Hey There Income Hunter,

I hope everyone enjoyed the fireworks and cookouts over the long holiday weekend …

Now it’s time to prepare for what should be the finale of an explosion in rate hikes that will result in a Fed pivot back to quantitative easing …

The Fed has pushed the economy into recession as confirmed by its own Atlanta Fed’s GDP NowCast, which was revised down to negative 2.1% for Q2 last week. 

We have forward-looking manufacturing data, the US labor market rolling over and consumer confidence plunging.

This can only mean one thing …

Jerome Powell will ride to the rescue of the global economy by reverting back to QE.

Of course, he will claim the Fed was forced to shift back to stabilize economic growth over fighting inflation. 

Today I will present the key data and stocks to focus on this week as we move closer to the biggest event of the 2020s. 

A V-shaped Recovery in Commodities

The investor sentiment narrative shifted this past week from inflation being the hot topic to recession. This has dramatic implications of trends. 

Recession implies a drop in most consumer prices, and with inventories high and sales low that is what we are getting. 

We should see a continuation of this trend in all items except food and energy in the next couple of months …

This will cause a deceleration in core CPI, giving the Fed cover to shift back to QE, which will ignite a renewed rally in commodities. 

You see, as I have said many times, once the inflation genie breaks out, it is impossible to get it back in the bottle. 

The graph below shows that the US has already breached the short-term cycle highs of previous inflation periods. We are now in the “sky’s the limit” breakout levels of past high inflation periods …

We may see pull back from the current mid 8% inflation numbers down to 6.5 – 7% area. This pullback may push commodities a bit lower but it presents a great Fed pivot trade opportunity.

Let’s look at a must-own Fed pivot commodity …

Silver Near Rock Bottom Prices

The chart below illustrates how cheap the gold miners have become. The yellow line represents investor sentiment while the blue line represents the price of gold.

Silver will ultimately present a greater reward than gold once the Fed pivots, so I have been focused on long silver/short stock index strategies.

I am building bull iShares Silver Trust (SLV) miner strategies hedged with bearish Invesco QQQ Trust ETF (QQQ) and S&P 500 Index ETF (SPY) strategies. 

SLV has reached extreme levels of bearish sentiment and when the Fed pivots it will offer excellent risk/reward parameters. 

Notice the technical setup with a low RSI and possible fake breakout below the 200-week daily moving average. 

Other Commodities to Watch

Heading into August keep an eye on Copper (CPER), Natural Gas (SWN) and Wheat (WEAT). They have all gotten slammed due to the shift towards recession over inflation …

However, the Fed pivot will quickly swing the pendulum back to inflation and the commodity/metals trends will be back in full force. 

Bring It Home

My plan is to continue hedging silver and silver miner longs with QQQ & SPY into the July 27 Fed meeting and then consider closing the hedges and riding the longs. 

The data and earnings reports this week and next are critical to watch for recession and inflation signals. Notice this week’s key reports and Fed speakers below.

Jobs reports, including jo openings, quits, initial unemployment claims and the full monthly jobs reports are critical.  

Then the second week in July brings over 100 billion in bond supply and the CPI on July 13, along with bank earnings.

By mid-July I will have a clearer picture of the timing of the Fed pivot.

Stay tuned and as always …

Live and Trade With Passion My Friend,

Griff