The Fed put out the money stock numbers today and it looks like it is holding steady.
We are obviously nowhere near the giant increase that last year saw which means that there could be stress in the supply. For the stock market to continue to climb, money needs to be pumped into it at increasing amounts. Once the Fed slows the pump, the wheels start to come off.
The last few reading I have show:
Week 33 - 7.7%
Week 34 - 10.8%
Week 35 - 10.5%
Week 36 - 10.6%
In any other year, this would be tremendous growth and would be gas on the stock market’s fire. This year is not that year. Since there was so much added to the supply in 2020, the supply is barely able to hold this train on the tracks. The Fed is facing difficult decisions ahead. They are tapering their balance sheet in the face of increasing inflation but it is looking very likely that we are on the cusp of a market correction.
Halloween is coming. If the Fed gets spooked out of their tapering commitment and juices the money pump due to a market correction, inflation will become truly frightening.
We are already seeing new heights in one of my favorite inflation indicators, the Case-Shiller Home Price index.
The index has posted another new all-time high of 19.7% year-over-year change. This represents a 1.6% month-over-month increase! Now the index is two months behind, this data is from July, but I think it speaks volumes that it has not slowed. In time, house price increases will cause the CPI to run higher. Housing is 32.6% of the CPI weight. It will not be able to be teased out like energy and food is for the “core” CPI.
Inflation is scary for consumers, investors, and businesses. All are feeling the pinch of inflation. I’ve already covered that poor people are feeling it and some in the middle class. Once inflation hurts the upper class, politicians will hear it and feel the need to “do something”. This will be the scariest moment yet as they are likely to blame speculators and introduce price controls. We will see a series of rolling bubbles through the economy as inflation brings everything to a roaring boil. Commodities will be the place to be. I’m unsure how individual stocks will do as any could draw the ire of the government for “hoarding” or “price gouging” or some other nonsense. Broad ETFs that hold many companies and pure commodity plays such as GLD, SLV, UNG, USO, DBA, DBC, GSP will be the safest bet. For those willing to take on more risk, it might prove wise to spread out your plays over several names to reduce the risk of the government coming after a specific player in the industry.
Terrific stuff Alan. Really enjoying you and David. The Wenzel spirit is alive and well. Would you recommend folks rotating out of specific stocks within the ETF categories above even though we may have already built good/early ppositions? Basically, should we be closing out our specific silver, gold, uranium, nat gas, coal stocks now and buying the broader ETFs? I understand trying to time all of this is dangerous. Just curious. Thanks.