Warning: the Smart Money and the Smartest Money Both Smell Inflation

If you want to make money investing, you first need to understand the structure of the asset classes in our current financial system,

Everyone likes to go bonkers over stocks, but the reality is that the stock market is in fact one of the smallest and least liquid markets on the planet. All told, US stocks are roughly $26 trillion in market cap.

By way of contrast, the US debt markets (Treasuries, corporate, municipal, local, etc.) is well north of $60 trillion.

And the currency markets (which cannot be accurately measured because every trade involves a currency pair) trades over $5 trillion per day.

Put simply, currencies are the “smartest” money, followed by bonds, and then finally stocks. So when a seismic change takes place, currencies and bonds pick up on it LONG before stocks do.

With that in mind consider that the $USD is collapsing, having gone almost straight down for 12 months.

US Dollar falling

Now consider that the US Treasury bond market, is falling in price, resulting in yields spiking above their 20-year downtrend.

US Treasury Yields Rising

BOTH of these assets are forecasting the same thing: INFLATION.

Inflation forces the $USD DOWN and bond yields UP.

So we've got both the "smart" money and the SMARTEST money forecasting the same thing.

And it's going to blow up the Everything Bubble.

On that note, we are putting together an Executive Summary outlining all of these issues as well as what’s in terms of Fed Policy when The Everything Bubble bursts.

It will be available exclusively to our clients. If you’d like to have a copy delivered to your inbox when it’s completed, you can join the wait-list here:


Best Regards

Graham Summers

Chief Market Strategist

Phoenix Capital Research



fx aliens is here Fri, 01/12/2018 - 03:35 Permalink

Oh Graham, what another piece of garbage! Forex markets don't work that way! You got ita all backwards, again.

If inflation was really expected much higher, then the FED would be hiking rates even more aggressvely (since they would lose their only weak narrative left for not to hike). That in turn would make the $$ more attractive, leading to inflows from abroad and a rising $. In turn, that the $ is falling would suggest that people do NOT expect a more aggressive hiking path.

Now, why do Treasuries fall? Well, rate hike expectations and the Fed is slowly reducing its balance sheet and at the same time China and others are not stepping UP their buying to fill the void.

And of course Graham, FX rates and treasury yields are moving for a host of factors - not just for inflation.

Btw, let's suppose you are right and we get indeed some moderate inflation overshoot, say, to 3-3.5 %. That would actually be great for stocks, going by historical, empirical data.

In reply to by aliens is here

buttmusk fx Fri, 01/12/2018 - 07:03 Permalink

No, the Fed wouldn't be hiking more aggressively even if they thought inflation would start running hotter. The Fed isn't proactive they are now reactive to markets and the economy. The Fed hasn't been proactive for many decades. Come on man smh. You know they are going to be way behind the curve when it comes to act on any upside inflationary surprise.

In reply to by fx

Osmium Thu, 01/11/2018 - 12:31 Permalink

And yet this headline from ZH greeted me this morning.  So which is it?

Deflation Re-Emerges - Producer Prices Plunge In December

truthalwayswinsout Thu, 01/11/2018 - 15:56 Permalink

There is no inflation. There is a massive deflation that has been hidden by the central bankers. There is so much overcapacity in just about every industry it boogles the mind to think that anyone has pricing power.

Wait until the firings start coming because many people will be replaced by robots at work. And because of the Trump tax bill, anyone who buys a robot can expense it the day they buy it so watch as all those factories that left for China come back as almost fully automated plants in the U.S. because energy, land and resources are a lot cheaper here.

So buy all that gold you need and and then some more because I will take it from you at $300 an ounce and then I can ride it back up to $1800 again.


Easyp truthalwayswinsout Thu, 01/11/2018 - 16:06 Permalink

OK I will bite.  IMO Gold a good bet against fiat currencies which have been subject to QE including the $.  Real Estate seems to be hotting up again in the USA so no deflation there yet.  Could gold end up at $300?  Maybe, depends on what markets think a $ is worth.

So I have shares in gold and silver miners in my retirement fund but not bet the farm on them.

Uranium on the other hand I might just bet some more......

In reply to by truthalwayswinsout

aurum4040 truthalwayswinsout Thu, 01/11/2018 - 22:41 Permalink

Your right but the problem is bankers will never allow deflation. The system will implode. The dollar and bond market will therefore implode first. Causing massive inflation for a period of time. An oz of Gold will buy about 300 loaves of bread as it does now, as it did 2700 years ago. When it happens, food and energy will be in more demand then money itself. This will not bring the price of gold down relative to food and energy but it will not go up much either. Ask yourself what will drive up the price of gold relative to food and energy? Unless you live in an area that has an over abundance of both, nothing will drive it up. 

In reply to by truthalwayswinsout

pupton Fri, 01/12/2018 - 09:45 Permalink

I don't consider myself a "troll", but Graham is one dude who really deserves some hard trollling.  He has been calling for the sky to fall as long as I have been coming to ZH (that's a long time).  He has been wrong about every damn call...every article...I don't know how this guy can look himself in the mirror without feeling shame.