Why It‘s Reasonable To Be Bullish Stocks And Gold

Another day, another reversal – and a positive one for stocks. Universal sectoral weakness gave way to a unison rebound amid constructive outside markets. After weeks of on and off fits over rising Treasury yields, S&P 500 ran into headwinds on their retreat, and recaptured its luster yesterday as long-dated Treasuries (TLT ETF) rolled over to the downside. I guess nothing boosts confidence as much a troubled 7-year Treasury auction.

While it‘s far from full steam ahead, it‘s a welcome sight that the reflation trade dynamic has returned, and that technology isn‘t standing in the way. I think we‘re on the doorstep of another upswing establishing itself, which would be apparent latest Monday. Credit markets support such a conclusion, and so does the premarket turn higher in commodities – yes, I am referring also to yesterday‘s renewed uptick in inflation expectation.

Neither running out of control, nor declaring the inflation scare (as some might term it but not me, for I view the markets as transitioning to a higher inflation environment) as over, inflation isn‘t yet strong enough to break the bull run, where both stocks and commodities benefit. It isn‘t yet forcing the Fed‘s hand enough, but look for it to change – we got a slight preview in the recent emergency support withdrawal and taper entertainment talking points, however distant from today‘s situation.

Now, look for the fresh money avalanche, activist fiscal and moterary policy to hit the markets as a tidal wave. Modern monetary theorists‘ dream come true. Unlike during the Great Recession, the newly minted money isn‘t going to go towards repairing banks‘ balance sheets – it‘s going into the financial markets, lifting up asset prices, and over to the real economy. So far, it‘s only PPI that‘s showing signs of inflation in the pipeline – soon to be manifest according to the CPI methodology as well.

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Monica Kingsley 2 weeks ago Author's comment

So far so (not good but) great in stocks while gold is merely gently peeking higher. Miners are still bidding their time even as inflation trades all around are running hot today on unconvincing TLT performance.

If I don't post another update, enjoy your weekend everyone!