*EDIT in text quote on left of chart - *Synchronicity in between
I have created an equally weighted portfolio of 5 sustenance based commodities including Soybean, Soybean Oil, Sugar, Wheat, and Maize (continuous fwd contracts). This is an update to the first chart I have published (rough rice) which isn't updating for some reason but if you see the RR1! graph on another website you will see that my analysis is 100% on point so far and even identifies exact msp level prior to breakout. I am expecting sustenance based commodity hyperinflation in the coming years as we enter a macroeconomic environment that the economics textbooks have never described. The money manager commitment data points to breakout, technicals show clear range suppression and evident accumulation pointing to impeding breakout. Global trade statistics are abysmal, statistics of subprime/consumer debt/corporate debt delinquencies are abysmal, PE ratios of leading equity markets are abysmal. I do not wish for this to happen because this will affect billions of people but this is most likely what is going to happen. Best of luck.
How and why are you equating commodity price moves to hyperinflation? Price always move up and down in commodities and has nothing to do with hyperinflation which only occurs when faith in government fails completely. Whether that comes or not, I can see no correlation between your chart and that subject. If you think I'm missing something, feel free to educate
RahulAndra
⋅
Hello TTCSteve, Please PM me and send me your email ID so I can send relevant fundamental as well as quantitative data substantiating my claims that there will indeed be a complete loss in consumer confidence within the next two years. One can make simply realize the tremendous divergence that this basket has had from market specific fundamentals if they observe agricultural commodity price action pre 2000s and analyze volatility and liquidity inflow at times of cyclical recession and compare it with post 2000 data (and of course along with the utilization of some well done long TF technical analysis).
RahulAndra
⋅
Also please do read the text in the chart carefully and address any particular claim if you disagree. The commodities in this basket are some of the most widely used goods in the world and play apart in all of our lives on a daily basis. This basket has a cash volume of several trillions on a yearly basis, it is not natural for such a good with inherent value to display this kind of directional volatility unless there is a serious issue with the purchasing power of its denominator (the $) - and no one can disagree that the aggressive expansionary monetary policy conducted in the past decade in response to recession has only postponed a certain type of calamity that results from overwhelming fiscal deficit that must correct itself sooner or later either by default or by war (take a look at current debt to gdp ratios of nations around the world and also take a look into the exponential properties of compound interest). We may be going back to the 30s/70s.
TTCSteve
⋅
Hello Rahul, thanks for the replies. For a start, I think what's happening is that you're confusing my point about Hyperinflation and the role that commodities have to do with it. As for the data, I've been a Futures trader for 20 years, so think I have a handle on at the very least rudimentary price action.
In terms of the $ and monetary policy and other misguided central banker actions, I don't see your point. For me, the Dollar whilst possible we have a little pop down to complete the correction should over the next few years see major upside as I see it. My charts aren't done in TV so will need to send them via email. I don't disagree that there's to be some market changes and struggles, but I'm looking for the periphery Europe and Asia to suffer first and a large upside for the U.S. with in-coming capital flows escaping the mess outside over next few years before any of what you're talking about can come to fruition in the U.S. I don't disagree it's a mess fundamentally, but markets are another kettle of fish.
RahulAndra
⋅
What a privilege to converse with such an experienced futures trader. I hope to have a skype call with you and do a screen share to show you my content. I shouldn't have used the word hyperinflation in the title, I meant to claim that agricultural commodities themselves will experience severe price inflation within the next 3 years - I wasn't alluding to the entire CPI basket as being prone to hyperinflation.
Respectfully, I think you are underestimating the severity of the situation sir. Asia and Europe are definitely underwater but if you think that the collateralized debt issue in the US pre 2008 was big then the magnitude of what is about to occur cannot even be compared to the 2008 MBS crisis (cash volume of delinquencies on mortgage/consumer/corporate debt is currently higher than in 2007 Q1) - and I am only mentioning this because these are data points that everyone can relate to. There is plenty of data that can be defined as severe anomalies in industrial production/home-ownership trends/real income and income disparity etc. Take a look at the subprime delinquency index for yourself please. Nothing has changed from 2008, everything has just gotten postponed and its much worse this time around. In my opinion whatever liquidity outflows we see in the next few years from troubled markets will not be going to US asset classes but will instead be going to assets considered as global safe havens (REM/Sustenance commodities etc.) - especially with fixed income debt at the brink of negative interests rates in the US as well (PE ratios in US equity market crossing 2008 highs). I don't want to sound like a doomsday parrot however I have quantitative data to back my assumptions that I am more than glad to share.
Looking fwd to further discussion.
TTCSteve
⋅
I'm a macro trader so I do spend some time on these points. When it comes to markets the effects you are talking about are not how markets play out in my experience. And the biggest misconception is that QE (quantity of money theories) represents liquidity, when in reality it has done nothing of the sort with the velocity of money at standstill levels. Growth and confidence are slowing rapidly and the derivative burden will be felt by those that have borrowed dollars whilst having a different currency as their base....a double whammy of asset deflation and currency exposure that likely see's the hundred's of trillions in derivatives and debt obligations eventually work out as distressed with a 10% or probably more like 5% payout figure when all is said and done. These derviatives are dollar based which means at some point the demand for dollars will outstrip supply at record levels. That is deflationary on many levels.
Every man and his dog see's dollar weakness and an end to the reserve currency due to debt to gdp level's etc....the problem with those calculation's are that government does not plan to pay them back and will just roll them forward in perpetuity if need be, or deferred indefinitely based on future tax bases. Government is always a bad creditor to have and that goes for all governments.
The only place that will be safe, and I use that term loosely as the US also has it's issues as you are pointing out, but the only place will be in US assets and cash at least for a period of time. Eventually the US too will have to pay the piper, but it will be last to fall. The undoing of the US will most likely be too much dollar strength, not weakness.
RahulAndra
⋅
Nowhere in my answers did I say that the funds utilized during the recent Quantitative easing programs directly contributed to increase of consumer/corporate credit present in the system. That being said, the bouts of quantitative easing that we have lately seen comes under the category of an aggressive expansionary monetary policy - the reason is that these policies have put significant pressure on the interest rates obviously resulting in a tremendous increase of borrowing debt as we have seen from the latest debt volume stats from the FRED. Total outstanding consumer credit owned is at ~$3.56 Trillion which is an 44% increase from Q1 2007 where this figure was at $2.46 T. Total Non-Banking Financial Corporate debt liability is at ~$5.5 Trillion which is a 47% higher than the same figure calculated in Q1 2007 where this level of debt was 3.2T.
Everyone who does their homework knows that the QE program resulted in the buyback of MBS and govt bonds. Regardless of the liquidity of money in the system if the total number of market participants has not drastically changed then a significant volume of default that the latest data is clearly displaying can still damage the integrity of the system, so if one believes that MBS crisis was an extremely harsh burden on the US economy in 2008 then one must be inclined to expect a crisis of the same magnitude as there has been little regulatory oversight and the volume of debt is more significant than it was in 2008. Civilian labor participation in down from the 2007 Q1 level of ~66.4 %to the most recent level of ~62.8.%, the number of market participants have clearly decreased and the fact that this % is lower than what it was during the 2008 recession and that consumer and corporate debt are both over ~45% since Q1 2007 is extremely scary.
When interest rates go up there will be pressure on inter bank lending rates and that will cause banks to place a tightening grip around oustanding debt and when the current debt levels are this significant and majority of metrics concerning global trade and production are on a rampant decline, one has to find it tough to be bullish about the next couple of years.
Sir, this is not the first time that the US has conducted quantitative easing. There was a round of quantitative easing done in the early 1960s by the FOMC where the govt sold short term maturity govt debt for long term govt debt and you can see what happened in the years following (early 70s as well). That disaster unfolded in a matter of 9 years from the point that the FOMC began operations, if I am indeed correct and what I expect to happen takes place in 2017 then it will be exactly 9 years since QE1 in 2008, that will be uncanny.