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Is Inflation Boom Quickly Turning To Inflation Bust?

By Chris VermeulenCommoditiesJun 27, 2022 11:09AM ET
www.investing.com/analysis/is-inflation-boom-quickly-turning-to-inflation-bust-200626347
Is Inflation Boom Quickly Turning To Inflation Bust?
By Chris Vermeulen   |  Jun 27, 2022 11:09AM ET
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We are only six months into the year, and it seems like the inflation boom is quickly going bust.

The last few months have been very interesting as we see traders moving out of one investment or market and into another. But as losses mount and capital diminishes, traders are eventually forced to liquidate even their favorite holdings to meet margin calls and raise needed cash.

As followers of pricing, our opinions or forecasts are not of much value. What is important is price, as price directly determines our trading profits or losses.

When market conditions change or at times when our trading begins to rack up losses, the best thing we can do as a professional is to go to cash. Going to cash allows us to get our perspective back. It allows us the possibility to enter the markets once more and provides the potential to make a lot of money.

Markets go up, and markets go down. What makes the big difference is how we manage risk and how well we do in following the direction of price. Knowing and controlling one’s emotions dictates how long we can play the game or how successful we will be at it.

As we review a few interesting and relevant long-term weekly charts, we realize that for many of us, the best option is simply to go to cash, watch and wait.

Food: Wheat -23.74%

  • Wheat had a five-year run gaining more than $8 a bushel.
  • From December 2021 to March 2022, it gained more than $4 a bushel.
  • In March 2022, it made a 14-year double top at $12.
  • From its peak, it has now been trending lower for 31 weeks.
  • Wheat is a good indicator of the level of consumer food inflation.

Wheat Weekly Chart.
Wheat Weekly Chart.

Housing: Lumber -67.14%

  • Random length lumber futures experienced a 14-month exponential rally.
  • From its March 2020 COVID low it has rallied $1,403 for a 500%+ gain.
  • It is now down $1,125 or -67.14% from its May 2022 peak.
  • Lumber is a good indicator of the health of the new housing construction market.

Lumber Futures Weekly Chart.
Lumber Futures Weekly Chart.

Autos: Platinum -29.15%

  • Platinum experienced an 11-month rally that now has fizzled rather quickly.
  • From its COVID 2020 low, its price had more than doubled.
  • It is now down $376 per ounce, or 29.15% from its February 2021 peak.
  • Platinum is a good indicator of the health of the new automotive sales market, where most auto manufacturer stocks have also lost more than 30% from their price peaks.

Platinum Weekly Chart.
Platinum Weekly Chart.

Is Inflation Boom Quickly Turning To Inflation Bust?
 

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Is Inflation Boom Quickly Turning To Inflation Bust?

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Comments (2)
Peter Cooper
Peter Cooper Jun 28, 2022 3:13AM ET
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Yes this is fully consistent with a market going into a recession caused by high inflation. The cure for higher prices is higher prices. My problem with cash is that the US dollar has likely also topped out and that you might do better holding an alternative like gold or Swiss francs. Negative real interest rates on dollar accounts are a guaranteed loser. The asset sell-off temporarily boosted the dollar - and with it commodities that are priced in dollars - and as you note that situation has clearly gone into reverse.
Alan Rice
Alan Rice Jun 27, 2022 4:03PM ET
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Great Info !!
 
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