PPI Vs. CPI
I didn’t write anything yesterday other than a quick note because I wasn’t sure what to say. CPI came in hotter than expected, followed by a very weak 10Y auction.
My portfolio was close to flat as the bond shorts offset the equity, crypto and gold longs.
Today, PPI came in quite low and we rallied big. Though bonds still fell. So today was a great day.
I wrote before CPI that I really wanted to see how Gold handled CPI. Well, it largely shrugged it off and then pumped bigly into today.
I think that’s one more small confirmation that something is going on with Gold responding directly to:
Central bank reserves moving away from the dollar
Fiscal balance sheet concenrs
Neither of those is likely to go away, and judging by the articles I’m seeing in the MSM of reporters struggling to find any explanation for why gold is rallying, it’s likely not fully priced in.
CPI v. PPI
So I did some digging into the numbers to see if I could figure out how the two are so disparate. Long story short, PPI is upstream of CPI. So reductions in PPI can be expected to reflect in CPI in the future.
That’s true directionally, but I can’t say with 100% certainty if it will be borne out 1:1.
The big conflating factor is what’s happening with commodities.
We are getting a fairly broad-ranging rise in commodity prices. You would expect this to eventually lead to inflation, especially with the economy as hot as it is.
Current Thoughts
I think, as I’ve written before, we are in a “long and see” situation. We will stay long equities because:
The economy is strong
Structural set ups in the money supply mean they should go up with the ever increasing global liquidity
We will stay short bonds becase:
Structural set ups in the fiscal situation mean the supply is going Up Only
We will stay long gold because:
The structural set ups in the fiscal situation make it appealing to own real assets
Central banks, including the US, might find it wise to own more gold in the future
We will also stay long crypto as a combination of the gold and equities thesis.
Please also always remember... none of this is financial advice. I’m not a professional. I quite literally don’t know what I’m doing.