Powell’s Disinflation Thesis
I’m going to share my take on equities and where we believe they’re headed on Sunday because today I want to show you why gold and silver continue to show signs of bottom formation and a break before a ferocious move higher.
When Chairman Powell talked about the need to retire the word “transitory” on November 4th, 2021, not many took him seriously.
Smart Money did, and it began exiting the NASDAQ ETF. It peaked on November 4th, 2021, and has never returned to that level.
It took another two months for the S&P 500 to peak on January 3rd, 2022, and another couple of sessions for the Dow Jones to top out on January 6th, 2022.
On January 24th, 2022, Powell made sure the Senate Banking Committee fully understood the severity of the inflation nightmare, which caused a huge panic.
This year, we think that the FED will have convinced the markets that the disinflation story is real by March and that it will persuade the markets that a mild recession or zero growth are the base cases – not severe ones – by May.
The technical signal called the Golden Cross, which occurs when the 50 DMA pierces through the 200 DMA, happened just a few days ago, telling me that any weakness should be bought, and that is over.
Courtesy: Zerohedge.com, Bloomberg
The reason is that while Powell has stated twice now during two major back-to-back events that disinflation has begun in the goods sector and is showing positive signs in the housing sector, the other 66% of the economy (services, excluding housing) is not slowing down.
In central bank language, he is telling you that you must HEDGE, and Wall Street will do so.
One of the ultimate ways to hedge a portfolio of stocks when inflationary threats happen is with precious metals.
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If you really meditate on what the Federal Reserve is telling you, it is something in the order of:
- They’ve jacked up interest rates meaningfully.
- They’ve slowed inflation down.
- Disinflation has begun.
- In 66% of the economy, an acute shortage of workers persists, and inflation is still bad.
- More hikes will likely be minimal because if what they did so far didn’t do the trick, more of the same won’t either.
So, prepare yourself for INFLATION in the system.
Powell is giving you the ideal runway for precious metals:
- Inflation that’s not going away for at least another year.
- Dollar weakness as America slows to zero growth.
- Peak bond yields, which will drive investors out of the dollar.
We forecast that gold will hit over $2,000 by the summer and silver will be at or near $30/ounce if not more.
The bottom is in.
Commodities will appreciate in a dollar bear market environment where there’s the need to hedge.
This is especially true when a record number of Americans are bearish!
Courtesy: Zerohedge.com, Gallup
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