“In the United States problems of economic understanding have been compounded by the effect of economic prosperity. The Japanese in World War II spike ruefully of shoribyo or “victory disease.” The Greeks called it hubris, and thought that it always ended in the intervention of the goddess Nemesis. That lady makes her appearance when wave-riders begin to believe that they are wave-makers, at the moment when the great wave breaks and begins to gather its energy again.” ~ David Fischer, “The Great Wave”
Good morning!
In this week’s Dirty Dozen [CHART PACK] we look at some more signs of budding inflationary pressures, make the case for a coming bottom in gold, talk about the positioning reset in the dollar, discuss the possibility that maybe too much good has been priced in, and then pitch a swing trade on a liquidation play, plus more…
Let’s dive in.
***click charts to enlarge***
- Credit Suisse published a chartbook this past week making the case for increasing and enduring inflationary pressures. CS writes “CPI expectations & oil prices are closely correlated; Commodities are in total (directly and indirectly 7% of CPI) and are in a bull market. Much of the shock from the price discovery process of disruptive technology has been seen.”
- Meanwhile, other deflationary pressures are reversing… CS points out that “80% of global trade is in industrial goods and we now have global trade being 100% of global IP”. Also, Chinese labor costs are no longer as cheap, reversing a tailwind for DMs offshoring production. CS notes that the “BIS claim globalization has taken 1% off CPI each year… and trade has lowered prices of household goods by a quarter to two thirds – ‘huge effect’.”
- While these charts from BofA show rocketing global food prices and a slight turn up in union membership, which could be the start of a broader trend.
- Earlier this month, I wrote about the incredibly weak breadth in gold miners (fewer than 15% were trading above their 200-days) and how this type of action typically precedes bottoms.
Sentiment and positioning have now reset. Real yields are starting to stabilize. The conditions are now set for the next leg up in PMs. I think we’re probably still a few weeks out from that happening though (I’m looking for one more dip).
We want to see GLD ETF holdings stabilize, if not turn up.
- We’re back to watching for a turn in the dollar and a resumption of the secular bearish USD trend. Sentiment and positioning have fully reset are no longer headwinds. And a falling dollar can have long-tailed pass-throughs on inflation.
- BofA thinks markets have overdone themselves and we’re now in for the “3Ps of peak Positioning, Profits, Policy in H1 & 3Rs of rising Rates, Regulation, Redistribution.”
- The narrative pendulum has swung clearly to the other side over the last 6-months. And, as Bernard Baruch, used to say “something that everyone knows isn’t worth anything.”
Watch the SF Fed’s News Sentiment Index to see if things begin disappointing expectations.
- Nasdaq’s short-term breadth held and rebounded off critical levels last week. The Qs now look coiled for another run higher. We’re likely entering an accelerated Buy Climax.
- Bullish sentiment remains stretched but it’s likely this coming bull move will get the market over its skis and give us an official “Sell Signal”.
- Here are the returns so far this year. How do you think this looks by year’s end?
- And for no particular reason, here’s a 120-year annotated chart of the Dow Jones (h/e @NeckarValue).
- I practiced my knife catching and bought some Discovery (DISCA) on Friday. It got caught up in the widespread forced liquidation that started last week, sending it 50%+ lower in just a few days — its largest weekly drop in the stock’s history.
Stay safe out there and keep your head on a swivel.
