Bonds Validating 10-Year/40-Year Inflation Cycles.
Outlook 2022/2023 – Mid-Year Review II
07-28-22 – As part of this mid-year review, pages 4 – 5 is an excerpt of the 7/13/22 Weekly Re-Lay Alert (that reviewed analysis from Sept ‘20 INSIIDE Track) – addressing the ongoing outlook for major inflationary advances in most commodities from 2Q ’20 into 2022.
3Q ’22 is a critical time with respect to that analysis – when an inflationary peak has been forecast (since mid-2020). Along with a final surge in many commodity prices, July – Sept ’22 was/is also forecast to see a related rally in equity values – leading to a divergent peak in 3Q ’22…
“7-13-22 – Today’s CPI report reinforced, yet again, that inflation is alive and well in the US economy. It is, however, entering a decisive time frame when a peak has long been forecast – in 3Q ‘22. That precise peak could be seen in CPI or PPI or other measures of commodity price inflation (GSCI, etc.) but the important factor is that the time frame for a peak is near.
The diagram above reinforces previously-published analysis (2020) that explained why a major bottom in inflation and interest rates was cyclically inevitable and why a ~2-year surge should follow.
The CPI has followed a textbook Cycle Progression pattern on a ~10-year basis – first timing successive highs in 1970, 1980, 1990 & 2000 and then timing successive lows in 2010 (Jly ‘’09) and 2020. (It also created a reinforcing ~5-year low-low-low Cycle Progression with lows in ~2010, 2015 & 2020.)
Following the July ’09 low, the CPI rallied for 26 months – peaking in Sept ’11. Following the May ’20 low, the CPI has rallied for 25 months – hitting its highest level (in over 40 years) in June ’22. That pattern also augurs a peak in the coming month(s).
In order to put this in context, from a broader perspective (since this might only be a 6 – 12 month or 1 – 2 year peak), it is important to review a few key excerpts from recent years. One of them comes from the Sept ’20 INSIIDE Track titled: Outlook 2020/2021 – 40-Year Cycle of Inflation:
8-29-20 – “There has been one primary, overriding expectation… beginning on March 16 – 23, 2020 – when a powerful convergence of daily, weekly, monthly & multi-year cycles bottomed in multiple markets like stocks and Silver… The primary expectation/projection for this period has been an inflationary surge in multiple commodities, precious/industrial metals, foodstuffs, and even equity markets…
Coinciding with, and potentially causing, that was the forecast for a 12 – 14 month decline in the US Dollar – a sell-off that was/is likely to resemble the 2017 drop and reinforce the decades-long pattern of Dollar declines during Republican administrations and advances during Democratic administrations.
The US Dollar peaked in Jan. 2017 and could drop into Dec. ‘20 or Jan. ‘21 – a slow but overall decline that would encompass the entire administration…
Inflationary Starting Pistol…
With so many metals then fulfilling major downside objectives, as well as multi-month & multi-year cycle lows, the buy signals generated in March 2020 set the stage for a significant uptick in price inflation…
The Dollar concurred, peaking on March 19 and entering what is likely to be a 12 – 14 month decline. Stock Indexes reinforced that, bottoming on March 18 – 23 in sync with the 40-Year & 2-Year Cycles and triggering their own multi-month buy signal.
As is usually the case, cycles and technical analysis fired this ‘starting pistol’ WAY before fundamentals revealed anything remotely similar…
40YC of Competing Inflation
40 years ago, inflation was considered the ultimate evil in the financial markets as 1980 was experiencing the culmination of a 3 – 5 year and 5 – 10 year surge in commodity and precious metals’ prices – a parabolic move that was crippling the economy.
Paul Volcker set the Federal Reserve into overdrive to combat that inflation. Fast-forward to the present when the concern is suddenly that there is not enough inflation. So, Jerome Powell just announced a new Fed approach that would (paraphrased) help nurture moderate inflation.
Be Careful What You Wish For!
As is the case with so many cycles, the extremes (beginning and end of that cycle) often time opposing extremes – the beginning of one move and the end of another… or vice-versa.
In this case, 1980 marked the culmination of an incredible inflationary cycle… and ushered in a 40-Year Cycle of Inflationary Vigilance. 40 years later, 2020 marks the onset of what could be a new inflationary cycle – with the first phase unfolding from March ‘20…
There is another irony at play here. It should be watched closely over the next couple years. The culmination of commodity inflation – peaking in 1980 – paved the way for a near 40-Year Cycle of Paper Asset Inflation with stocks and bonds beginning massive bull markets… in 1981 and 1982.
Could 2021 and 2022 provide contrasting action – showing that those bull markets have peaked?
Inflationary Scares?
A myriad of overlapping cycles have been forecasting price inflation – in diverse commodities and precious metals… The following is a small sampling of the commodities forecast to experience sharp rallies…
One of those was Lumber, which bottomed in 2009 and set a secondary low in 2015. Leading into 2020, Lumber was projected to set another higher low in 2Q ’20 – ushering in a ‘3’ of ‘3’ of ‘3’ wave advance projected to take hold in May ’20
Another bout of commodity price inflation was forecast for the grain markets with Soybeans forecast to see an initial surge into early-July and a larger overall surge… Then there is another key market that was projected to set a multi-year bottom in 1Q ‘20… Natural Gas was projected to decline into 1Q ‘20 before a multi-year bottom was/is likely)…
Natural Gas has fulfilled ongoing analysis for a drop from 4Q ‘18 into 1Q ’20. 1Q ’20 is the latest phase of a 4-year low-low-low cycle with multi-year support near 1.6000 – the March ’16 bottom… 1 – 2 year traders and hedgers can be phasing into long positions, and/or covering long-term short positions…
Natural Gas set its lowest daily close on Feb. 28 and intraday low on March 9 – repeatedly testing 1.550 – 1.600/NG, where major support existed… When is the next inflationary wave likely to take hold?”
Leading into early-2020, INSIIDE Track was repeatedly forecasting major multi-year lows in the majority of commodities with those like Lumber, grains, the oil complex and Natural Gas projected to set 2 – 3+ year lows and enter an initial surge into mid-2021 and an overall 2+-year rally as many of these cycle lows were 4 – 5 years or longer in duration (portending 2 – 3 year rallies to follow).
At the same time, stocks had triggered 6 – 12 month buy signals in March ’20 and were forecast to surge into 2021, with some stretching into early-2022… also linked to this 40-Year Cycle of Inflation.
Helping to kickstart this initial surge in inflation (from March ’20 into April/May ’21), the US Dollar was forecast to undergo a ~year-long decline from March ’20 into 1Q ’21 and back down to ~88 – 89.00/DX. Sure enough, the Dollar did exactly that and gave commodity inflation the impetus it needed to confirm a bottom and build some upside momentum.
Throughout 2021, the focus was shifted to 3Q ’22 as the time for the culmination of a second wave of inflation – overlapping the time when equity markets were projected to be suffering an initial sell-off. That is where most of these markets now find themselves as signs of an inflationary peak coincide with the potential for an initial low in equity values.
There could be a third wave of inflation in 2023/2024, after the US Dollar has peaked and interest rates have plateaued… but that is the topic for another discussion.” [End 7/13/22 WR Alert] “
Bonds & Notes are confirming inflation cycles and are poised for a rebound peak in late-July/early-Aug ’22 followed by another drop to new lows (and corresponding rise in interest rates). Inflation cycles are poised to keep pressure on Bonds (and consequently stocks) in 2022 and to ultimately push interest rates higher into March/April ‘23.
2021/2022 was expected to usher in a dramatic shift in multi-decade cycles – timing everything from now-validated War Cycles (late-2021 into late-2025), European Unification Cycles (2022 – 2025), Drought Cycles that peak in 2021/22 and shift to Deluge Cycles in 2022/23, Agriculture Cycles that time 80-Year shifts (beginning in 2022/23), Currency Wars (2021)… and Interest Rates.
Refer to latest Weekly Re-Lay & INSIIDE Track publications for additional details and/or related trading strategies.