Since January, I have been hammering into you my outlook for:
- A possible bear market outlook (January)
- Then a probable bear market (early April)
- And finally, an early May confirmation that we are officially in a bear market.
So you’ve been forewarned with plenty of time to react, along with my strategic thoughts along the way. I know that many of you heeded my words, and have benefitted by taking evasive action. BTW–If you have friends or family who might appreciate the timely analysis presented on this blog, you might want to encourage them to follow this blog too. On the other hand…If there’s someone you dislike, encourage them to investigate a passive index investing strategy. For now, there are factors that will not likely make it so easy on the passive investing crowd. These factors could last for the balance of this year. Possibly longer. Buy n’ hold will come back. But not yet.
Today, I want to present some reality-checks for the outlook of inflation and recession. From there, I would like to offer some specific areas that you can examine and analyze to take advantage over the coming years.
Reality check
Remember US Federal reserve chair Jerome Powell, and “Justinflation” Trudeau’s Central Bank Governor stating in 2021 that inflation would be “transitory”? Do you also remember that I STRONGLY disagreed with that outlook (correctly) and steered you towards buying inflation benefitting assets like energy and metals?
Well, here’s the most recent Powell quote, which will no doubt be echoed by Canada’s team.
“If we need to move past neutral, we won’t hesitate…we will continue raising rates until we see inflation coming down”
In my opinion, Powell is just as full of it as he was last time. Here’s why:
You can’t take inflation from 8% to 2% – 3% (Powell’s goal) and NOT break something!
Please read that again – its a quote from Larry McDonald of BearTraps. You can’t take inflation down by raising rates without causing damage to the economy.
The tradeoff: why inflation is here to stay
NA Central banks either accept a massive recession (not good for Biden’s or Trudeau’s already very weak administrations) – or they accept higher inflation than has been in recent years. Its going to be impossible to push inflation back to 2% AND avoid recession with aggressive monetary policy. You get one, or the other.
I believe that the choice is obvious for NA governments. We are dealing with two weak leaders who are well aware of their unpopularity. Do they want to see North America go deep down the recession holes during their tenure? Or do they want to put on a show, pretending to fight inflation, knowing that they cannot ACTUALLY do so without a deep recession. A recession will put the final nail’s in both Trudeau and Biden’s electoral coffins, were they to push the countries into deep recession. And they know it. So, sure, expect inflation to rescind somewhat, but NOT to return to the 2-3% levels of yesterday.
Investors, and consumers, are subconsciously humming the Beatles “Yesterday” . This, with vain hopes of their political leaders, already proven to be completely delusional regarding the current inflationary and economic impacts, will orchestrate a return to those low inflation years of 2-3%. Ain’t gonna happen. Take a look at the chart below of decade by decade inflation. Inflation will subside. But it can remain higher than the 3% average for years and years. Check the 20 year period (2 decade bars) of 1970 to 1990.
What we are trading
Given the necessity (if you agree) of the accepting a higher level of inflation vs accepting a deep recession decision by NA governments, ValueTrend maintains a longer termed bullish view on inflation-benefitting commodities and sectors. This means, we continue to own:
- energy,
- materials (including agricultural products),
- gold
- industrial metals.
We also anticipate trading other sectors technically in & out (being mindful of the rotations). These can include:
- financials,
- consumer staples
- rare earth securities (as alternative power needs grow).
Finally, we can trade broad market indices as I have noted in recent blogs.
This means trading in & out during a bear phase of the market. Like the neartermed bounce we are looking for right now.
Thankyou
Thanks to subscribers who responded to my mini-survey regarding the graphs on their emailed blogs. I have asked our technical gurus to see what can be done. Much appreciated. And again, please continue to forward this blog to friends and family who might benefit from it. Encourage them to subscribe.
