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I’d like to direct your attention to Wednesday and Thursday of this week’s economic events calendar:
On Wednesday we get PPI data and on Thursday we get CPI data.
PPI is the Producers Price Index. That is the change in price of what it costs to produce goods and services. Buying aluminum and turning it into cans would be a good example of the PPI, seeing as how the whole “trade wars” mantra is a hot topic right now, even if so far it has been nothing but talk. The point is if the cost of raw aluminum goes up, then the cost to the producer in making those cans goes up too.
CPI data is the Consumer Price Index. That is the change in price of the good and services we pay as the consumer. In our aluminum example, we don’t particularly care about the cost of aluminum. What we care about is how much a 12 pack of Coca-Cola costs. In other words, the CPI is what we pay for finished goods and services.
Besides, there’s more than aluminum that goes into the cost of a 12 pack of Coca-Cola. There’s the cost of the sugar, the super secret formula, the caffeine, the diesel to transport it to the store, the cost of the card board, the cost of the marketing, etc.
But it all comes down to one word: Inflation.
That’s the topic.
And for the longest time, the talking heads at the Fed and the pundits on the mainstream financial outlets talk about “inflation expectations”. It’s a misleading term, because there is always inflation (as in rising prices in this discussion). I mean, the Fed’s own definition of “price stability”, which hasn’t changed since the changing of the guard to Powell, is 2% inflation per year.
Said differently, the Fed wants you to lose 2% of your purchasing power, per year, in order for prices in the nation to be considered “stable”.
But Inflation expectations is a term that is about to be quickly forgotten.
Why?
Well, it’s going to be modified to no longer include the modifier “expectations”.
That’s right.
It’ll be know as plain old “inflation”.
Which brings us to our first chart:
Light Sweet Crude.
And it just breached $70 overnight and into this morning.
Look where we were not even one year ago – $42.
Folks, I’ve been harping on this for a while – get ready for higher prices.
I’m no longer going to say that, because rising prices are here. There’s no need to get ready because it’s already felt in the wallet.
Here’s an example – There’s this bread outlet right by where we live, and they sell loaves of Wonder Bread for $.79 (no not expired, just excess I guess). Well, they did sell the loaves for $.79 until last week when they raised the price to $.99.
99 is the new 79, and it’s not going back down as far as the casual conversation led me to believe.
And I have a point to make here: If the consumer is tapped, and if the prices of the most basic of goods is spiking by 25% here, 20% there, or pick an number, but not sub 2% because that’s definitely not high enough, then what does that tell you about the middle and lower classes?
Heck, what does that tell you about 80% of Americans?
They are already feeling the burden of rising prices in their pocketbooks.
I was in the grocery store yesterday, and I felt bad, because there was this elderly couple shopping, and they were looking at sour cream. The lady had a calculator, and long story short, they had to pass on the sour cream because it would have put them over-budget on food.
That’s how bad it is out there.
What used to be an afterthought is now front-and-center, and at any given moment at any given location.
Back to the markets.
This crude strength, again, is in spite of a still rallying U.S. dollar:
A few weeks back I said if we breached 91 we’d be going to 93. I do think 93 will be the top in this bear rally.
We’ll see.
Either way, were right there, right now, so it won’t take long to find out.
Why do I talk about crude in relation to the dollar?
Well, generally speaking, they move opposite each other:
That’s a weekly chart going back to the time when crude dropped and the dollar began to rise.
But notice what has happened in the last several weeks.
The dollar and crude have been rising together.
That’s telling you that one of them is about to diverge.
Here’s a question – If a rising dollar is crushing U.S. exports, and if there’s a “trade war” coming, and if President Trump flip-flops from being a “strong dollar” guy to a “weak dollar” guy, and if the strong dollar has been crushing the rest of the world and especially emerging markets and their ability to service debt, and if the dollar has been on a bull run for five years now, which one do you think will diverge?
I think the dollar.
As in breaking-down.
And crude will begin its bull run.
We’ll see.
While we’re on the topic of inflation, well, this:
For now let’s assume the statistics from the Fed and the government are real and true.
If inflation is rising, the yield on the 10-year is going to have to get moving higher.
Why?
Because investors expect to earn a rate that is net-net above the inflation rate.
I get it. In reality, in parts of the world, there’s negative rates, but I’m talking fundamentals here.
Fundamentals may not seem like they matter, but they will.
They always do.
So we have upward pressure on rates due to inflation, but we also have upward pressure on rates due to massive government borrowing, close to half-a-trillion in the first quarter of this calendar year, and we have a Fed that’s not actively buying U.S. paper, which means the U.S. needs to sell even more treasuries to pay off the maturing treasuries of the Fed.
And to think – interest rates aren’t even anywhere near normal. They’re still very historically low.
Forget a thunderstorm. Between inflation and interest rates it’s going to be like an exploding volcano, with an incoming tsunami and an earthquake all at once.
So while it may not seem like it, yes, gold and silver will rise in price.
It seems like silver never will:
So for those who understand the bad juju of saying “never”, let me say it – silver will never rise in price.
There.
Rally should begin very soon.
I’m done saying when.
Remember, you can get price or you can get timing but not both, and right now, I’m focused on price.
As in, what I have said all along is I feel that once we get a close above $17.50, we’ll be above $18 in a very short time. Do I know when that will happen?
No. I mean, I think it will be within days, but it’s very seldom price and timing can be correctly forecast.
And we just really need to get above $17.50.
Being in this $16.20 to $16.80 range sure does give tunnel vision, doesn’t it?
Ugh.
Gold isn’t doing much better than silver right now:
But corrections occur over price and/or time, and as the days go on, gold isn’t really losing too much ground, but it sure is grinding out over time.
January 25 was when the December rally fizzled, and we’ve basically been in a sideways fade ever since.
We’re still positive on the year, however.
And the gold to silver ratio is still saying silver is a steal here:
The ratio may be under 80, but it’s about as barely under 80 as can be.
But that’s the thing.
We have inflation all around us, yet the forceful hand of the cartel is refusing to let the metals rise even in the face of that inflation.
Sooner or later, they are not going to have a choice, and the move will be violent in order to catch up.
Because it is very expensive to get gold and silver out of the ground and to market. Think of the PPI. It takes a lot of costs for different things to be able to get silver from encrusted below the earth’s surface to minted it into a coin.
So they will rise in price, and the longer the cartel refuses the price movement, the more violent the spikes will be.
It may be an extended smashing out of spite, you know.
Because if gold and silver are the anti-stock market, that is, the anti-paper markets play, and if the cartel is having the hardest time keeping the broader stock market indices propped, then it stands to reason that they go down kicking and screaming and pulling gold & silver down by the hair like the punk the cartel is.
Check out what we see in the two other precious metals.
Palladium is slightly positive in the overnight morning session:
Palladium is more of an industrial metal than a monetary metal, even though it is monetary, but, could we be seeing the signs of a rally forming?
With an understanding of the inflation dynamics we’ve been discussing today?
Platinum is even playing along:
Of course, platinum has had a horrible run of late, with four lower-highs and four lower-lows, so we really need to see platinum turn the corner.
Today would the the third up-day in a row, and would help out immensely to got the technicals looking more bullish.
Here’s the spite I was mentioning earlier:
That’s the S&P 500.
But here’s the thing – it’s already had inflation. MASSIVE inflation. It’s funny, the Fed sees no inflation, yet the stock market doesn’t count.
But it’s had too much inflation, and of the artificial, money-printed and induced variety.
And if there is one thing that is as true today as it has been ever since the word “fiat” became a thing – you can’t print prosperity.
So the market is too expensive, overvalued and wanting to come down, regardless of the cartel’s intentions.
And besides the fact that they’ve managed to keep volatility in check:
But the sea change has begun.
While it starts out slowly, by the time it crashes on the beach, it will be a tidal wave of inflation.
And while the dollar may look strong, and it may be giving false signals on the outside, because people need and want more dollars to keep up, even if they don’t understand what they’re keeping up with, we do: Inflation.
And sooner or later the people will realize it’s not the dollar that’s the solution, but rather, it’s the dollar that’s causing the problem.
And then they will want something, anything that’s real, before those dollars lose even more value.
And it’s only now just begun.
Stack accordingly…
– Half Dollar
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