|Dow||+25.62 to 16,947.08|
|S&P 500||+3.39 to 1,962.87|
|Nasdaq||+8.71 to 4,368.04|
|10-YR Yield||+.002 to 2.624%|
|Gold||+$1.20 to $1,315.30|
|Crude Oil||+$.83 to $107.26|
The Great Inflation Trade is BACK!
You can see it in gold, which exploded by more than $50 an ounce in the past two days alone.
You can see it in interest rates, where Treasury bonds fell over the last 48 hours, and 30-year yields shot up as much as 11 basis points before taking a breather.
You can see it in select stocks, too. The Market Vectors Junior Gold Miners ETF (GDXJ) just soared more than 33 percent in less than a month. And the Energy Select Sector SPDR Fund (XLE) just breached $100, hitting a record high and boosting its year-to-date gain to around 14 percent.
We haven’t seen anything like this for a long time in this era of suppressed volatility, QE-Infinity, and activist central banking. So why are inflation-sensitive markets all of a sudden rising up and throwing off their shackles?
Simple. Janet Yellen.
Look, crude oil is trading around $107 a barrel. That’s up from an early-2014 low of $92. Gasoline has already topped $4 a gallon in high-cost parts of the country like Chicago and California, and is headed that way elsewhere in the U.S.
Meanwhile, everything from bacon and eggs, to car and health insurance, to hotel rooms and airfares is surging in price. That has pushed even the heavily doctored core inflation rate to around 2 percent, a level the Fed wasn’t forecasting us to hit for more than two years!
|Gasoline has already topped $4 a gallon in high-cost parts of the country like Chicago and California.|
But the Fed’s post-meeting statement was rather sanguine about inflation. It didn’t even contain a rhetorical sop toward the recent surge.
Then when she was asked by multiple reporters in the post-meeting press conference to explain the Fed’s puzzling lack of worry, she punted! She called the widespread, upwardly trending inflation figures “noisy.” Frankly, she sounded a lot more like Alfred E. Neuman’s famous “What, me worry?” line than a Fed Chairman eager to prove her inflation-fighting mettle.
So what happens next? Does this nascent anti-Fed rebellion in the gold and bond markets turn into something more?
Well, I’ve gone on the record in multiple venues saying interest rates make no sense at these levels. The economic growth data doesn’t justify it, nor do the inflation figures. We have every reason in the world for interest rates to rally to fresh multi-year highs!
I’m carefully watching some key technical levels to determine whether that will be the case, particularly with the 30-year Treasury Bond. You can see in this chart that we’ve already taken out a downtrend dating back to the start of the year. If we can break above 3.5 percent (and 2.6 percent on the 10-year) in a convincing fashion, it would be a significant break that could lead to a rally back to the 2013 highs — and beyond!
Fortunately, there are tons of ways for you to make money from the inflation trade — and the increasing war cycle that my friend and colleague Larry Edelson has been talking about. You can buy gold or gold mining shares and ETFs, and if you want to get Larry’s best ideas and timing signals, just click here.
You can also buy the shares of companies that benefit from rising inflation in sectors like energy. Some of my favorite names have been rallying like crazy for most of the past 12-18 months, handing my subscribers big gains.
“We have every reason in the world for interest rates to rally to fresh multi-year highs!”
And when it comes to direct interest-rate investments? There are tons of vehicles there too, including inverse bond ETFs that rise in value when bond prices fall and interest rates rise. I’ll have much more on that front in coming updates.
Bottom line: It’s been ages since the Great Inflation Trade has reared its head. So you may be a bit rusty when it comes to understanding its dynamics, and how to profit from them. This column is my first step in fixing that. You can expect many more updates as this new trend unfolds. Stay tuned.
Meanwhile, I’m interested in your take on this trend. Is it durable? Are you worried about inflation, and looking for ways to hedge against it — and profit? Or do you think deflation is still the primary concern?
What about the rally in gold and interest rates? What investments are you buying or selling to make the most of it? Let me and your fellow investors know by going to the comment section here.
|OUR READERS SPEAK|
As for the stock market, there were some wide-ranging opinions on the “Melt Up or Melt Down” debate.
Reader Bill B. said we should see a mix of the two. His comment: “I vote for both: melt up through July followed by a melt down in August-October. Markets always go farther than people can believe: Up and Down.”
Reader Pat. R. is also looking for something similar. He said: “The melt up will continue to October and then we’ll see some major sell programs in the equity markets, unless geo-political developments hasten the ‘correction’ that’s been waiting to happen with all indexes heavily extended north.”
And Reader Larry believes the Fed will play a key role in determining the next major leg for stocks. His take: “The Fed is like Dinosaur Rex who ruled the land because of its sheer size, and ability to do whatever it wanted. Unfortunately, due to its narcissistic disorder, Rex never recognized the reality of turmoil it caused by its own actions, nor the possible unintended consequences arising from its behavior.
“The Fed’s proclamation of increasing inflation being just ‘noise’ is expected reaction from anyone who rejects reality from the world around them. Are you kidding me, wake up and smell the roses: rates and the market will melt UP, albeit with a short term correction down.”
Thanks for all the input, and let’s keep the discussion going by using this link.
Oh, and to Reader Bill, who asked if I said you should sell all your stocks last year, the answer is no. I grew pretty cautious about the market in the summer, and recommended paring down exposure. But I never sold everything in any service I maintain.
When an expected selloff didn’t materialize, I then made multiple new recommendations. Subscribers to my Safe Money Report had the opportunity to reap multiple rounds of gains as a result. That includes two more potential gains just this week, up to 16.9 percent on one hospital management firm and 26.6 percent on a diversified industrial in just a few months!
If you aren’t already getting my “buy” and “sell” signals on names like those, you may want to give Safe Money a try by clicking here. I’d love to have you on board.
|OTHER DEVELOPMENTS OF THE DAY|
This is a great, hard-hitting Wall Street Journal editorial about the uselessness of QE in terms of promoting healthy economic growth. It spurs huge increases in asset prices, but doesn’t do squat for income. That further widens the gulf in the economy between the wealthy and everyone else, and the authors (including a former Fed Governor) strongly advocate getting rid of QE as a result. Good reading!
Yesterday it was the Amazon.com (Weiss Ratings: AMZN, C) smartphone. Now it’s the Apple (Weiss Ratings: AAPL, A) smartwatch? That’s what media reports suggest. The company reportedly plans to unveil watches later this year that allow you to track workouts, send and receive texts, and do other things.
The multi-billion dollar offers keep pouring in within the drug industry. AbbVie (Weiss Ratings: ABBV, B) just offered $46.2 billion to buy Shire Pharmaceuticals (Weiss Ratings: SHPG, B–), a deal Shire rejected because it “fundamentally undervalued the company.”
One reason behind the deal? You guessed it: Taxes! Shire is based in Ireland, and traded in the U.K. AbbVie would move its corporate address to Britain if the transaction were to go through, slashing its tax bill.
It’s official! The new Wizarding World of Harry Potter-Diagon Alley section at Universal’s Orlando theme park will open on July 8.
Now you may not care, or may not have visited the original Harry Potter area that opened in 2010, if you don’t have kids or grandkids. But my daughters and stepson both love the Potter zone, and frankly, I can’t wait to see the new park section either. In case you’re wondering, the theme parks are part of the NBCUniversal subsidiary of Comcast Corp. (CMCSA, B+).
Reminder: You can let me know what you think by putting your comments here.
Until next time,