Global Inflation
This past week, I got to talk a lot about inflation, something many have thrown in the towel about. But not us!
I sat down with Charles Payne during his show Making Money with Charles Payne on Fox Business. He prepared a list of questions for me.
Charles: You say inflation has cooled, but it's only taking a break and not over what reignites it?
After researching, I developed a list of TEN potential sparkplugs.
- China demand increasing
- The U.S. dollar under siege, with BRICS the biggest threat
- Geopolitical risks like an increase in coup d’états.
- Massive government spending both here and abroad.
- Record debt ceiling with the potential to see a money-printing resolution
- An oil shortage or crisis
- Food shortages and hoarding
- Social Unrest leading to supply chain bottlenecks
- Central Banks losing control of monetary policy-chaos
- Russia/Ukraine War worsening
Charles: That’s a long list! Two years ago, some of the most brilliant minds on the street were calling for a commodities supercycle, and for a while, they looked spot on – you say it’s still happening – walk us through it and how to be positioned.
First off, by nature, commodities are volatile. Furthermore, Super Cycles do not last 1-2 years-typically the last 3-4 years. So, if 2021 was the start-then, 2024 to even 2025 is when it could cycle away.
Statistically, inflation rates over 6% (we have had it at 9%, and all it has done is cool to over 6%) take at least six years to fix. That’s if we are really committed to fixing it. It seems the Fed is wishy-washy, and sovereigns everywhere are trying to spend their way out of a recession, which is also inflationary.
Regarding actionable information, we think gold doubles over time. The weekly chart shows a clean breakout above the moving averages.
Our Real Motion indicator reveals even with the rally, momentum has not caught up. We would love a correction to add to the position. However, the circle on the chart shows you a gap that had not been filled going back to mid-April 2022.
That gap has now been filled. We consider that a positive. Plus, the Triple Play Leadership indicator has GLD (NYSE:GLD) well outperformed the SPDR® S&P 500 (NYSE:SPY).
Gold is our main focus, but that also takes other commodities along for the ride-particularly miners.
Finally, looking at the rise in gas prices, we assume that that is inflationary in and of itself. Moreover, we also see higher oil prices as long as crude oil holds around $80 a barrel.
Charles: I like this line from your note: But we know it’s more important to adapt to changing landscape than get stuck on a macro theme. – How does that apply to investing?
One must be flexible and open-minded, especially those of us who are active and not passive investors.
The best case scenario is that these headwinds abate, and companies plus consumers adjust to higher rates topping at 5%. That could lead to a soft landing while the market finds footing and a decent trading range.
The worst-case scenario is that volatility and inflation continue to move higher. The Fed has more fat to trim yet and cannot stop the price of gold and other hard assets from moving up.
ETF Summary
- S&P 500 (SPY): Jan calendar range reset this week, and SPY fails the 200 and is now slightly below the 200-DMA again and closed crossing above the 50-DMA, but a very narrow price range to 200-DMA. Held pivotal support at 390 and 200-DMA is resistance.
- iShares Russell 2000 ETF (NYSE:IWM): In better shape than SPY but still a nasty reversal and must hold 180. Filled the gap and first resistance level at 182 and overhead resistance at 187.
- Dow Jones Industrial Average ETF Trust (NYSE:DIA): The ETF is back under the 50-DMA STILL as industrials lose ground. Needs to continue to hold pivotal support at 330.
- Invesco QQQ Trust (NASDAQ:QQQ): Crossed the 50-DMA on Friday to close above. The first level of tight support is at 277, and 283 is resistance.
- S&P Regional Banking ETF (NYSE:KRE): Led the way down and now must continue to hold 57.50 and now close to crossing 60.72 (50-DMA). The first level of support is 58, and the resistance is 50-DMA.
- VanEck Semiconductor ETF (NASDAQ:SMH): Still holding key support easily at the 50-WMA and 200-WMA. 221 support and 228 resistance.
- iShares Transportation Average ETF (NYSE:IYT): Still holding 225 key support here and now holding the first level of support, holding 227.
- iShares Biotechnology ETF (NASDAQ:IBB): Still best sector with 132 key support still holding and holding first level of support at 134 now with 137 resistance.
- S&P Retail ETF (NYSE:XRT): Holding pivotal support at 63. Resistance at 66.