Inflation Must *Cool Off* or ELSE
It’s crunch time!
The markets have priced in nine rate hikes, the Wall Street bears camp has become the consensus, the growth sector has been decimated and its poster-woman, Cathie Wood, has been ridiculed and booed, as an ETF dedicated to shorting its ARKK fund has been a great winner.
The war in Russia and the hint of tactical nuclear weapons use, as well as the fact that world leaders believe Putin sees only one thing (VICTORY at any cost), have only added to the massive fear hanging over the markets.
All of these flow and channel themselves into one thing in the end: inflation.
At the heart of all of this fear and panic lies inflation, because it impacts everyone—not just in the developed world, but also (and even more so) in the developing world.
Inflation is the true enemy of the central banks.
We know this because they’re willing to risk a recession and a stock market collapse, in order to achieve price stability and they’re not kidding around.
All of this tightening has helped the dollar index to rise significantly, but gold hasn’t fallen, like in previous dollar rallies:
93% Of Investors Generate Annual Returns, Which Barely Beat Inflation.
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There will come a time and it will be soon, when the markets begin to discuss the FED over-doing it; when that starts to filter into the conversation, the FED will address it and comment on what it wants to see, in terms of slowing down the pace of hikes and balance sheet reduction.
Pay attention to this pivotal point, because that’s when the markets will bottom.
The selling is happening now, because the recession talk is elevated and is really dominating the airwaves:
The last two years have changed many industries and we see innovation and efficiency in the business world accelerating, so our long-term outlook is insanely bullish, but change comes at a cost.
Think of Amazon, for example, which in 2021 saw net sales of $469bn and 20% returns of merchandise. Think about that… in an effort to give its customers the best experience and please them with a no-questions-asked return policy, Amazon is dealing with a nightmare of $93bn of returned products.
Amazon has incurred $152bn in logistics, freight, transportation and fulfillment costs, and along with all other retailers and American businesses, is figuring out how to serve its customers, who are migrating to other cities and now forming families, getting married and buying homes.
With mortgage rates hitting 5% and perhaps 6% by year’s end, the kind of borrowing costs that we thought were a thing of the past are back.
If the FED is able to announce that it beat inflation in the back half of this year, around the September timeframe, we believe the dollar will weaken sharply and gold’s rally into the $2,100’s and the $2,200’s will be a reality.
Too much tightening will become a topic soon and announcing a victory over inflation will be the bottom for this bear market.
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