S&P 500 didn‘t regain any footing at all – the CPI casting verdict on even very temporary notion of inflation peak, was strong in its implications for it increases the pressure on the Fed to do more. Not something, but more – more rate raising. Now, we have talk of 75bp rate hike emerging, and not even a series of hitherto unimaginable hikes would do the job of breaking (practically speaking) double digit inflation. The window of opportunity for the Fed to act before it needs to turn around and support the real economy, is narrowing – little has changed since last week‘s key analysis. And Treasuries keep demanding more, risking that the Fed‘s turn would not come when manufacturing growth reaches stall speed, but when it‘s already negative.
That would mean recession, possibly more than mere two quarterly GDP prints going negative. Another obvious consequence would be for the stock market bottom timing – the longer a series of meaningful rate hikes and balance sheet shrinking the Fed is forced into, the more liquidity disappears, and I would be presenting pockets of relative strength within a declining financial universe only. Yes, not even commodities would escape unscathed – they are usually last to peak. And that‘s what we‘re seeing now – crude oil has still quite a few weeks and more than a couple of dollars higher to run. I hope you enjoyed the great profits in black gold – portfolio chart performance is at new highs with the model $50K account after 16 months standing at over $260K – see my homepage. And open short profits in the stock market keep growing.
Friday also brought precious metals outperformance – decoupling on a daily basis as the confidence in the Fed gets questioned. Miners were up on a strong volume – the cracks in the dam are appearing, and precious metals are to benefit. Gold especially as both silver and then copper are to be lagging due to souring real economy prospects. Just have a look at central banks lately – Australia, India raising above expectations, ECB also to start its taper. The coming Fed actions would destroy a lot of demand, seeking to get inflation under control eventually – and these risk a recession, narrowing U.S. trade deficit says already.
Besides the stock market woes being not over (the downswing is likely to continue as volume doesn‘t indicate bottom in place in the least), let me present three richly annotated real asset charts to illustrate where we are at the moment – precious metals:
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