Weekly Briefing 2/6/22 - The Forecast

Weekly Briefing 2/6/22

Weekly Briefing 2/6/22

This week we will deviate from our major equity index forecast and cover the critical state of inflation for our thousands of members. The 10-year bond, Wall Street’s short term inflationary fear index, is presently breaking out as inflation accelerates at the fast pace in 40 years. We have expected this for the past couple of years, and have informed our members that the day would come when even the Fed would admit to the fallacy of “transitory” inflation. When the money supply has expanded in any prior period of US history, rampant inflation has occurred as a result. The US national debt has now increased by 50% in the past 18 months. For the next two years, expect to hear a similar narrative that inflation is peaking/under control. The Fed will have to allow prices to move much higher while raising interest rates just enough to hopefully prevent hyper inflation. What is significantly different today as compared to the last global inflationary crisis of 1979-1981 is the simple fact the world is abound in more global sovereign debt than any point in modern history. As rates rise, the debt will ultimately become unmanageable and will result in defaults globally. Safe havens will be public companies with the best balance sheets, cryptocurrencies, and precious metals. Real estate will not provide any liquidity as with rising rates come foreclosures and defaults. Every investor should have a plan for the next two year period to combat these headwinds. At The Forecast, we will be here to guide our members through this never-before-seen period of volatility. 

After the last inflationary run from 1979-1981, the government removed energy and other key commodities (indicative of inflation) from its CPI reading which tracks inflation. If we had a similar inflationary formula today, the current rate of inflation would easily top 15%. The adjustment to this metric allows the Fed to downplay inflation readings, and to have been able to call inflation ‘transitory’ for so long. But, eventually, the chickens come home to roost.

Food prices are rising to extremely high levels.  Already, many consumers have noticed the sneaky techniques food producers have adopted to disguise their price hikes. Packaging sizes are inconspicuously smaller while prices have only gone up. The next time you visit a grocery or home goods store, pay close attention to how much your money is truly buying.

With crude oil not trading north of $90, you can expect fresh produce prices to skyrocket in the coming months. Energy is the number one expense for farmers and impacts all of their other costs indirectly as well.

We would suggest investors:

  1. Buy gold and silver shortly – we will dial in a pullback bottom sometime in April for members.
  2. Invest in agricultural commodity ETF’s
  3. Accumulate cryptocurrency (BTC and altcoins)
  4. Invest inn the biggest and best blue chip companies which will be used to park capital as sovereign debt globally implodes. The ETF DIA tracks the Dow Jones.

Market Recap:

 The S&P 500, the Dow, and the Nasdaq are still trading below their 50-day moving averages, but, apart from the Nasdaq, the benchmarks are back above their 200-day moving averages. Small-caps showed weakness again despite the Monday short squeeze. The Russell 2000 continued to lag its large-cap peers, closing the week well below both of its moving averages after hitting its highest level since February.

The crypto space had bottomed and we are seeing strong rebounds in many coins. There is still time to take positions in what could be the strongest sector in terms of returns in 2022. We provided coverage a new coin last week that has a similar structure to Bitcoin and expect it to be a long term survivor in the crypto space for years to come. You can join our affordable crypto service by clicking on the following link: www.theforecast.co/register/crypto.

Big tech earnings and guidance was poor overall, putting pressure on the Nasdaq into the end of last week. The job market is sending mixed signals with negative ADP payroll numbers but bullish NFP data. The Manufacturing Index reinforced that inflation is not going away anytime soon. Finally, ISM Manufacturing and Services PMI beat expectations signaling a positive near term outlook in the economy. Regardless, a recession is likely to start in the next 12 months.

Upcoming Market Data:

This week will be much quieter than last week with just three key reports expected. First the Small Business Index report on Tuesday, followed by Thursday’s CPI reading and then Friday’s Consumer Sentiment Number. Several large value-oriented blue chip companies will also report this week.