More spending from the Biden administration

Abraham George Macro View

We have been talking about inflation for a long time. The market is beginning to price in inflation and maybe hot inflation. But the Fed is adamant and they continue to stand its ground, telling us, if at all there is any inflation it will be temporary.

Do you think they are right? In the way what we see right and wrong, they won’t be right. In the whole history of the Fed, they have never admitted to a mistake. What they do is as things don’t turn out the way it should be for them, they change course or take new measures to keep the system going.

Even some of the leftist economists are very concerned about inflation. Recently Larry Summers, former Treasury Secretary clearly said putting this $1.9 trillion on top of the $900 billion from last year will set the economy on fire. He sees considerable risks to the economy going forward, with many of the reckless polices the Fed and the government has in the pipeline.

While the Fed is doing its best to convey a subdued outlook for inflation, the Biden administration is working on its “clean energy deal”. It is being communicated as “infrastructure spending” but it is all about transforming the world from fossil fuels to what they will promote as more environmentally friendly investments. The Biden team was already working on this before winning the elections and we had discussed about this in our forum. There are already discussions that the White House is preparing a bill for the House, to the tune of around $3 trillion.

The global climate action initiative has been clear and globally coordinated, involving the most powerful governments and companies in the world. The financial backing for these changes are almost unlimited. Trump was an existential threat to this global initiative. It is no surprise, there were powerful forces at work to remove him.

With an aligned Congress, the climate action agenda will be executed with a lot of extravagance. One of the biggest casualties of all this will be the dollar. It will be interesting to see how this new initiative will unfold.

Equities

In the last week stocks recorded over thousand buying climaxes , the highest total in 11 years since the week ending Apr 30 , 2010 ( 1080 ). A buying climax occurs when the stock makes a 12 year high but the closes the week with a loss. This behavior is believed to represent distribution, indicating that the scrips are moving from strong hands to weak ones. The opposite of this happens during a selling climax.

The NYSE advance/decline ratio was negative at 0.79 : 1 . Similarly the NYSE up/down volume was negative with 61% of volume occurring as down volume and 39% occurring as up volume. So internally the market was weaker than the closing figures of the headline averages. Therefore the structure should point to more weakness in the coming days.

Bonds

The daily sentiment index dropped below 10 % last week and prices dropped to our projected window surrounding the 152 handle. A counter trend rally is very much on the cards. The first signs of that will be a move above 156^20.

Euro

The Euro is at a crossroad. If the move down from 1.2243 to 1.835 on Mar 9 has completed, it quickly needs to move above 1.1992 to continue its uptrend. If not a move below 1.1835 can open gates to 1.1600 handle before it can bottom out.

Gold

It could be that gold has completed its counter trend rally at 1755. A move below 1699 should give us more confidence to pursue more weakness in gold.

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.