Sunday, July 17, 2016

Elazar: Why We Expect Inflation To Jump Starting Now: Good For Gold, Risk To Stock Market

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*The drop in oil at the end of 2014 held back inflation numbers through 2015.
*2016 is more apples to apples with that huge drop already in last year's inflation numbers.
*Even with the huge oil price drop in 2015 inflation was still positive.
*That is an amazing sign that underlying inflation was itching to go higher and may have begun.
*That is negative for the stock market and good for gold.
Why was quantitative easing not inflationary until today?
We want to prove that this year could see breakout inflation. Oil, since 2008 either crowded out other price measures or when oil fell slowed inflation. 2016 is another story where core inflation gets its chance to shine. That is negative for bonds and stocks and a positive for gold.
Quantitative Easing Is Inflationary
If an added supply of money to the system doesn't do what it is supposed to which is to drive GDP demand, we've shown it turns into inflation.
Why? Simple supply and demand drives currency just like all other markets. There is a huge supply of currency and low demand (slowing GDP). High supply and low demand leads to lower prices as we all know (economics 101). Lower prices in currency shows up in higher prices for goods. The currency dropped and can by less goods. Or, looked at inversely, prices go up which is called inflation.
Here is the famous yellow line showing how much easing we have had in the US versus the rise in the S&P 500 (NYSEARCA:SPY)

Chaim Siegel has been working with hedge funds and mutual funds as an analyst and PM his entire career. Chaim specializes in earnings and predicts, analyzes and reacts to earnings and earnings events as well as developing current company stories with a hedge fund perspective. If you want his analysis real time sign up to the right for real time email alerts. #in, $spy, $qqq, $iwm, $vxx, $ycs, $fxe, $EUO, $YCS, ^GSPC, INDEXSP:.INX, #elazaradvisorsllc, CME Globex: ES Disclosure: These trades can lose you money and principal especially when using leverage BY USING THIS SITE YOU AGREE TO TAKE ALL RESPONSIBILITY FOR YOUR OUTCOMES AND LOSSES AND HOLD BESTIDEAS, ITS CONTRIBUTORS AND ELAZAR ADVISORS, LLC HARMLESS