americans vote with their pocketbooks. And this spike in inflation is TOXIC for the Biden administration.
Former President Trump is one of the most unlikeable candidates in history… and yet, he’s been gaining on President Biden in the polls ever since inflation started ticking back up again in September 2023 (see for yourself)
So what will the Fed do? Its monetary easing boost stocks and real estate, but it also worsens inflation, which increases the odds of former-President Trump taking the White House. And what investments will profit the most from this situation?
To answer that, we recently published a Special Investment Report detailing three investments that will profit from the Fed’s inflationary mistakes. As I write this, all three of them are exploding higher.
Normally this report would cost $499, but we are giving copies FREE to anyone who joins our daily market commentary.
The stock market has finally woken up to what I’ve been warning about for weeks… namely that inflation is rebounding.
By quick way of review, the Fed stopped raising interest rates in July 2023. It then started talking about cutting interest rates in November. And it did this despite the clear evidence that Energy prices were the only part of the inflation data that had turned negative. Put another way, every other segment of the inflation data was still rising… albeit at a slower pace.
Fast forward to today, and the official inflation measure, the Consumer Price Index or CPI for short has bottomed and is beginning to rebound.
With inflation doing this, there is NO WAY the Fed can cut rates three times this year. The bond market has realized this and is now discounting maybe one rate cut of 0.25% this year.
Stocks didn’t like that. The S&P 500 has now dropped 4% and is below its 50-day moving average (DMA) for the first time since November 2023.
Bottomline: this move was entirely predictable, and those investors who were prepared for it are seeing EXTRAORDINARY returns in their portfolios.
On that note, we recently published a Special Investment Report detailing three investments that will profit from this rampant government spending. Normally this report would cost $499, but we are giving copies FREE to anyone who joins our daily market commentary.
I warned time and again that the Fed was making a massive policy mistake that would unleash another round of inflation.
By quick way of review, the Fed stopped raising interest rates in July 2023. It then started talking about cutting interest rates in November. This was a MASSIVE mistake as inflation has NOT been defeated.
Indeed, ever since the Fed started talking about cutting rates, the official inflation measure, the Consumer Price Index (CPI) has bottomed and is now turning back up.
This trend continues. Yesterday, the Bureau of Labor Statistics (BLS) revealed that CPI rose 0.4% Month-over-Month (MoM) and 3.5% Year-over-Year (YoY) in March 2024.
This represents the FOURTH straight month of CPI coming in hotter than expected. The fact it surprised Wall Street and most investment strategists confirms that NONE of these people are paying attention to the data.
The only part of the inflation data that is down is energy prices (and used cars which receives almost no weight). Every other segment of the CPI continues to rise.
See for yourself:
However, even Energy prices will begin turning up again… as are commodities in general. Both gasoline prices and copper prices are on the rise and about to break out of multi-year consolidation periods.
This is going to catch most investors offsides… but the good news is that with the right investments, you could see EXTRAORDINARY returns from what’s coming.
On that note, we recently published a Special Investment Report detailing three investments that will profit from this rampant government spending. Normally this report would cost $499, but we are giving copies FREE to anyone who joins our daily market commentary.
Over the last week, we’ve warned investors that the Fed’s actions are unleashing another round of inflation in the U.S. financial system.
By quick way of review.
The only part of the inflation data that is declining year over year is Energy prices. Every other segment of the Consumer Price Index (CPI) continues to rise.
Financial conditions are as loose today as they were when the Fed first started raising interest rates in March 2022. And yet, the Fed is preparing to cut rates instead of raising them.
The Fed is still providing hundreds of billions of dollars in liquidity to the financial system via credit facilities.
The Fed’s own research indicates that food inflation is the best predictor of future inflation. And agricultural commodities are skyrocketing to new highs.
Unfortunately for Americans, the Fed isn’t the only entity that is engaged in inflationary policies. The Biden administration is currently engaged in truly extraordinary levels of money printing.
The Biden administration has added $6 trillion to the national debt since taking office. Bear in mind, this is happening at a time when the U.S. is collecting a record amount in taxes. So, the Biden administration is not only spending all of the tax dollars collected, it’s spending so much money that the U.S. is having to issue record amounts of debt!
The below chart needs no explanation. This is simply not sustainable.
Indeed, the pace of debt issuance is speeding up not slowing. The Biden admin issued $3 trillion in new debt in between 2021 and 2023. It added another $4 trillion in new debt in 2023 alone. At this pace. the U.S. will hit $40 trillion in debt some time in mid-2025.
Indeed, the pace of debt issuance is speeding up not slowing. The Biden admin issued $3 trillion in new debt in between 2021 and 2023. It added another $4 trillion in new debt in 2023 alone. At this pace. the U.S. will hit $40 trillion in debt some time in mid-2025.
The good news is that those investors who are properly positioned for this stand to generate truly EXTRAORDINARY returns in the coming months.
On that note, we recently published a Special Investment Report detailing three investments that will profit from this rampant government spending. Normally this report would cost $499, but we are giving copies FREE to anyone who joins our daily market commentary.
As I keep emphasizing, another round of inflation is coming.
And the worst part?
The Fed knows it, but is playing political games to boost the economy/ stock market for the Biden Administration.
“But wait a minute, Graham,” you’re no doubt thinking, “the Fed’s preferred inflation measure is core-Personal Consumption Expenditures and that is trending down to the Fed’s 2% target.”
Let me let you in on a little secret… PCE is a terrible predictor of future inflation… and the Fed knows it.
The Fed is the largest employer of economics PhDs in the world. All told, the Fed has over 400 economics PhDs and 150 research assistants on payroll. As a result of this, the Fed is constantly doing research on various issues.
Back in 2001, the Fed had several researchers dive into the subject of inflation. Their goal was the analyze whether the Fed’s preferred measures of inflation (the CPI and the Personal Consumption Expenditures or PCE) are decent predictors of future inflation. The Fed also investigated a whole slew of other inflation measures for comparison purposes.
The results?
The Fed found that food inflation, NOT CPI or PCE, is the best predictor of future inflation. Fed researchers wrote the following:
We see that past inflation in food prices has been a better forecaster of future inflation than has the popular core measure [CPI and PCE]…Comparing the past year’s inflation in food prices to the prices of other components that comprise the PCEPI (as in Table 1), we find that the food component still ranks the best among them all…
Source: St Louis Fed (emphasis added).
Now, food is derived from agricultural commodities. And what have agricultural commodities been doing in the last few months?
The first round of inflation is highlighted with a pink oval. The current price move is significantly larger. According to the Fed’s own research, this indicates a second wave of inflation is about to hit the US.
The good news is that those investors who are properly positioned for this stand to generate truly EXTRAORDINARY returns in the coming months.
On that note, the FREE copies of our Special Investment Report detailing three investments that will profit from the next round of inflation are rapidly being reserved. So if you want reserve one, you better move fast!
Our latest theme is that the U.S. Central Bank, called the Federal Reserve, or the Fed for short, is NOT politically independent, but is in fact a highly partisan organization that leans left.
The above items are not some conspiracy theory. The Fed’s own actions support this view.
By quick way of review…
1) The Bernanke-led Fed launched QE 3 just three months before the 2012 Presidential election. At the time, the economy was growing, unemployment was falling, and there were no signs of systemic duress in the financial system. So this was a clear intervention to aid the Obama Administration’s 2012 re-election bid.
2) The Fed kept rates at zero for seven of the eight years President Obama was in office. Once it finally got around to raising rates, it engaged in one of the feeblest hiking schedules in history, raising them only once in 2015
and once in 2016.
3) Donald Trump won the 2016 Presidential election in a major upset to the political establishment. At that point the Fed suddenly began raising rates three to four times per year while simultaneously draining $500 billion in liquidity from the financial system.
4) Today, the Fed is actively juicing the stock market via multiple credit facilities designed to provide liquidity to help the Biden administration with its re-election bid. The Fed is also promising to cut rates despite the fact it’s an election year and inflation has not fallen to its 2% target.
I wish this was the end of this disturbing exercise, but it’s not: the Fed is also letting housing bubble up again. The reason? You guessed it, real estate is the single most owned asset class in the U.S. And boosting home prices during an election year is likely to sway voters.
TheS&P CoreLogic Case-Shiller U.S. National Home Price Index rose 6% in January. This is up from 5.6% in December 2023. As HousingWire notes, this represents the seventh consecutive month of annual price growth. It’s also the biggest increase since November 2022.
By the way, inflation was around 6% at that time!
So we’ve got both real estate and stocks bubbling up again, courtesy of the Fed playing political games. In the near-term this is fantastic for Americans, who will see their net worth rise as a result of this.
The bad news is that there’s no such thing as a free lunch. And the Fed’s political shenanigans are unleashing a second wave of inflation.
Gold has figured it out. It recently exploded to new all-time highs.
The good news is that those investors who are properly positioned for this stand to generate truly EXTRAORDINARY returns in the coming months.
On that note, the FREE copies of our Special Investment Report detailing three investments that will profit from the next round of inflation are rapidly being reserved. So if you want reserve one, you better move fast!
Yesterday, I detailed how the Fed is a political entity… and it leans left.
By quick way of review…
1) The Bernanke-led Fed launched QE 3 just three months before the 2012 Presidential election. At the time, the economy was growing, unemployment was falling, and there were no signs of systemic duress in the financial system. So this was a clear intervention to aid the Obama Administration’s 2012 re-election bid.
2) The Fed kept rates at zero for seven of the eight years President Obama was in office. Once it finally got around to raising rates, it engaged in one of the feeblest hiking schedules in history, raising them only once in 2015
and once in 2016.
3) Donald Trump won the 2016 Presidential election in a major upset to the political establishment. At that point the Fed suddenly began raising rates three to four times per year while simultaneously draining $500 billion in liquidity from the financial system.
It is possible that the above items are all coincidence. It’s also possible that Bigfoot could actually be Elvis living in disguise in the woods.
So what is the Fed up to now?
It’s trying to help President Biden win the 2024 Presidential election by juicing the two asset classes that have the largest impact on Americans’ net worth (stocks and housing ).
Today we’ll be assessing the stock market.
The Fed is supposed to be draining liquidity from the financial system via its Quantitive Tightening (QT) program. However, the Fed is ALSO providing $155 BILLION in liquidity via its overnight credit facilities. To put that into perspective, it’s more liquidity than the Fed was providing via this facility in MARCH 2009 right after the worst financial crisis in 80 years!
As if that’s not egregious enough, the Fed is ALSO providing nearly $500 billion in liquidity via a process called Reverse Repurchase Agreements.
Small wonder then that the stock market has been roaring higher. The Fed is providing EMERGENCY levels of liquidity to the financial system at a time when the economy is growing! So much for QT!
In the very simplest of terms, the Fed is juicing stocks higher to boost the Biden Administration’s 2024 re-election bid. And rest assured, I’ll detail how the Fed is doing the same thing with housing in tomorrow’s article.
The good news is that those investors who are properly positioned for this stand to see extraordinary gains.
On that note, the FREE copies of our Special Investment Report detailing three investments that will profit from the next round of inflation are rapidly being reserved. So if you want reserve one, you better move fast!
It’s time to tell the truth when it comes to Fed political interventions.
One of the biggest myths concerning the Fed is that it is politically independent. This is laughably false to anyone who has paid attention during the last 25 years.
Consider that in 2012, the Bernanke-led Fed announced QE 3, its largest QE program in history at the time (an $80 billion per month, open-ended program), a mere THREE MONTHS before the U.S. Presidential election.
Bear in mind, the U.S. economy was growing and the U.S. financial system wasn’t under significant duress at the time. So this was blatant political interference to aid the Obama Administration’s re-election bid by boosting the stock market and economy.
A second major example of Fed political bias concerns its major shift in monetary policy once Donald Trump became President. To fully grasp this, we need to provide a little historical context.
Between 2008 and 2016, the Fed engaged in eight years of extraordinary monetary easing, maintaining interest rates of 0.25% (zero), and engaging in over $3 trillion worth of QE from 2008 to 2015. Bear in mind that throughout this time, the U.S. economy was technically NOT in recession. Economic growth was steady:
And the unemployment rate was in a clear downtrend:
Once the Fed actually ended easing, it embarked on one of the feeblest campaigns of tightening monetary policy in history, raising rates only one time in 2015 and 2016. I would note that all of this took place under the Obama administration.
Then Donald Trump won the 2016 Presidential election, and suddenly the Fed “got religion” about normalizing monetary policy. It raised rates three times in 2017 and another four times in 2018. In 2018 it also began shrinking its balance sheet via a process called Quantitative Tightening or QT. It would ultimately drain $500 billion in liquidity from the financial system via QT in 12 months. That is quite a shift considering the Fed had maintained rates at or close to ZERO for eight years prior to this.
Throughout 2016-2018, the Fed ignored numerous signals that this pace of tightening was placing the financial system under duress, right up until the junk bond market froze and the U.S. stock market crashed 20% during the holidays in December 2018.
For those who would argue that the Fed’s sudden shift from maintaining easy monetary policy for the better part of a decade to aggressively normalizing policy in the span of 20 months had nothing to do with Donald Trump being President, consider that former Fed Vice Chair Stanley Fisher admitted in an interview that the Fed’s raising rates in December 2018 was done specifically to hurt the economy because the Fed was annoyed with President Trump’s constant tweeting about them.
So again… the Fed IS a political entity… and it leans LEFT.
I’ll detail what this means investors as we head into the 2024 President election in tomorrow’s article. But for now, gold is giving us a clue.
The good news is that those investors who are properly positioned for this stand to see extraordinary gains.
On that note, the FREE copies of our Special Investment Report detailing three investments that will profit from the next round of inflation are rapidly being reserved. So if you want reserve one, you better move fast!
Last week, the Fed confirmed that it intends to cut rates three times this year, despite the fact inflation is NOT near its target of 2% and is in fact turning back up.
If you’re scratching your head on this, there’s a very simple answer:
It’s an election year. And the Powell Fed is stacked with political hacks.
It is clear that the Powell Fed is full committed to aiding the Biden administration in its re-election bid. After all, why else would the Fed talk about triggering an easing cycle when:
1) The stock market is at all-time highs.
2) Financial conditions are looser now than they were BEFORE the Fed starting raising rates in 2022.
3) The economy is growing, NOT slowing down.
4) Inflation is turning back up.
These are the sorts of conditions in which the Fed usually RAISES rates. Instead, the Fed is going to start cutting rates AND reducing the pace of its Quantitative Tightening (QT) program.
Both of those are HIGHLY inflationary.
In this context, it is clear the Fed has become a political entity. There is no credible economic/ financial reason for the Fed to commit to these policies. At the very least, the Fed should remove one rate cut from its forecast for 2024.
Instead, it is clear that the Fed is committed to pushing stocks and housing as high as possible going into the 2024 Presidential election. This will be a boon for Americans in the short-term, but the consequences will be devastating in the coming months as inflation eviscerates incomes and investment portfolios.
The good news is that those investors who are properly positioned for this stand to see extraordinary gains.
On that note, the FREE copies of our Special Investment Report detailing three investments that will profit from the next round of inflation are rapidly being reserved. So if you want reserve one, you better move fast!
I’ve previously explained in great detail that the official inflation measure, the Consumer Price Index or CPI, is massaged to the point of being a work of fiction.
Among the more egregious gimmicks employed by the BLS:
Data collection consists of surveys with low response rates.
Those being surveyed are asked to remember what they paid for goods and services (as if anyone keeps an excel spreadsheet of that stuff).
The CPI doesn’t consider food or energy prices.
The CPI doesn’t use real world measures for shelter, instead relying on carefully crafted artificial metrics that have no connection to reality.
And so on.
However, if you’re looking for one simple explanation that the CPI is fiction, you need look no further than the Biden administration’s poll numbers.
President Biden is an historically unpopular President. This is truly astonishing when you consider that his opponent for the 2024 election (former President Trump) is one of the most polarizing and unappealing candidates in history.
Why are Biden’s polls so bad?
Inflation.
Americans vote based on many factors, but ultimately, they tend to vote with their pocket books. And inflation is a MAJOR problem for the bottom four quintiles (lower 80%) of Americans based on net worth/ income.
The media shills and hacks like to argue that Biden is unpopular because Americans are “wrong” or “misguided” due to “disinformation.” But we have to remember that these are the same people who told us inflation was “transitory” for most of 2021 and 2022. Their track record is truly abysmal when it comes to accurately assessing reality.
Bottomline: inflation has NOT come down, no matter what the BLS and media tell you. And those investors who don’t prepare for what’s coming are in for a world of hurt.
I’ll detail what this means for the markets in tomorrow’s article.
If you’ve yet to position your portfolio to profit a resurgence in inflation, we just published a Special Investment Report outlining the clear signals that inflation is back as well as THREE unique investments that could EXPLODE higher as inflation takes hold of the financial system later in 2024.
This report went live just four days ago. And already two of these investments are up.
The Fed is screwing up… again. And investors who don’t prepare for what’s coming are in for a NASTY surprise in the coming months.
To understand what I mean by this, let me provide some context.
Starting in November of 2023, Fed officials began proclaiming that inflation had been tamed. The argument, at the time, was that inflation data was clearly trending down, while rates were much higher, so the Fed would need to start cutting rates soon to avoid crushing the economy.
I realize this is difficult to picture, so I’ve included the below image for you. The Fed Funds Rate is the red line. The official inflation measure, the Consumer Price Index, or CPI for short, is the blue line. As you can see, starting in mid-2023, the red line was much higher than the blue line.
During the last 25 years, any time the Fed Funds Rate has been much higher than inflation for long, something BAD has happened (a recession or crisis). I’ve illustrated this on the below chart with red rectangles.
This is why the Fed started talking about cutting interest rates in November 2023, despite the fact inflation was still well above 3%, while the Fed’s target for inflation was 2%. In the very simplest of terms, the Fed was “betting” that inflation would continue to trend down, therefore giving the Fed the excuse to cut rates.
However, since that time, the CPI has stopped declining as rapidly. The trend, while still down, isn’t nearly as strong.
Indeed, the situation looks much uglier when we include food and energy prices to inflation. As I noted in yesterday’s article, the ONLY reason inflation appears to have declined as much as it has is because energy prices have collapsed year over year. Once you include energy data in the inflation measure, things look like this:
Put simply, the Fed has screwed up… again. The Fed promised it would cut rates base on an assumption that has proven false. This opens the door to a serious upset for the markets in the coming weeks.
If you’ve yet to take action to profit a resurgence in inflation, we just published a Special Investment Report outlining the clear signals that inflation is back as well as THREE unique investments that could EXPLODE higher as inflation takes hold of the financial system later in 2024.
Throughout 2023, I warned that inflation was not really disappearing from the financial system. Time and again I noted that the ONLY data in the inflation measure that had declined was energy prices.
This trend continues to this day, by the way. See for yourself.
Take out energy prices (and used cars) and the inflationary data is still RISING in every category.
And things are going to get worse soon.
Why?
Energy prices will soon no longer be DOWN year over year. For 12 months, the CPI has been calculated by comparing the prices in the blue rectangle to prices in the purple rectangle. However, in 2024, prices will be compared to the blue rectangle for inflation calculations.
We’ve now had two months of the CPI surprising to the upside. And this is while Energy prices are HELPING the inflation data. What happens when Energy is no longer down on a year over year basis?
Hint: gold has already figured it out. Other asset classes will soon.
If you’ve yet to take action to profit a resurgence in inflation, we just published a Special Investment Report concerning THREE investments you can use to make inflation pay you as it rips through the financial system in the months ahead.
The report is titled How to Profit from Inflation: Three Investments to Make Money”. And it explains in very simply terms how to make inflation PAY YOU.
Inflation is going in the wrong direction again… and that is BAD news for stocks.
If you’ll recall, the primary driver of the recent rally in stocks was the Fed suggesting that it would soon begin cutting rates. Indeed, it was a speech by Fed Governor Waller concerning that exact topic in late November 2023 that ignited the move from 4,550 to new all time highs for the S&P 500.
However, with the economy still growing at an annualized rate of 3%, stocks at new all-time highs, and financial conditions looser today than they were before the Fed starting raising rates in March 2022, the ONLY way the Fed could cut rates without looking like a group of political activists is if inflation is at or close to target.
It’s not. In fact, the latest inflation data is going the WRONG way for the Fed.
The Consumer Price Index (CPI) for January was supposed to show a month over month (MoM) increase of just 0.2% and a year over year (YoY) increase of 2.9%. Instead it showed a MoM of 0.3% and a YoY of 2.9%).
That 0.1% difference in MoM and 0.2% difference in YoY don’t sound like a big deal, but this was the reason the market dropped like a brick last week on Tuesday.
Then, on Friday, January’s Core Producer Price Index (PPI) came in at 0.5% MoM vs. expectations of 0.1%. Now that is a legitimately big deal as Core PPI is the Fed’s PREFERRED inflation measure.
This means there will be NO rate cuts in March. And investors will be lucky if they get a rate cut in April/ May.
This sets the stage for a significant stock market correction. I’ve warned repeatedly that stocks are quite stretched above their primary trend. I believe the S&P 500 will be working its way down to 4,800 and then eventually 4,600 in the coming weeks. I’ve illustrated those levels on the chart below.
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Governments around the world are issuing staggering amounts of debt to “paper over” any weakness in the private sector with public spending. As Bloomberg notes, collectively, the U.S., U.K., E.U., and Japan will issue $2 trillion in new debt this year.
This is keeping the world from entering a recession, while simultaneously setting the stage for the next round of inflation. Remember that the first wave of inflation (2021-2023) was triggering by egregious levels of public spending/ stimulus during a time of private sector weakness.
In the U.S., it is clear the Biden administration is implementing policies to prop up the economy and financial markets for the 2024 election regardless of the consequences the policies will bring down the road.
Case in point, the U.S. is running the levels of deficit you usually see during a recession, at a time when the economy is technically still growing. Indeed, the only periods in which the U.S. was running a larger deficit as a percentage of GDP in the last 100 years during World War II, and the Great Financial Crisis.
As you likely know, deficits are financed via the issuance of debt. And because the U.S. is constantly having to roll over old debt into new debt while also issuing new debt to finance its deficit, the country has added some $2 TRILLION in debt in the last seven months alone!
My question to policymakers: what if all this spending brings back higher inflation when the U.S. finally rolls over into recession? What’s the plan, then?
Gold has figured it out already. Other asset classes will soon, too.
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Since early 2023, numerous pundits and gurus have been calling for a recession. And despite numerous indicators flashing that one is coming… the recession has yet to arrive.
Why?
This:
The U.S. is running a GARGANTUAN deficit equal to 5.5% of GDP.
To put this into perspective, it’s larger than the deficit the U.S. ran during EVERY recession in the last 100 years except for the Great Financial Crisis and when the economy was shutdown in 2020.
Put simply, the U.S. is running the kind of spending that we usually see during periods in which the private sector is in a total free-fall… at a time when the private sector is weak, but not yet collapsing.
This has managed to keep the economy positive. But it’s a short-term fix.
Ultimately, the U.S. cannot stay out of recession forever as no amount of government spending can replace the economic impact of the private sector (we learned this during the shutdowns when the Fed and Uncle Sam spent $8 trillion in 12 months but the economy still collapsed).
Moreover… this situation presents us with a MAJOR problem down the road: if the U.S. is already spending at a pace usually associated with recessions while the economy is still growing, what is going to happen when the economy finally does roll over into recession? How much spending will it be doing then? 8% of GDOP? 10% of GDP? More?
And bear in mind, this spending is being funded by debt (it is a deficit after all). What happens to the bond market if the U.S. cranks up its spending to 8% or more of GDP when the actual recession hits?
Gold has started to figure it out. Other assets will figure it out soon.
As I keep stating, you CAN outperform the overall market, but it takes a lot of work and insight!
If you’re looking for someone to guide your investing to insure you crush the market, you can sign up for our FREE daily market commentary, GAINS PAINS & CAPITAL.
As an added bonus, I’ll throw in a special report Billionaire’s “Green Gold” concerning a unique “off the radar” investment that could EXPLODE higher in the coming months. It details the actions of a family of billionaires who literally made their fortunes investing in inflationary assets. And they just became involved in a mid-cap company that has the potential to TRIPLE in value in the coming months.
Both stocks and bonds caught a bid mid-week on announcements that the Treasury has decided to issue less long duration bonds that previously expected.
This is GREAT news for risk assets in the short-term. It’s EXTRAORDINARILY BAD NEWS for EVERYTHING in the long-term.
Let’s me explain.
The recent sell-off in both bonds and stocks was driven by one primary concern: that the Treasury would need to issue a gargantuan amount of long-term debt to fund the Biden administration’s profligate spending.
In its simplest rendering:
1) The Biden administration is running the largest fiscal deficit as a percentage of GDP outside of WWII.
2) All of this spending requires the Treasury to issue massive amounts of debt.
Historically, the Treasury’s debt issuance consisted of 15%-20% short-term debt, and 80%-85% long-term debt. The reason for this was to avoid a rate shock should rates change dramatically in a 12-month period (all the short-term debt would come due at a time when rates were much higher).
It was this heavy reliance on long-term debt issuance that resulted in the 10-Year U.S. Treasury collapsing from late July through late October. And since stocks are generally a long-duration asset class, this pulled stocks down as well.
The below chart shows the 10-Year U.S. Treasury (red line) plotted against the S&P 500 (black line). As you can see, the two were trading in lock-step as soon as the Treasury announced its long duration debt issuance needs for the third quarter of 2023 on July 31st.
The Treasury took note of this collapse, which is why it announced a shift in focus for its 4Q23 debt issuance from long-term debt to short-term debt.
In its very simplest rendering, the Treasury intentionally removed the #1 concern for the stock market… thereby opening the door to a Santa Rally into year-end. Unfortunately, the cost of this is that the U.S. debt markets will be in VERY serious trouble a year from now.
Why?
Because this is a “one time” trick that cannot be repeated. Sure, it puts a floor under bonds for the time being, but unless the government cuts spending in a BIG WAY, sometime in the next 6-12 months all of this short-term debt will come due and the Treasury will once again need to issue long-term debt.
Mind you, the U.S. is currently adding debt at a pace of nearly $2 TRILLION per year. So you can only imagine the yield investors will require to lend money to Uncle Sam for any time period a year from now when our debt is over $35 trillion and we’re still running a ~$1 TRILLION deficit.
The below chart needs no explanation. Long-term Treasuries have broken their multi-decade trendline. They are now sitting on CRITICAL support. Once that green line goes, the debt crisis begins.
As I keep warning, the Great Debt Crisis of our lifetimes is fast approaching.
In 2000, the Tech Bubble burst.
In 2007, the Housing Bubble burst.
The Great Debt Bubble burst in 2022. And the crisis is now approaching.
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While mainstream economists prance around on television claiming that inflation has been defeated, the real data suggests otherwise.
It’s a well known “secret” on Wall Street that the official inflation measure, the Consumer Price Index, or CPI, is heavily massaged to UNDER-state inflation. However, even the CPI, with all of its gimmicks is showing inflation bottomed in June.
In June of 2023, the CPI was 3.0%. It’s now 3.7%. And with oil now above $90 a barrel again, it’s likely going much higher in the coming months. Again, this chart is going in the WRONG way.
The CPI is not the only inflation metric that has rebounded. The Atlanta Fed’s “sticky inflation” metric tracks parts of inflation that are deeply embedded in the financial system. These items are “sticky” meaning that it’s much more difficult for the Fed to get rid of them. And it’s clocking in at 4.7% after dropping below 3% just a few months ago.
That’s quite a rebound.
Indeed, CPI for August clocked in at 3.7% year over year. That sounds decent until you realize that CPI was 3.0% in June. That’s quite a rebound in just two months. And bear in mind, core inflation is still well over 4%!
Take a look at what oil is doing. Does this look like inflation is under control to you?
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It details the actions of a family of billionaires who literally made their fortunes investing in inflationary assets. And they just became involved in a mid-cap company that has the potential to TRIPLE in value in the coming months.
Normally this report would be sold for $249. But we are making it FREE to anyone who joins our Daily Market Commentary Gains Pains & Capital.