Market Matador Counts On Querencia - Olé!

In bullfighting there is a term called querencia. The querencia is the spot in the ring to which the bull returns. Each bull has a different querencia, but as the bullfight continues, and the animal becomes more threatened, it returns more and more often to his spot.

As he returns to his querencia, he becomes more predictable. And so, in the end, the matador is able to kill the bull because instead of trying something new, the bull returns to what is familiar. His comfort zone. Carly Fiorina

On another note - I’ve gotten a lot of questions about gold and its historic freefall this week. Deflation has been the buzz word with the recent market crash. Food commodity prices were hit. Gold miners and silver got smacked while yields, even in the face of repos, rose.

A lot of this has to do with oil prices. However, any escalation to tension in Iran and Iraq with the US can put a sharp end to falling oil prices. But I would not get too complacent about deflation going forward, given the Central Bank interventions.

Recently, Nancy Davis, chief investment officer of Quadratic Capital Management wrote this:

"Stagflation would be a disaster. People are dismissing it as an old threat from the '70s that won't happen again, but you could see it come back."

As those of you who follow my blog know, I have been a voice in that very small crowd. Ms. Davis and I are both concerned about a spike in consumer prices as the supply chains from China disrupts. In a China paper Friday, it was reported that consumers are already suffering from food inflation that hit a twelve-year high of 21.9 percent, according to Enodo Economics.

Stagflation hammered U.S. consumers from 1970 to 1981 with periods of negative GDP growth, double digit inflation and almost double digit unemployment. The oil crisis of the 1970’s was partly to blame.

In 2020 besides the virus, we have a new potential catalyst. CNN Business posted an article on Friday that asks, “What if the Fed has to simultaneously fight concerns about a recession and rising inflation pressures?”

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