The Bigger Picture

Today, I wanted to take a look at the bigger picture and consider certain trends we may see over the next decade. Jim Puplava from Financial Sense thinks the next decade may favor tangible assets and commodities, I agree.

I think deflationary pressures are waning and we are transitioning into an inflationary period. Major asset shifts like this need time. It often takes a year or more before the new trend emerges. The more I look at the charts, the more I think commodities are forming significant bottoms, perhaps multi-year or even multi-decade lows.

First, let’s look at the DOW/CRB ratio. Paper assets performed well over the last several years…commodities not so much. It is evident in the chart below that commodities are incredibly undervalued when compared to stocks. I think various commodities are basing, some leading, some lagging, but as a whole, they are ALL likely basing. Once the bottoming process is complete commodities may enter a multi-year bull phase outperforming stocks.

(Click on image to enlarge)

Next, let’s look at the Dollar. I’ve heard bearish and bullish arguments. Frankly, I see potential in both. So, let’s look at the monthly chart to draw some conclusions.

US DOLLAR MONTHLY - I found what appears to be an alternating 16-year cycle between tops and bottoms. If correct, then the Dollar may have formed a multi-year peak at the beginning of 2017. Breaking the 2018 low (88.15) would confirm a dollar bear market and promote a multi-year run in commodities. If the next inflationary period in commodities is similar to what occurred between 2000-2010, then various assets will take turns as the “hot” sector. The secret to making a boatload is figuring out where “hot money” is concentrating and get in before prices explode. Recall the rise in crude oil between 2007 – 2008? Prices rallied from $50 – $140+ in 16-months. Silver ran from $9.00 to $49.00 in a little over 2-years. The blowoff phase of a parabolic run is always the strongest and most profitable.

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Disclosure: None.

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