With Inflation & Interest Rates on the Rise Stocks May be in for Trouble!

I’m very concerned now that we are entering a period of stagflation akin to but likely much worse than that of the 1970s. Not only has my IDW hit new highs early this year but since the March 20, 2020 Covid-19 stock market crash, the first 4 of the top 5 components of the IDW were housing and commodities and 6 of the top 8 were related to real estate and commodities.

Despite the rise off the bottom of the commodity sector, the chart below left shows just how suppressed commodities are relative to their 2011 top. As inflation begins to rise, we are also seeing interest rates begin to rise (note TLT is down 8% this year meaning yields are up) and the dollar has begun to decline which adds still more inflationary pressures. Michael Oliver views the following chain of events: 1. Inflation begins to rise, 2. Interest rate being to rise as a result, 3. Rates rising only slightly above where they are now triggers a major stock market decline. The Buffett Indicator which is simply a measure of total equity market value to GDP is at an all time high. As such it is flashing a major warning for equity market investors. This seems to be a perfect storm for gold and Silver and the companies that are discovering those metals.

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