Fed Gives Us A Crystal Ball Of Probability

So, we are not in the fortune telling business.

But we are in the fortune probability business.

Today, Fed Chairman Powell gave us a crystal ball of probability.

He fell, if you will, right into our palm reading hands.

With comments, like-we are on pause until further notice on raising rates, waiting for inflation target to set in, the economy will quickly recover from the government shutdown, etc.,

What has the Fed done for our probable winning trades?

(Click on image to enlarge)

Remember this chart?

A wee bit out of date, it shows the 100-year historical low ratio between equities and commodities.

If we updated it, we’d see commodities still near the lows, while stocks are down from their peak.

I know, equities after the December dumpage have gone straight up.

Probability fortune telling?

That the ratio tightens more.

Here is another chart.

(Click on image to enlarge)

SPY vs GLD - This ratio measures the relationship between the S&P 500 (SPY) and Gold (GLD).

Gold is often used as an anxiety index or safe haven and an alternative to paper currency. Gold does not have a high correlation to stocks and its relationship often shifts.

Currently, the SPY (red) to GLD (black) ratio has reversed with GLD starting to outperform.

WOOD vs GLD - This ratio measures the relationship between gold (GLD) and lumber (WOOD). When this ratio is trending up it indicates that the relative performance of lumber is improving versus gold.

Lumber is a key input into construction which tends to increase in strong or improving economic conditions.

Currently, WOOD (red) is outperforming, but that could flip as it did in October of last year.

Obviously, we do not need to be fortune tellers to see where the best potential lies.

GLD is telling us something. And if lumber declines while gold continues to incline, that too tells us something.

What has the Fed done for us?

Given us a high probability potential for profiting from these trends if they continue to emerge.

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