Get ready to benefit from rise in yields
Abraham George Macro View
We are at the cusp of major volatility and changes in market that most of us have not thought of. To confuse us we have a Fed that continues to deny reality and a president who wants to double his original plans for more stimulus. The spike in inflation could be much bigger than the imagination of the common man.
Yesterday the report on the Fed’s favorite inflation gauge, core PCE, showed a spike to 3.1%. One has to go back to 1960 to find a monthly change in inflation data higher than this one on record. Let’s contrast this to the personal savings rate which is at 15%. It remains near pre-pandemic record levels, thanks to government subsidies.
So the polices that have driven record levels savings are now destroying the buying power of those savings. Despite rising stock prices, easy money, rising house prices and a tighter labor market, things are not going to be good for most people. It is like being on a treadmill. You are clocking a lot of miles but you are not going anywhere.
This is not the time to be in cash. Wealth can be easily destroyed by being in cash but you can win over these inflation filled periods by being in some key asset classes. I shared some of those ideas in my previous reports. Currently, the Fed has a hard time defending its position in the face of Q1 data, by the time Q2 data comes out they should give up or change the narrative.
One market that should be on everyone’s radar is the bond markets. As you may notice, in the big picture, we’ve yet to see the trend change on this 40 year fall in rates (bull market in bonds). But whenever it happens it is going to be very ugly.
How can you profit from a trend change? One way to do it is to buy into the ProShares ultrashort 20+ year Treasury (TBT). For every 1% decline in bond prices with maturity of 20-year or more, this ETF should rise by 2%.
Equities
The markets are closed for Monday 31 May. For the past two days the markets gapped higher at the open but closed lower than the open. The up move from 4057 in the S&P on May 12 is showing tiredness. There is still a chance that we could see a new high next week but chances are more that a turn is closer.
Bonds
There are no changes in bond analysis but our preferred outlook is to be short bonds.
Euro
The decline in Euro from 1.2267 on May 25 to yesterday at 1.2132 is five waves. As long as yesterday’s low remains intact Euro should rally to new highs. If it is broken chances are we find support at 1.2085 to 1.2050.
Gold
There is nothing much to say on Gold. It pulled back to 1882 but it still made a new closing high. It is not easy to get a good handle on short term movements. Will wait next week for a better picture.
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.
Help us grow 🌱
If you enjoy Breezy Briefings, there are three things you can do to help us grow and reach more people. Which would be lovely!
Share it with someone else. Forward the email. Post on social.
Click/tap the little ❤️ icon at the top or bottom. It actually helps.