Pro Perspectives 6/23/20

June 23, 2020

As we continue to lay out the building inflation story, the markets continue to substantiate it.  

Yesterday we talked about the prospects of seeing a doubling of the money supply, thanks the Fed's massive response.

With more dollars floating around, the buying power of your dollar is going down.  Again, this means the nominal price of everything you buy is going up – and it's in the early stages.  

Today we had a new eight year high in gold.  And it's going higher. 

As you can see, we're nearing the 2011 record highs.  That's only 8% away.  But given the backdrop of trillions of dollars-worth of fiat money creation, gold has a long way to go. 

In a world where people were too scared to buy stocks at the depths of the decline, and are now too scared to buy stocks after the sharp recovery, those looking for "value" will find it in gold (and commodities in general).  Remember, billionaire Paul Singer has said gold is one of the most undervalued assets in the world – projecting it's fair value to be multiples higher from here. 

This, and the commodities story, aligns well with the broader dollar outlook (higher prices, lower dollar).

And the dollar outlook is looking lower against other currencies too (not just against asset prices).  Despite all of the talk about a "strong dollar", we've been in a bear cycle for the dollar for more than three years.  


We've looked at my dollar cycles chart above many times. If we mark the top of the most recent full cycle in early January of 2017, the bull cycle matched the longest cycle in duration (at 8.8 years) and came in just shy of the long-term average performance of the five complete cycles.  This argues for a weaker dollar ahead.

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