Have been a bit behind on my macro views but a lot has been happening.
We are in the earnings season since Monday. As usual JP Morgan and Goldman were the first to release their results. JP Morgan crushed earnings expectations by tripling it from last year and Goldman earned more than 50% of Wall Street estimates. So much for Wall Street analysts. Don’t forget the banks have a war chest of loan loss reserves that they have accumulated that can move to their bottom line at their discretion which means they have a large inventory of positive earnings surprises in the coming quarters.
All these should not be a surprise as we have been alluding to this for a long time. Deposits at JPM alone are up 25% for the same period since last year and the value of investment assets are up 36%. Banks are the biggest beneficiaries in a reckless money supply growth situation (4 trillion just for last year). We should still continue to get better results in the coming weeks. As expected we also got above expected inflation numbers. If we take oil into account the inflation numbers should be still higher.
The Fed surely is in control of the situation so far. They have even trained the media to explain the word “transitory”. The Fed has never been so proactive as they clearly want to see prices higher. If you extrapolate the monthly data out into the future, we are already seeing clear evidence of double-digit annual inflation. It doesn’t stop here.
After many weeks of drama the Biden administration is pursuing another $ 3.5 trillion of stimulus. They should easily get this passed through Congress. A Democrat controlled senate plus the VP and House may ask why not more. Let’s not be mistaken that this is about Covid relief. It’s about transforming the economy and the country in the globalist vision.
The vision was very clearly communicated at the G-7 leaders meeting last month. The most powerful developed market countries are in unison on the climate and equality movement. The response to the global health crisis has been far greater than the damage. It is about transformation and not relief. That’s why the administration has no hesitation in pouring more gasoline to the fire.
The math is very simple. The US economy contracted $2.2 trillion from Q1 to Q2 in 2020. In response the spending plans are adding up to $ 9.1 trillion in deficit spending. It just doesn’t add up. By now you should get an idea why economic growth and prices are on fire.
The governments are not only caring about inflation but they are intentionally inflating. They are deliberately devaluing money and debt but not against other currencies. The currencies are being devalued against real assets. This will have huge consequences which we will discuss later.
Technically the market has every reason to correct as sentiments are extremely high . The Dow had every opportunity to squeeze out a new intra day high but it didn’t. So there is non confirmations between the major indices. The market can soon start a decline, but not necessarily, for all the reasons I mentioned earlier about pumping more money into the economy. If it does start a decile will it be short term or will it morph into something bigger. So we are caught between a rock and a hard place.
We don’t want to believe that the counter trend rally in bonds is a trend reversal. Ideally the high at 164^30 on Jul 08 should hold but even if it breaks the correction could be getting more complex. Once the decline starts it should set the ground for a five wave decline.
The move down to 1.1771 must have completed the corrective pattern from 1.2267 which was seen on May 25. There is an outside chance prices can drop to 1.1700. Should it catch a bid maximum upside should be limited to 1.1975.
The up move in Gold started at 1750. Prices have carried so far to 1830. Think prices can still go higher but should top out soon. Prices should not rise above $ 1917. The subsequent fall should be much more interesting.
Abraham George is a seasoned investment manager with more than 40 years of experience in trading & investment and portfolio management spanning diverse environments like banks (HSBC, ADCB), sovereign wealth fund (ADIA), a royal family office and a hedge fund.