Have you ever inflated a basketball with an old school hand pump? At first, it fills up quickly. But the fuller it gets, it gets harder to pump as pressure builds. That’s what I expect when it comes to the economy. Your strategy for trading inflation going forward is going to be key… because it’s not done yet, but it will slow down.
Are you ready for that?
Friday morning, an index was released that Federal Reserve officials believe is the best inflationary gauge — the Personal Consumption Expenditures price index (PCE).
The PCE for April was forecasted to increase 2.9%… It came in at 3.1%. Now, of course, the mainstream media is trying to use inflation as a scare tactic.
But this is about as old as news can get… I said it a month ago.
Heck, I’ve seen this happening since August when lumber prices started to take off — because I have eyes and a functioning brain.
I don’t look at lagging indicators like Consumer Price Index (CPI) and the PCE. I want leading indicators so I know what’s coming… Isn’t it better to plan ahead?
And what always precedes an increase in inflation is an increase in the price of commodities.
Before looking at how to trade inflation going forward, let’s look at where we are…
Prices have spiked in darn near every commodity, across darn near every industry. Lumber is up 162% since November. Gas is up 104%. Steel, 138%. Corn, 67%. Notice I said “spiked” — as in past tense.Because looking at that chart, you can clearly see some corrections in those soaring prices over the past month.
Looking at the chart, however, you’ll see some corrections in those soaring prices. Does that mean that inflation going forward is nearing an end?
Honestly, it’s hard to tell. But I don’t think so.
For instance, “shelter” is the biggest component of the lagging indicator Consumer Price Index (CPI), and it is cycling off of the lowest year-on-year change on record…
When it begins hitting comparisons to the lowest points in recent history — possibly ALL history — the CPI print will almost certainly get high enough to spook the Federal Reserve right out of their leather-bound mahogany chairs.
But in commodities, it’s highly possible (if not probable) that we will see a deceleration in the rate of inflation in the back half of the year.
Things like lumber, Bitcoin, iron ore and copper can bounce off their corrections this time (copper already has), but eventually industrial buyers will pull back.
We’re just not there yet.
In the meantime, inflation will show up in sneakier ways, because those same supply-crunched manufacturers ultimately determine how much product is available.
Ever been at the grocery store and noticed the box of cereal/candy bar/whatever your kids want is juuuuust a little smaller than it used to be?
But for inflation itself to truly slow down, it requires US to stop spending.
And I’d bet we won’t see a slowdown in consumer spending until somewhere around the end of vacation season.
When inflation ends, three major things happen:
So how do you get ready for trading inflation going forward?
Well, we all know — or at least should — that the way to beat inflation is to be long inflation. Which I hope you’ve already been doing.
Long lumber, copper, oil? Sell a little on days when they’re up and take some profits.
That way, you’re cashed up and ready to buy the dips on other inflation-driven assets like financials, industrials, basic materials, and real estate.
So get ready to start protecting yourself. We’re already starting to see people buying gold in anticipation of trading inflation going forward. Make sure you’re not caught off guard.
We’ve seen this coming.
All the best,
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