Is Inflation Coming?

In the United States problems of economic understanding have been compounded by the effect of economic prosperity. The Japanese in World War II spoke ruefully of shoribyo or ‘victory disease.’ The Greeks called it hubris, and thought that it always ended in the intervention of the goddess Nemesis. That lady makes her appearance when wave-riders begin to believe that they are wave-makers, at the moment when the great wave breaks and begins to gather its energy again.”  ~ David Fischer, via The Grave Wave

assorted berries

Good morning!

In this week’s Dirty Dozen [CHART PACK]  we look at Friday’s reversal, dive into the inflation outlook, cover positioning in bonds and equities, discuss beaten-down gold miners, chat about the strong underlying fundies action in semis, and end with a housing playing with a large breakout, plus more…

Let’s dive in.

  1. The market put in a face-ripper or a bullish reversal Friday afternoon, surprising many, including your author who nearly managed to bottom tick the day on a short entry (fun stuff!).

This gives us a double bottom false breakout off the lower band on the daily timeframe. We should see further upside follow-through this week but stay on your toes cause if bonds don’t cooperate, things could continue to get squirrely!

 

  1. Our broader market take is the same as it has been for the last few months. Sentiment and positioning are stretched, trend fragility is high so expect occasional chop and vol like we’ve seen over the last couple of weeks. But, fiscal and economic recovery dominate so the path of least resistance is up.

Nomura shows that hedge funds are starting to pile back into stocks after sitting on the sidelines for much of the last 10-months.

  1. Their CTA Model also shows the largest aggregate short position across DM bonds since at least 2010 (h/t @DriehausCapital).

  1. Considering we expect both growth and inflation to run above consensus this year, the CTAs are probably right. Here’s Morgan Stanley summarizing their inflation forecast for the year, which we agree with.
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Disclaimer: All statements are solely opinions and are for educational purposes only.

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