A Whiff Of Inflation

There have been more than a few research papers and newsletters that have opined inflation is about to rise up, all written by a slew of wise men and wiser CFAs. There is no disagreement that US policy is expansive and accommodative at a time of full employment, record stock market, and a booming GDP. Rates are low, tax cuts are generous, and things are pretty good except for some hot political fights in DC.

We have no idea if inflation is about to re-enter through the door, but are more than aware of the demand side of a lot of our markets. Scan across commodity balance sheets such as wheat, soy, corn, coffee, cocoa, crude, and yes cotton all have record or nearly so, world consumption. Some markets, such as sugar, hogs and cattle are in demand declines because of changing diets and health concerns. If there really is a recipe for inflation, traders should look for markets with good demand stories, and that are trading at below cost of production.

Varner View

It is hard enough to forecast a balance sheet in order to determine a trade idea, but when trying to factor in inflation, it gets downright goofy. We have been reading of this impending force for years, and it never seems to arrive. However, best not to be blindsided. Gold has a breakout near term at $12.20, while the Buck breaks down at 93.40. If inflation is confirmed, which will take months, we will not pursue owning crude or cotton, which are currently much above costs. There are many others that are prettier and below cost.

Technicals

Bear flag? These things never seem to work, and same for head-and-shoulders. One chart pattern that is easily seen is the double low on spot at 7850. Spot May traded here on 4/04 and spot Oct on 9/20. This chart indicates long term support via the trend line off the Mar 2016 and Oct 2017 lows, crossing this week at 7350. The line rises 10 ticks/week. The 144 week avg coincides with the trend line.


As always, please use protective buy and sell stops when trading futures and options.

Disclaimer: Trading Futures, Options on Futures, and retail off-exchange foreign currency transactions involves substantial risk of loss and is not suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. Any decision to purchase or sell as a result of the opinions expressed in the forum will be the full responsibility of the person(s) authorizing such transaction(s). BE ADVISED TO ALWAYS USE PROTECTIVE STOP LOSSES AND ALLOW FOR SLIPPAGE TO MANAGE YOUR TRADE(S) AS AN INVESTOR COULD LOSE ALL OR MORE THAN THEIR INITIAL INVESTMENT. PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS.

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