I’ve received 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 1970s 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?”
For now, Friday the market enjoyed a welcomed relief rally.
Since the expression, “Don’t fight the Fed” continues to have legs, if you recall, Thursday the FED also announced $500 billion in 1-month and 3-month repos.
This week, there is a good chance they will drop interest rates even more, possibly going to zero.
Germany is willing to keep pumping money into their economy indefinitely.
I wish I could say to you Friday was the bottom of the market.
Instead, I will say that bear market rallies are vicious and can last about 3 days.
That timeframe takes us right up to the Fed meeting on the 18-19th.
This means, if your 401(k) or IRA is underwater, you have a chance to lighten or sell those positions into this rally.
And if you wait until after the FED meeting, should selling ensue, it might be wise to get out.
After that, we will look for signs that food prices are rising as they already are in China.
Then, should we begin to see signs of stagflation, we will have a new gameplan in place.
S&P 500 SPY 263.70 support now with 288 resistance
Russell 2000 (IWM) 133 resistance and 116.75 closest support
Dow (DIA) 248 resistance and 220 support
Nasdaq (QQQ) 197.50 resistance and 184 support
KRE (Regional Banks) 36.42 closest support and 42 resistance
SMH (Semiconductors) 123-126 resistance and 113 support
IYT (Transportation) 155 resistance and 142 pivotal support to hold
IBB (Biotechnology) 100.63 the 80-month MA pivotal 105 resistance
XRT (Retail) 32.40 must hold and resistance at 37.00