CPI Preview: Gold and Stocks Continue to Diverge
The Opposite of a V-shaped Bottom?
Market Rundown:
Good Morning. Markets are continuing yesterday’s bounce from the prior days’ deluge. Most likely nervous pre CPI trading, indicative of nothing predictive.
DX is dn 30, Stocks are firmer up between 90 and 150 bps. Gold is strong up $10. Silver is also strong for a change, up 30 cents. Crude oil is back above 100 again at $104. Grains, Crypto, even Nat Gas is up. Everything is an unwind of Monday’s moves somewhat.
Remember the Fed wants commodities down and will sacrifice stocks to do that right now.
WEDNESDAY, MAY 11
8:30 am Consumer price index April 0.2% 1.2%
8:30 am Core CPI April 0.4% 0.3%
8:30 am CPI (year-over-year) April 8.1% 8.6%
8:30 am Core CPI (year-over-year) April -- 6.4%
2 pm Federal budget April $220 billion -$226 billionPost Excerpt
Remember the Fed wants commodities down and will sacrifice stocks to do that right now.. That makes us lean very heavily towards the opposite of V-shaped bottoms. V-Shaped bottoms are the euphemism for what it looks like when everyone buys the dip. During QT, while massive rallies are possible, there are few distribution gradual tops, more like inverted V shaped tops.
Hence Sell The Rip is the most likely prescription if you are a long looking for a bounce to get out. There aren’t too many fresh buyers with money below, except for maybe the Fed and some shorts covering.
Bank estimates for inflation are starting to diverge again with some thinking we are at peak inflation, some stating unequivocally wage-price spiral is not a problem, and some warning of service style inflation upticks. Right now if wage-price spiral is a factor, it is a shrinking one in our opinion. Service goods inflation may uptick, but that won’t last long under current situation. The problem remains goods inflation.
As long as 30 year bond rates keep rising according to a Fed unspoken plan, then houses will drop in value and stocks will remain capped.The opposite of everything now is the rule:
Buy the dip is now sell the Rip
Goldilocks is now Anti-Goldilocks
Wealth effect from higher asset prices is now “house poor” feelings for those who bought in the last 2 years
Finally, QE is QT
Zerohedge’s prep is the best out there, so why try to improve it: CPI PREVIEW
We’ve included a couple things below the line here for some reading. Might be worthwhile before and after the CPI numbers.
Gold and Stocks Continue to Diverge
One other thing. It could just be a coincidence but more banks and research firms are now announcing their love of Gold relative to stocks. Yesterday was Bloomberg. Today is a bank that shall remain nameless until we have read the data.
Point is this: many firms will now advise clients to exit stocks and put some of that money into Gold. To the extent these firms are trusted by their clients, Gold will continue to be a beneficiary of Stock dis-investment. The next 100 days should be better tha nthe last 100 days in terms of relative strength. There will be a full write up on this for the next weekly post.
