Tuesday, January 16, 2018

Higher Price Inflation Ahead

Michael S. Rozeff gets it right when he writes:
The price movements in financial markets are often difficult to interpret, but recently they are acting as if higher inflation lies ahead. It’s the uniformity of reactions in several markets that suggest this.

The key event that launched these moves is the tax cut that passed in early December in the Senate and Dec. 20 in the House.

Gold began a strong upward move starting on Dec. 12. The dollar as measured by UUP fell against other currencies starting on the same date.

The stock market, which already had been making new highs, waited until 10 days ago and then launched an upward move to daily new highs that was even stronger than earlier.

Twenty-year treasuries made a local high on Dec. 15 (128.59 on TLT) and then sold off to its current 124.52.

The implied 10-year breakeven inflation rate as measured by TIPS shows a recent rise too. Its pattern shows a long-term basing pattern that began 3 years ago. This rate appears poised to break out to higher levels.

Hence, all the markets are saying the same thing. Not only will federal deficits rise, but so will inflation.

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