By Kris Sayce, editor, Casey Daily Dispatch
The Federal Reserve may need to buy a new dictionary.
Or maybe the press and public should ask more questions when the Fed uses certain words.
Last month, you heard that the 5% inflation rate was “temporary” or “transitory.”
In other words, it wouldn’t last.
Many thought that meant the worst was already over… before the ink was even dry on the Bureau of Labor Statistics’ monthly CPI (Consumer Price Index) report.
One month later… and perhaps inflation isn’t as “temporary” or “transitory” as they thought.
Prices have gone up further.
We knew that would happen. You did, too.
Let’s take a closer look…
If this is your first time reading the Dispatch, welcome. If you’ve been here before, welcome back.
At the Dispatch we have two goals:
To introduce you to the most important investing themes of the day, and
To show you how to profit from them.
We do this by showcasing ideas from our in-house investing experts: Dave Forest and Nick Giambruno. And from the founder of our business, Doug Casey.
One of the biggest ideas right now is how investors can position themselves to avoid the worst effects of high inflation. We have an idea or two. We’ll show you…
Hot and Getting Hotter
As Reuters reported yesterday, under the headline “US June CPI Comes in Hotter Than Expected”:
U.S. consumer prices rose by the most in 13 years in June amid supply constraints and a continued rebound in the costs of travel-related services from pandemic-depressed levels as the economic recovery gathered momentum.
The consumer price index increased 0.9% last month after advancing 0.6% in May, the Labor Department said on Tuesday. Year to year, the CPI jumped 5.4%, the largest gain since August 2008, following a 5.0% increase in the 12 months through May.
Excluding the volatile food and energy components, the CPI accelerated 0.9% after increasing 0.7% in May.
The 5% for May was hot. And Reuters is right to say that June’s 5.4% was hotter.
The biggest increase in the CPI won’t come as a surprise. It’s for used cars and trucks. This has been one of the biggest stories of the past few months. Prices increased 45.2% over the past year.
According to the Bureau of Labor Statistics notes, it’s the largest ever one-year increase.
Granted, not everyone is in the market to buy a used car or truck. So you could argue that we should ignore that increase.
But what we can’t ignore are some of the other increases.
For instance, what about the 2.4% increase for food? Or the 4.9% increase in clothing? Or the 3.8% increase in electricity? Or the 15.6% increase in domestic gas services?
People have to eat… wear clothes… and keep themselves warm or cold – depending on the season.
Great Time to Buy These Lagging Assets
As we explained yesterday, this bout of inflation isn’t going to end soon.
And despite the mainstream fears that the Fed will raise interest rates to combat higher inflation… we don’t see that happening either. The Fed knows what happens when it increases rates – stocks fall.
The upshot of that is, we figure investors will continue to look for ways to get out of cash and into other assets.
We’ve already seen that happen in a big way. It’s one reason why property in states like Florida and Nevada is running red hot.
It’s why stocks are at or near record highs. And it’s why the collectibles market (like watches, baseball cards, fine art, etc.) is seeing huge money inflows.
The only two assets that seem like they’re not joining in are gold and cryptos. Both are down a lot from their record highs. Gold is down around 10%, and Bitcoin is down more than 50%.
But according to our Casey Research experts, that’s unlikely to last long. In fact, there’s a good case for allocating some of your cash reserves into these assets before the rebound happens.
The bitcoin trade is easy. You just buy it directly. Or you buy it through something like the Grayscale Bitcoin Trust (GBTC). It’s available to trade through most discount brokerage accounts.
As for the gold trade, there are several options. All of them have benefits. When it comes to gold, we prefer physical gold rather than a gold bullion ETF (exchange-traded fund).
And if you want leverage to the gold price as it rebounds, then buying gold stocks makes a lot of sense. As the gold price goes up, gold miners will go up, too… and should go up more in percentage terms than the gold price.
Then there’s the third option – gold stock warrants. In our view, this is the single best way to play both a higher gold price and high gold stock prices.
The Best Way to Exit the Inflation Problem
With warrants, you get the benefit of leverage if gold and gold stocks go higher. Plus, because the returns for backing the right play can be so big, you only need to invest a smaller amount.
That means you can allocate the rest of your capital elsewhere. You could buy a safe dividend-paying stock. Or maybe keep a little extra in cash (even though inflation is eating into its value).
But if you’re making bigger returns with the warrants plays, that will more than make up for any devaluation on your cash.
The question as always, with any niche investment like warrants, is “where do you get the best information and analysis on which warrants to buy?
The good news is that Casey Research expert, Dave Forest, has established what we can proudly say is the Number One service for finding the best investments in this market…
…Research and analysis that was so good that it resulted in one warrant play gaining 4,942%… another that gained 2,805%… and one current open position that is up more than 1,341%.
The bottom line is that as an investor, you must check out ideas like this. Staying in cash and hoping the bank interest rate will cover the “cost” of inflation is no longer an option.
If you haven’t yet checked out Dave’s latest research, do so now. Inflation is up, and the value of money is down. And by staying in cash, that problem will only get worse. Go here for the latest from Dave.
Editor, Casey Daily Dispatch
P.S. We mentioned the devaluation of dollars in your bank account by virtue of rising inflation. But there’s also the relationship of the dollar against other currencies and against interest rates.
For that reason, we asked technical analyst, Imre Gams, to provide some insight on the dollar from a trader’s perspective. We think you’ll find it interesting. Details below…
Welcome to Casey Daily Dispatch’s Chart Watch. We’ll look at the best technical opportunities in the market. You’ll see that chart analysis is a very powerful edge that every investor should have in their toolbox.
Our mission is to simplify price charts. We remove all the clutter and the noise, leaving you with a crystal-clear view of the markets.
U.S. Dollar Index
By Imre Gams, technical analyst, Casey Research
In today’s Chart Watch, we’ll look at the U.S. dollar.
Unless you are trading currencies, or otherwise have a vested interest in the dollar’s exchange rate, you likely wouldn’t pay too much attention to DXY – the dollar index.
However, it can provide a lot of valuable insight into the broader market’s behavior.
At times, the dollar’s relationship to other asset classes can be incredibly complex. For example, you could have a rising dollar and rising stocks… or you could have a rising dollar and a bearish stock market.
Whether a bullish dollar is good for other markets depends entirely on context.
For example, one age-old understanding of the dollar is that when U.S. bond yields go up (which means bond prices go down), this is also bullish for the dollar.
Investors will typically borrow low-interest-rate currencies to invest in higher-interest-rate currencies. This is perfectly logical. Therefore, when U.S. interest rates rise, the dollar will rise in relative value as well.
This logical relationship has been flipped on its head most recently since May 25. The U.S. 10-year yield has steadily dropped while the dollar gained ground.
Let’s now look at the chart I have prepared of DXY alongside the U.S. 10-year treasury yield.
Take note of how these two markets usually move in concert over longer periods of time.
Of course, there will be times when this correlation weakens, like it has since May 25.
When it does, the important question to ask is, “will the yield eventually follow the dollar, or will the dollar follow the yield?”
This is where fundamental and technical analysis intersect quite nicely.
At Casey Research, we continue to be bullish on commodities and believe that the inflation trade is still in its early stages. This conviction is backed by our fundamental research and allows us to hold a long-term view.
Technical analysis will help us pinpoint when this longer-term correlation strengthens once more. This helps with timing the market from a more tactical, short-term perspective.
Until next time,
Technical Analyst, Casey Research