Has the Fed De-iced Inflation From its 40-Year Lull?

December 11, 2019

Mish's Daily

By Mish Schneider

blankBefore takeoff, when the thermometer shows sub-freezing temperatures, the airlines send out de-icing equipment.

The fluid is a chemical mixture that is heated and then sprayed to remove ice and snow on an aircraft.

However, it has a limited ability to prevent more ice from forming.

I love this analogy for current market conditions and particularly for Jerome Powell’s comments today about the future of rates and inflation.

We already know there is a disconnect between the Fed’s metrics for inflation and reality.

In fact, the Fed speaks mainly to investors, as most folks-statistically 61% of folks polled-do not think the stock market has any impact on their financial well-being.

Even more interesting is that 40% of those polled did not even know the market has gone to new highs.

Disconnect? You betcha.

My takeaway is that first, I wish more folks were aware of the market and how to make money in it.

Secondly, Powell said, “In order to move rates up, I would wanna see… a significant move up in inflation that’s also persistent.”

With inflation already a factor for those who buy things like food, healthcare, clothes, etc., Powell’s comments contradict the notion that most (61%) think the market does not impact their wealth.

Even if the DJIA does not, inflation and the falling dollar definitely will.

Yet, we are traders and want to make money in any market condition.

Furthermore, MarketGauge educates both the novice and experienced investors. I particularly hope to teach those who feel disconnected from Wall Street.

If the Fed has de-iced inflation from its 40-year lull, what do we do for 2020?

Recently, I did an interview on Real Vision.

I covered several strategies.

The silver to gold ratio was one. Although we had one humongous move in silver in July, since then it has sat dormant.

One more push higher in silver, and I can officially call a bottom. We just need a little more patience.

I also covered the economic Modern Family. As usual, I talked about the need for the “inside” factors-Retail XRT, Small Caps IYT and Transportation IYT to partipate.

As Semiconductors soared to another new all time high, the “inside” measures did little.

In a Daily from last week I wrote, “For my money, I will be watching IYT to either get through 195 and alleviate the tension, or break below 188.25 and send an ominous signal to his brethren.”

To prepare for stagflation, watching the metals and the dollar make sense.

I also talked about sugar futures as a well-kept secretive way to see how inflation may pick up and for how long.

Right now, sugar futures awoke from a base. Trading at its highest levels since July, sugar has the potential to blast off from here.

In that case, consumers will surely feel the inflation pinch as sugar is the cheap “high” most reach for, especially during holidays and when things are tough.

So yes, the Fed is trying to de-ice with its comments about the moderate growth in the economy and the desire to see higher inflation.

But, like the airlines, the Fed has limited ability to prevent further ice or “inflation” from forming.

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S&P 500 (SPY) 313 or the 10 DMA support. 315.48 the ATH.

Russell 2000 (IWM) 161.10 support 162 pivotal and 163.41 high to clear

Dow (DIAb Inside day on the 10 DMA support. 281.91 ATH

Nasdaq (QQQ) 203.87 or the 10 DMA support 206.05 ATH.

KRE (Regional Banks) 56.00 pivotal 57.52 major resistance

SMH (Semiconductors) 132.82 or the 10 DMA support 136.54 the new ATH

IYT (Transportation) Inside day. 188.25 key support and if fails, will impact everything. Resistance at 192.40 then 195.

IBB (Biotechnology) 116.30 key support 122.97 the 2018 high

XRT (Retail) 44.15 support 45.41 has to clear next

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