I was waiting for the last bullet in the Central Banks’ guns to be fired: a concerted rate cut. They did that tonight. As a result, the ES gyrated up and down, and the 30-Year Bonds tanked. For the first time, I am starting to feel that the word recession is too weak to describe the coming events.

For some time now, some commentators I respect have been suggesting we shall be entering a deflationary/stagflationary phase where stocks, commodities, and real estate drop while interest rates rise. Initially I gave the deflation scenario low probability occurrence - recession yes, deflation, unlikely.

But the FED performance has been so inept that I am starting to have second thoughts. I was looking for a repeat of the 1966 to 1982 scenario rather than the 1929 to 1936 one. Now I think the 1929 scenario is at least possible.

I think the jury is still out but I have to admit the ‘D’ phase has become more probable.  Still we still have some bright spots.

One bright spot on the horizon has been gold. If it can continue to rally, then we may just get away with a recession. The other bright spot has been the ability of Crude Oil to hold above 82 to 85. As long as the levels hold, this may still be a 12-month (yearly trend) correction.

If Gold and Crude Oil can rally, then the deflation scenario becomes less likely.

By the way, don’t you find it interesting that rates are cut and the 30-year Bonds tank? What is the bond market telling us about the prospect of inflation in the months to come?

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