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Inflation: long term top or century breakout?Inflation Hits Fastest Pace Since 1981, at 8.5% Through March Gasoline weighed heavily in the increases, while prices moderated in several categories. Some economists say the overall rate may have peaked. Inflation hit 8.5 percent in the United States last month, the fastest 12-month pace since 1981, as a surge in gasoline prices tied to Russia’s invasion of Ukraine added to sharp increases coming from the collision of strong demand and stubborn pandemic-related supply shortages. Fuel prices jumped to record levels across much of the nation and grocery costs soared, the Labor Department said Tuesday in its monthly report on the Consumer Price Index. The price pressures have been painful for American households, especially those that have lower incomes and devote a big share of their budgets to necessities. But the news was not uniformly bad: A measure that strips out volatile food and fuel prices decelerated slightly from February as used car prices swooned. Economists and policymakers took that as a sign that inflation in goods might be starting to cool off after climbing at a breakneck pace for much of the past year. In fact, several economists said March may be a high-water mark for overall inflation . Price increases could begin abating in the coming months in part because gasoline prices have declined somewhat — the national average for a gallon was $4.10 on Tuesday, according to AAA , down from a $4.33 peak in March. Some researchers also expect consumers to stop buying so many goods, whether furniture or outdoor equipment, which could begin to take pressure off overtaxed supply chains. By Jeanna Smialek NYT April 12, 2022
ECONOMICS:USIRYY
by youknowram
What would happen if Inflation pass 8.5%..!In this chart, you can not see Inflation (7.9%), however, it is still below the red line..! Based on my forecast if YOY inflation passes 8.5% it will fly far above it and soon it will be double..! Notice: We are going to experience a super volatile week: Interest Rate + Economic Projection + Quadruple Witch..! Best, Dr . Moshkelgosha M.D DISCLAIMER I’m not a certified financial planner/advisor, a certified financial analyst, an economist, a CPA, an accountant, or a lawyer. I’m not a finance professional through formal education. The contents on this site are for informational purposes only and do not constitute financial, accounting, or legal advice. I can’t promise that the information shared on my posts is appropriate for you or anyone else. By using this site, you agree to hold me harmless from any ramifications, financial or otherwise, that occur to you as a result of acting on information found on this site.
ECONOMICS:USIRYYLong
by Moshkelgosha
1
GOLD highs coincide with returns vs TreasuriesThe light blue line is the price of gold against M2 money supply in order to show it on the chart more easily. Mainly, take note of the highs on this line. The purple line represents returns on the 30 year treasury after removing loses from inflation. Inflation normalized returns. The blue line represents the return on GOLD. Namely, it maintains it's value through inflation, thus it's return is the rate of the inflation minus the inflation in gold itself through mining. It is estimated that the inflation of GOLD is approximately 2% per year. Notice the occasions when the blue line is above the purple line. These periods are when GOLD returns more than the 30Y. They are brief, but more than often coincide with highs in the price of GOLD, whether local highs, or the ATH. At the present, please take a look at the blue line. Enjoy.
ECONOMICS:USIRYYLong
by rrmhearts
FEDFUNDS severely lagging inflationNormally, when inflation is high, the Federal Reserve will increase the FEDFUNDS rate which discourages banks borrowing money in order to fund investments. This in turn discourages lending and generally increases borrowing costs across the economy - including borrowing costs for the national debt. When you subtract it from the YoY inflation numbers, you can see inflation before and after a government response. Notice in the 70s, inflation peaked before the FED kicked into gear and raised rates. Today, we are at a much higher inflation before a FED response. You would think if they wanted to respond, they would have earlier than the they did in the 70s, but today, it is later. Why? I think they are trying to gain control over inflation through talk only. When rates go up, so do interest payments and we'll see a systemic collapse of asset prices / GDP, and in turn government revenue followed by insolvency. Good luck, FED.
ECONOMICS:USIRYY
by rrmhearts
31
Big Four Macro Overview: Part 5For more detail please refer to the first four pieces in the series (linked below) and the accompanying charts. Markets entered 2022 with well established trends and trading ranges, but I believe that the coming year holds significant potential for change. This is particularly true in the equity and treasury markets. Because much of the outlook hinges on inflation (see below) it will be particularly important to monitor inflation related markets. Importantly, while it's easy to make the case that rates should rise significantly this year, modern financial history suggests that rising rates are likely to break the most vulnerable financial link. If that link has the ability to create systemic disruption, rates will fall again, even if inflation is high, as the market runs to the quality of treasuries. In my opinion, the most important trend of the last four decades has been the decline and subsequent quiescence in the inflation rate. Falling and low inflation allowed Treasury rates to decline. Falling Treasury rates supported equity valuations and home prices. They also enabled the wholesale financialization of the economy and allowed both public and private entities to add leverage without consequence. Importantly low and steady inflation also created the negative correlation between treasury and equity. Without that correlation 60/40 and risk parity strategies may well be in danger. Inflation: My working thesis has been that many of the trends that supported disinflation have reversed and that rising inflation will act as a headwind to investment for the next decade. Going into 2020 I believed that the stage for higher inflation had already been set and that higher inflation would result in higher rates and ultimately equities. Consider that in early 2020: • The output gap had closed for the first time since the Great Financial Crisis. • The economy had just reached full employment with a U-3 Unemployment rate @ 3.5%. • Wages as measured by the Employment Cost Index were rising @ +4.4% YOY rate. • The Cleveland Fed Median CPI had recently set a 10 year high. If not for the pandemic, by early 2021. the Federal Reserve would have been forced to respond to rising inflation by increasing rates. Instead, Covid crushed the demand side of the economy, derailing the growing inflation. Now the extreme fiscal and monetary response combined with disruptions in logistics and labor have combined to create very high inflation. While I think that many of the issues creating this burst of inflation are moderating, the same set of factors that were reversing in 2020 are still in place. In short, I believe that the broader trend has changed and that when everything settles out, will end up significantly in excess of the Feds 2% average target. Bottom Line: Above trend growth in inflation and monetary/fiscal tightening suggest higher volatility and a significant chance that many of the trends that have defined the last few decades will falter. My sense of the economy is that the best growth has already occurred as the result of historically supportive fiscal and monetary policies and now both paths are turning restrictive (see the second part of this series for a more in depth discussion) and markets will likely reflect that reality. Rates: • Bonds remain in a bull market defined by a broad declining channel, but rising inflation could easily change the trend. The most likely catalyst to end keep rates below 3.25% would be a financial accident created by higher rates. Equities: • SPX remains in a technical bull market and there are no overtly bearish behaviors evident in the longest perspectives. However short term weakness can easily morph into a bear market. Commodities: • Goldman Sachs Commodities index is in the center of a broad 14 year range, bounded essentially by the low set during the financial crisis and the resultant 2011 high. range. The most notable/useful current chart feature is the clear uptrend from the 2020 pandemic low. Until that uptrend is broken, the most immediate trend is to higher prices. US Dollar: • The wide macro range, 70.70 - 121.02 has contained price action over most of my trading career but volatility is more cyclical than price. These periods of low vol. set up conditions that often lead to explosive moves. Now, back to the charts! Good Trading: Stewart Taylor, CMT Chartered Market Technician Shared content and posted charts are intended to be used for informational and educational purposes only. The CMT Association does not offer, and this information shall not be understood or construed as, financial advice or investment recommendations. The information provided is not a substitute for advice from an investment professional. The CMT Association does not accept liability for any financial loss or damage our audience may incur.
ECONOMICS:USIRYYEducation
by CMT_Association
57