Judging by the (currently) 1.6% dip in the S&P 500, Federal Reserve Chair Jerome Powell’s comments at the Wall Street Journal Jobs Summit today didn’t do much to ease the market’s inflationary concerns.
“We expect that as the economy reopens and hopefully picks up, we will see inflation move up through base effects,” Powell commented, adding “that could create some upward pressure on prices.”
The word “DUHHHHHHH” comes to mind.
Vaccines are rolling out, we’ve got some form of stimulus coming, and we’ve got the easiest year-on-year comparisons in the history of history. In case anyone is wondering, “history” is an awfully long time.
Just look at today’s economic data dump. With the exception of jobless numbers — which are finally beginning to grind lower — generally all the data points are comparatively positive.
Of course, there will be upward pressure on prices.
Of course, interest rates are going to increase.
Of course, that’s going to cause some of the things that have run up to ridiculous valuations to correct.
You haven’t had to be a genius these last few years to be long Apple, Facebook, Netflix and Tesla. But the question is… Were you aware enough to get out?
If not, you’re not alone. Clearly there are a bunch of hedge funds keeping tech bulls company today.
But are those tech bulls also long gasoline (NYSEArca: UGA)?
Of course they’re not.
But if you’ve been following along, you are.
Gasoline is up an incredible 72% since November alongside 94% for lumber, 67% for steel, 66% for crude oil, 38% for nickel and corn, 31% for soybeans and 24% for a certain doctor to whom I’d like to re-introduce you.
We haven’t had many chances to buy dips in the doctor… because there haven’t really been very many.
It has been steadily increasing since its COVID-19 lows, and went darn near vertical at the beginning of February, when we pounced on it.
That resulted in a 29.4% gain in Robert Friendland’s Ivanhoe Mines (OTC: IVPAF) over the course of just three weeks, and obviously it’s reasonable to go back to the well here.
But this time around, it also seems prudent to add in some additional leverage to the pure commodity through the United States Copper Index Fund (NYSEArca: CPER) and its largest miner, Freeport McMoran (NYSE: FCX).
The reasoning this time around is the same as last time.
Inflationary pressures in the commodity space aren’t going away anytime soon, especially with stimulus likely coming soon.
As I wrote back on Feb. 2…
The United States is about to get a boatload of stimulus in the form of infrastructure spending here pretty soon.
More infrastructure means more copper demand.
More copper demand means higher prices… The math is pretty easy here.
Well, that math hasn’t changed, and the stimulus is even closer. So while it might seem like the world’s on fire out there, don’t get cute and overthink this one galaxy-brain style.
Instead, just call the doctor, and then go pour yourself a scotch Ron Burgundy-style.
All the best,