Pro Perspectives 5/19/21

May 19, 2021

We looked at three "bubble charts" yesterday (Bitcoin, Tesla and Lumber).

One of the bubble charts burst this morning. 

Bitcoin did this …

As we know, Bitcoin has been positioned as a potential new world reserve currency (to supplant the dollar). 

Now consider this:  It moved down more than 30%, and then up 30% within the span of about 12 hours

With that, it continues to look more like a tool of speculation and corruption, on the path for a typical bubble outcome (i.e. crash and irrelevance). 

This action in bitcoin today was perhaps a final blow on its perceived "inflation hedge" status.  With that, gold surged on the day — breaking out from this downtrend of the past 10 months or so.  

The move toward a new record high in gold appears to be underway now.

Let's talk about the Fed…

The Fed released minutes from its April meeting today. Markets reacted to a headline that just hinted toward a future discussion on tapering QE, IF the economy continued to make rapid progress toward their goals.  If we wondered how the market is calculating the Fed's stance on policy and inflation, we got an indication this afternoon.  The first move was down for stocks, but then back up (in fairly short order).  The dollar went up.  Gold went down.  And rates went up. 

My view:  The market is telling us the time is right to start removing the punch bowl. 

But the Fed is telling us, not anytime soon. In today's minutes, they told us that the economy is "still far" from the Fed's goals on employment and prices.  In fact, they still view the risks to their projection on economic activity as skewed to the downside.  

So they will will keep the party going for some time.  And that means, they will very likely be behind the curve on inflation.