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Graham Summers’ Weekly Market Forecast (inflation mania)
We are
officially in an inflation trade melt-up.
Everything
that is an inflation hedge has exploded since late August. Gold is up 15%.
Silver is up 48% (courtesy of the manipulators finally getting taken to court).
Agricultural commodities are up 25%. Oil is up 20%.
Against this
backdrop, stocks’ 17% rally becomes slightly less insane. That’s right, stocks
are up 17% since late August. What happened in late August?
The Fed
announced QE lite and promised QE 2 was coming. Almost to the day of this
announcement, the US Dollar rolled over and dropped some 8% (it’s down nearly
15% since June).
In plain
terms, we are entering an environment in which a US Dollar collapse has fueled
inflation trade mania. By launching additional QE measures at a time other
central banks have renounced additional easing measures (the ECB and Bank of
England) or are actively raising interest rates (China and Australia), Fed
Chairman Ben Bernanke has made it clear he is willing to trash the US currency.
Consequently,
money is pulling out of Dollars and flowing into hard assets and other
inflation hedges. The below chart plots the US Dollar (green) against Gold
(yellow), stocks (black), and commodities in general (blue). This picture,
details in stark terms the overall trend for markets today.
The most
concerning thing is that there doesn’t appear to be any sign of this stopping.
Emerging markets, which have lead the S&P 500 ever since the Financial
Crisis began (during this recent rally, they bottomed in May while the S&P
500 didn’t bottom until July) are not only back to pre-Crisis levels but are a
mere 8% off from their 2007 highs. It’s almost as though 2008 never happened.
Part of this
is better fundamentals, but a lot of it is money flowing out of US equities and
piling abroad. This is causing many emerging markets like China and Brazil to
impose capital controls and other efforts meant to slow the inflows of funds.
Will this
trend continue? It’s very hard to tell. I cannot believe China is going to let
Bernanke get away with QE 2. However, until China issues a response in the form
of policy, we’ll have to go by the US Dollar for signs of what’s to come.
The below
chart shows the greenback’s multi-year uptrend line (black) and support lines
(green).
As you can
see, the US Dollar is literally sitting on its multi-year trend-line. If we
break below this, then we have support at 74. If we break below that, we have
FINAL support at 72. Below that… well, we’ve NEVER been below that before. So
PRAY we don’t go there now.
Indeed, if
QE 2 succeeds in devaluing the Dollar below 72, then this triggers a MASSIVE
Head & Shoulders pattern that forecasts a 50% devaluation in the greenback
over the coming years.
If this
neckline is violated, we’re in uncharted waters for the greenback and the US is
in for a very, VERY rough time (think Argentina or even Weimar Germany). As I write the US Dollar is at 76.
Going from 76 to 71 won’t take much so keep your eyes here for signs of what’s
to come.
In the
meantime, the inflation trades dominates everything. So the best place for
money is in commodities, especially precious metals (make sure it’s bullion,
NOT etfs) and agricultural commodities, as well as emerging markets.
On that
note, if you have not already taken steps to prepare yourself for the
inflationary storm that is coming, PLEASE DO SO NOW.
Good
Investing!
Graham
Summers
PS. If
you’re worried about the future of the stock market and have yet to take steps
to prepare for the Second Round of the Financial Crisis… I highly suggest you
download my FREE Special Report specifying exactly how to prepare for what’s to
come.
I call it The Financial Crisis “Round Two” Survival
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protection, which investments to own and how to take out Catastrophe Insurance
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Again, this
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This article is a contrarian dream. Can't you greedy bastards (not you posters, the guy with the newsletter) forget about your pennies for 2 seconds and simply debate the frigging jobs picture. I'm sick of these jerk-off graphs, your stupid ratios, and your endless prattling about the dollar. If you are an average guy and you are employed, have food and shelter than the rest is gravy.
A early morning Monday rant is a good thing...... that being said, the value of the dollar is very much linked to our economic "well being", which in turn is reflected in the employment picture, and more to the point, the "future" employment picture.
When is the G-20 meeting?
What would cause a collapse? I mean we are already basically bankrupt, so what specific things would collapse the economy? A run on the banks, China trying to collect, a stock market selloff?
G20 Seoul Summit, November 11-12, 2010
Just my opinion, I think a long slow decline is more likely than an outright collapse. Think Detroit, the poster child for American socialism. That place is grim. Things will just get worse and worse while people cling to bits and pieces of the old glory and slowly adapt to having less and less. Those that can will go somewhere else, those that can't will just stay and suffer, sure that things will get better if they just wait a little longer. After all, every latest batch of politicians they elect will promise to fix the problems.
I'll be in the back garden. Just fire 3 rounds in the air in quick succession to let me know you're coming. Wait for my 2 round reply. Got a pan o' cornbread made and some beans on to soak. We can sit down and chat until this is passed.
Make sure you can still grow beans and corn for the future. Chemtrails are not good for future farmers of America. Watch "What are they spraying" from Infowars. None of us have time to chill.
the usa will see double digit inflation next year....not sure if the official statistics will reflect it but it is inevitable....
Gold guns, and Silver bullets, bitchez!!!!!
Phoenix is reading his chart wrong. The dollar chart isn't that much different from the chart of the bank index.
A bit more downside, and then the dollar will come screaming back.
"A bit more downside, and then the dollar will come screaming back."
But compared to what?
FWIW: the farther I stretch the DXY chart out the more the whole thing looks like it is composed entirely of a H&S fractal function. JMHO, natch.
Purely talking the DXY: IMO it needs to bust up around 78ish, and hold that for the better part of a week to start looking good again against its fiaty peers. Otherwise 74 could be tested, followed by (gasp) 72. That fails and I reach a point where I don't see myself having the TA skillzet to venture a guess where it will stop from there.
On the other (bright?) side: CAD/USD is flirting with parity, and in the past that has been a strong support level for the USD, but who knows these days...
G20 could look like a Bloods vs Crips back alley throwdown.
Societies don't collapse until the forces of law and order do. The left has openly derided the military since the the Viet Nam War days. This suggests a right wing putsch. Petraeus anyone?
Let's start taking votes on who they're going to have as the face of the trillion dollar bill. I'm rooting for Salvador Dali. Warhol is a good close second.
mitch cumsteen
Hell of a short game.
warhol's a good one, tho my vote is not for a face but a finger:
http://www.designboom.com/weblog/cat/10/view/11639/maurizio-cattelans-mi...
trumam capote
Charles Ponzi
It seems the one balancing factor is the deleveraging and deflationary aspects of the economy. Continuing wealth destruction on the job levels, mortgages, properties. Both are balancing each other out. Its a crummy situation where an economy has tanked and is still fragile versus an expansionist and inflationary monetary policy.
The question the folks in my economic circles debate...and admit they cannot tell is how long the deflationary lasts and when the inflationary takes over. Seems to me the best action while uncertain is to keep some reserves on hand and be long in PM's.
I think instead of inflation, you should be worrying more about an outright collapse. The G20 meeting is going to be a bloodbath.
I agree. This is going to end really badly.
One outlier event away from a shit storm.