Inflation Wins, We Lose
Updated
There are two kinds of inflation, the normal one and the dangerous one.
Printing money creates inflation. The kind however which is not dangerous to the foundation of the economy.
With money printing, currency loses value and prices react accordingly. Nobody gets wealthy from money printing, and in a sense, "nobody" gets poor. By nobody I mean the economy as an average doesn't really get hurt. Inflation however widens the gap between poor and wealthy.
Poor get poorer while rich get richer...
Inflation analysis can be very simple. If one believes in simple support/resistance levels from consolidation patterns, then the following picture can be drawn for the standard inflation chart.
For further validation, we can try analyzing commodities like oil. In the main chart, crude oil value is divided by the "total value of money in circulation". The value of money is the yield percentage.
A massive consolidation pattern formed in 1986-2002, on which we are now supported. I believe that price cannot drop much lower than the point we are in. Dips can be expected, but in macro scale the chart is bullish.
From the chart above, we conclude that oil prices (inflation) will grow compared to yields themselves. Each increase in yields (inflation fighting) will lead to higher oil prices (higher inflation). Charts like these prove the Catch-22 phenomenon we are in.
This is the bad kind of inflation. This inflation is un-fixable.
There is a plethora of charts that prove what I say, that inflation is unfixable. One of these charts is GOLD*PPIACO.
spy_master used the GOLD*DBC chart as a measure of inflation. Gold*PPIACO can be considered as another very-long-term inflation measure.
Commodity production cost is bull-flagging against money supply itself.
So okay, we all expect more inflation. And surely, equity prices have priced this in, right?
Wrong.
Equities have priced-in that the FED is controlling inflation. Investors expect both inflation and the FED to calm soon. So, equities have priced-in something that will never come. An investment can suffer when the investor judges the situation wrong. An investor who has understood the situation, "cannot" go bankrupt.
Equity prices show that markets ignore the FED.
In the chart above, DJI is divided by the yield curve as an attempt to measure the ability of equities to grow in a progressively tighter economy (falling yield-curve, negative yield curve). Even with all that money destruction and yield increases, equities are making all-time highs. The markets are very stubborn.
The yield curve may describe the "ease" the market shows for equities. In normal times, the yield curve is positive, long-term yields are higher than short-term ones. This encourages short-term borrowing and stimulates the economy. As the yield curve steadily lowers, short-term money borrowing is less and less interesting for investors.
(In the Spaaace!!! idea linked below, you can find more information about the DJI/yield-curve chart)
High inflation and stubborn markets by themselves don't render equities as worthless. After all, equities survived in the stagflation period of 1970s. While the stagflation outcome can play out, there are things that may happen before it. There are some charts which are very concerning for equities...
We tend to talk about the crypto bubble, and ignore the equity one.
Equities have been consistently growing for the last 15 years. But thanks to what? Are companies in a "better shape" than they were in 2010? Sure technology has evolved, but from dependable devices we are now filled with unstable gadgets. Consumer devices as well as corporate ones, are more vulnerable than ever before. Security gaps are now appearing from big-tech companies to banks. Sure, issues like these were commonly occurring throughout history.
But let's consider, is the immense equity growth representative of the dependence we can have on companies and their products/services?
Are equities growing because of actual innovation, or from the easy way of derivatives?
This chart shows the diminishing nature of derivatives. They are exponentially losing value, but their effect is much bigger than their cost. A purchase of cheap derivatives can bubble-up anything you can hope for.
Where does this chart lead us?
This chart attempts to calculate the effect of derivatives in QQQ price. Before 2020, QQQ consisted of a "stable" amount of derivatives. Price moved in the channel. In 2021 a bull-flag formed and launched the chart in incredible new highs (where we are now). It is one way to visualize the immense effect of derivatives, especially in big-tech stocks.
(More about this chart in the "who would you trust with your money" idea linked below)
Even if Bitcoin is "overpriced", it will be the winner if this golden bull-flag breaks out. Bitcoin seems to be beating many investments. Even if it may not be considered a commodity, it certainly behaves like one. Even if equities grow, each upwards move for equities, will lead to much higher prices for Bitcoin.
Just like Bitcoin is bull-flagging against the most powerful of equity bubbles (QQQ Derivatives), commodities are bull-flagging against the most stable of equities (DJI)
Not all equities are grim though... We may be witnessing a massive wealth transfer away from US corporations. In this idea, I attempt to analyze the massive shift of balance that we may be witnessing.
While much harm has come to Europe from the war, almost everything is priced in. If the chart is correct, it means that every upwards move for US equities will push Germany further upwards.
Germany has been enjoying a massive influx of money from the entire EU. After swallowing the entire European market, it is now forming a bull-flag against Europe and other countries.
Germany as well as emerging markets prove a significant challenge for the US. These are bad news indeed for US equities...
Tread lightly, for this is hallowed ground.
-Father Grigori
Printing money creates inflation. The kind however which is not dangerous to the foundation of the economy.
With money printing, currency loses value and prices react accordingly. Nobody gets wealthy from money printing, and in a sense, "nobody" gets poor. By nobody I mean the economy as an average doesn't really get hurt. Inflation however widens the gap between poor and wealthy.
Poor get poorer while rich get richer...
Inflation analysis can be very simple. If one believes in simple support/resistance levels from consolidation patterns, then the following picture can be drawn for the standard inflation chart.
For further validation, we can try analyzing commodities like oil. In the main chart, crude oil value is divided by the "total value of money in circulation". The value of money is the yield percentage.
A massive consolidation pattern formed in 1986-2002, on which we are now supported. I believe that price cannot drop much lower than the point we are in. Dips can be expected, but in macro scale the chart is bullish.
From the chart above, we conclude that oil prices (inflation) will grow compared to yields themselves. Each increase in yields (inflation fighting) will lead to higher oil prices (higher inflation). Charts like these prove the Catch-22 phenomenon we are in.
This is the bad kind of inflation. This inflation is un-fixable.
There is a plethora of charts that prove what I say, that inflation is unfixable. One of these charts is GOLD*PPIACO.
spy_master used the GOLD*DBC chart as a measure of inflation. Gold*PPIACO can be considered as another very-long-term inflation measure.
Commodity production cost is bull-flagging against money supply itself.
So okay, we all expect more inflation. And surely, equity prices have priced this in, right?
Wrong.
Equities have priced-in that the FED is controlling inflation. Investors expect both inflation and the FED to calm soon. So, equities have priced-in something that will never come. An investment can suffer when the investor judges the situation wrong. An investor who has understood the situation, "cannot" go bankrupt.
Equity prices show that markets ignore the FED.
In the chart above, DJI is divided by the yield curve as an attempt to measure the ability of equities to grow in a progressively tighter economy (falling yield-curve, negative yield curve). Even with all that money destruction and yield increases, equities are making all-time highs. The markets are very stubborn.
The yield curve may describe the "ease" the market shows for equities. In normal times, the yield curve is positive, long-term yields are higher than short-term ones. This encourages short-term borrowing and stimulates the economy. As the yield curve steadily lowers, short-term money borrowing is less and less interesting for investors.
(In the Spaaace!!! idea linked below, you can find more information about the DJI/yield-curve chart)
High inflation and stubborn markets by themselves don't render equities as worthless. After all, equities survived in the stagflation period of 1970s. While the stagflation outcome can play out, there are things that may happen before it. There are some charts which are very concerning for equities...
We tend to talk about the crypto bubble, and ignore the equity one.
Equities have been consistently growing for the last 15 years. But thanks to what? Are companies in a "better shape" than they were in 2010? Sure technology has evolved, but from dependable devices we are now filled with unstable gadgets. Consumer devices as well as corporate ones, are more vulnerable than ever before. Security gaps are now appearing from big-tech companies to banks. Sure, issues like these were commonly occurring throughout history.
But let's consider, is the immense equity growth representative of the dependence we can have on companies and their products/services?
Are equities growing because of actual innovation, or from the easy way of derivatives?
This chart shows the diminishing nature of derivatives. They are exponentially losing value, but their effect is much bigger than their cost. A purchase of cheap derivatives can bubble-up anything you can hope for.
Where does this chart lead us?
This chart attempts to calculate the effect of derivatives in QQQ price. Before 2020, QQQ consisted of a "stable" amount of derivatives. Price moved in the channel. In 2021 a bull-flag formed and launched the chart in incredible new highs (where we are now). It is one way to visualize the immense effect of derivatives, especially in big-tech stocks.
(More about this chart in the "who would you trust with your money" idea linked below)
Even if Bitcoin is "overpriced", it will be the winner if this golden bull-flag breaks out. Bitcoin seems to be beating many investments. Even if it may not be considered a commodity, it certainly behaves like one. Even if equities grow, each upwards move for equities, will lead to much higher prices for Bitcoin.
Just like Bitcoin is bull-flagging against the most powerful of equity bubbles (QQQ Derivatives), commodities are bull-flagging against the most stable of equities (DJI)
Not all equities are grim though... We may be witnessing a massive wealth transfer away from US corporations. In this idea, I attempt to analyze the massive shift of balance that we may be witnessing.
While much harm has come to Europe from the war, almost everything is priced in. If the chart is correct, it means that every upwards move for US equities will push Germany further upwards.
Germany has been enjoying a massive influx of money from the entire EU. After swallowing the entire European market, it is now forming a bull-flag against Europe and other countries.
Germany as well as emerging markets prove a significant challenge for the US. These are bad news indeed for US equities...
Tread lightly, for this is hallowed ground.
-Father Grigori
Note
Danger my Lord! A massive inflation army will soon be upon us!I just found out about the forgotten brother of M2SL. The little one... M2REAL. A wise investor must calculate using comparable scales. Charts like inflation move horizontally, always dancing around the zero axis. Other charts like oil move in roughly linear scales long-term. SPX and M2SL move diagonally on the log scale. Other charts like SQQQ and Bitcoin are almost exponential. While in your log-scaled charts everything seems similar, well it isn't...
M2REAL and M2SL live in different mathematical universes. Just like SQQQ and QQQ. Just like Bitcoin and SPX. Comparing things from different realms must be done using great care.
I always found annoying the PPIACO chart. It didn't follow M2SL, while it is moving exponentially. The same goes for CPIAUCSL, crude oil and other charts...
M2REAL just came to save the day!
And just like that, PPIACO makes sense at last!
Gold is showing interesting dynamics...
While M2REAL by itself is showing a precarious picture...
Note
Sometimes trend analysis is as simple as elementary algebra.Note
Note
RRPONTTLD is a mechanism of the FED to fight inflation. I don't know the exact specifics of it. Feel free to comment down below a clear explanation as to how Reverse Repurchase Agreements work!Perhaps RRPONTTLD is a measure of the expected inflation, and US10Y just the means to lower it. At any rate, here is a concerning chart:
Note
One update on the last chart:RRPONTTLD is a measure of: How much money is the FED pulling out of the economy. The FRED:A091RC1Q027SBEA Index measures how much money the FED pays out in bonds.
Comparing the two might give us a perspective on the flow of money and it's pressure. In a sense, how much money and how fast it is flowing, either out of the economy (deflation) or into the economy (inflation).
On the left we have the invented formula of RRPONTTLD/yields, while on the right we have RRPONTTLD/(bond-payments).
The rate during which liquidity is pulled out of the system is bull-flagging against the rate liquidity is pulled into the system. The scale of what is occurring is incalculable.
One note on the index I used above:
Note
Some peculiar charts for today. I am not certain about their meaning...During 2008, the normal bonds percentage had a more severe crash.
Question: What does WABPL even calculate??
Note
The discrepancy between the FED's rate and the Market's rate is at it's highest level. The FED may not be able to hike any higher against the market's expectance. Who knows what will happen if the FED overcomes this limit.
Note
Equities down, Commodities up?
Note
Minecraft World
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