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Does Intermarket analysis change with different inflation situation (deflation)?
Hi guys, as you all know there is a high change for US market (and maybe the rest of the world) to go into deflation since US been printing money like no tomorrow (QE infinitly according to my friend) so it will be important to know the general direction of major asset class (commodity, bonds, stocks, US Dollar currency).
The main reason is to know which asset class will rise more (Long with day/swing trade) or drop more (Short with day/swing trade also). Basically I'm aiming to trade asset class using ETF and Futures that are more volatile (higher ATR) to get better return/profits with day/swing trading strategies.
I been reading John Murphy's intermarket book' "Trading with Intermarket Analysis: A Visual Approach to Beating the Financial Markets Using Exchange-Traded Funds". Inside the book John Murphy did mention some general trends for the major asset class during the last deflation period (1990s & 1930s). However, John Murphy did mention that the relationship (or correlation) between major asset class change during different period (eg the 1930s 1970s 1980s 1990s and 2000s).
I would like to hear the opinions of you all and discuss a bit and hopefully we can all know how the market will behave during deflation and earn more
Can you help answer these questions from other members on NexusFi?
printing money and 0 to negative interest rates creates inflation not deflation . it also creates asset bub lies . the money has know where to go but into alternative assets when you have to pay the bank to hold your money. home prices and rents have been going up at a 5 to 10 % clip for the last few years . the stock market and gold as well. when the bubble pops it will be inflation not deflation that pops it . the FED in normal times would raise interest rates and tighten the money supply to stop inflationary pressure. they can not do that any more . we owe to much money . they would have problems making interest payments .. there now as they say in poker ( pot committed ) there is know going back to normal. there going to print money to the better end along with the rest of the world .
Maybe I should explain why I think deflation is possible. First of all USA government only provides $1200 for each person for COVID-19 relief. However, many are unemployed during the months of COVID-19 pandemic period. Non-farm payrolls show that there are millions of jobs lost. To add to the pain, the CARES act only provides three months of forbearance for loans. Means the payments for loans are suspend three payments without penalty but the interest would be summed up and charged after three months. So you will see the many unemployed people not buying stuff and saving money to repay their loans. The current economy outlook for US is still not bright with the 2nd wave of coronavirus so companies will freeze hiring as they are force to close down their factories and shops. So when many are saving money to make their money last longer and not spending, deflation happen.
QE is more inflationary than deflationary. Deflation is more relevant today because of demographics and technology.
Printing money (or for QE's sake buying treasuries, adding money to the financial system) is the most inflationary monetary policy I know of. Actually, the current deflation is the reason why the Federal reserve can do its QE programs without massive inflation. Only time will tell if they took it too far in the pandemic because there is no clear method for calculating the velocity of QE like there is the velocity of money.
Sody
"The great Traders have always been humbled by the market early on in their careers creating a deep respect for the market. Until one has this respect indelibly engraved in their makeup, the concept of money management and discipline will never be treated seriously."
flawed logic, kind of, you are missing one very important step in deflation, and that is wages also deflate. Only 14-7% are unemployed the rest receiving the checks are employed, so wages spiked.
Average hourly earnings spiked, unlike past recessions of it collapsing. A lot of these funds went to deleveraging, while there is a savings increase (a lot), the consumer habits have not changed and if anything it is pent up future spending in the near term. So if you are correct, then consumers will not spend after the pandemic is over.
You see, the increase in savings is not deflationary hide money in mattresses or a run on the financial system, but an influx in compensation. The consumer has not changed, just the amount of money that they are paid has. Consumer spending (PCE) rebounded with the recovery. In your assumption this trend in lower consumer spending would remain low and savings would trend up, not just spike.
Hope this helps,
The real question is what the economy looks like post-pandemic (2022ish), if you know let me know.
Cheers,
Sody
"The great Traders have always been humbled by the market early on in their careers creating a deep respect for the market. Until one has this respect indelibly engraved in their makeup, the concept of money management and discipline will never be treated seriously."
