Russia backs down
so do gold, silver, and oil
Russia has moved troops off the border with Ukraine. This has diminished the credibility of those that said an invasion was imminent. Who could have seen this coming?
Without a doubt team Biden will try to chalk this up to a win. I imagine it’ll get spun on the news as Putin backing down to Biden’s threats. Biden will probably talk it up during his State of the Union address that is coming on March 1. It will appear as a much needed ‘win’ for the Biden administration. However, the invasion talk was manufactured out of whole cloth. Now that reality is settling in, we’ve seen a sell off in silver, oil, and gold (SOG) and a big bounce in the major indices. I think this is a buying opportunity for SOG.
David over at LiveBetterNow put out a great post yesterday outlining how gold and silver were both outperforming the market for the past 6 months. With inflation continuing to rage and the Fed slow to action, expect this trend to continue.
Speaking of slow Fed action, Monday’s emergency meeting came and went without a peep from the Fed. I had the odds of that happening at 50%. Powell is clearly on a low and slow path even with all the 50 basis point talk from Bullard. The latest Fed meeting minutes will be released tomorrow. The next FOMC meeting will be March 15-16, after which they will release a summary of economic projections.
Back to inflation data for a moment. The PPI came out today and it is still hot.
It has moderated slightly to 9.7%. This is the second month in a row of lower PPI on a year-over-year percentage basis. It hit a recent high of 9.8% in November of 2021. I expect inflation to moderate a little here. I look for inflation to hang between 8 and 10% for a few months. It may drop as low at 7%. We are starting to compare year-over-year numbers with the hot inflation numbers that came out at the beginning of last year. That was when inflation really started to come alive. While many in the financial press may count the moderating inflation as a win, high inflation will continue to grind down the middle and lower class. In time it will spiral out of control once more unless the Fed gets to work raising interest rates. Unfortunately, they are way behind the ball and look to be raising interest rates with a recession on deck.
The 10 year minus the 2 year Treasury is now down to 40 basis points. It has slipped significantly. When this goes into negative territory we typically get a recession in 10 to 33 months.
As you can see below, it has been a consistent indicator since the 80’s.
We haven’t inverted yet. There is still time for the Fed to right the ship, but time is running out. I feel that Powell’s low and slow stance will be slow to pivot and the Fed will end up truly trapped. Ironically enough, if the Fed were to allow inflation to run hot, it would steepen the yield curve, ending the threat of an inverted yield curve.
