Hey There Income Hunter,

This week we’re likely to see a continuation of the tug of war between high inflation and economic recession.

Weak economic news and quarter-end buying could extend the S&P 500 rally from Friday. You can see in the sector snapshot below all sectors were up except one:

Energy went through its worst tw-week down trend in 40-years … I could see the sector consolidating into August but this down trend presents opportunity. 

Today, we will look at signposts for what and when to buy in the energy sector.

The Cycle

Historically, high inflation periods will include bouts of stagflation followed by disinflation and then deflation … 

Sentiment has swung to deflation, as shown by the incredible drop in commodities over the past two weeks. Notice the vertical drop in the Bloomberg Commodity Index (BCOM), which has fallen to a new 3-month low … 

The 14.5 area is a level I am watching as support for buying commodities that are anticipated to be in short supply. 

Let’s take a look at a watchlist of commodities that many Western nations no longer have full access to. The list below shows which commodities Russia and Ukraine combined are either first, second or third in the global exports rankings …

Of this list I am most focused on the energy commodities: natural gas, uranium and crude oil. I am also looking for exposure to nickel and potash, which is demanded for fertilizer, as well as wheat. 

The two areas of the economy the Fed does not have much impact on are energy and food. It purposely leaves them out of its favored inflation measure, core CPI for that reason.

However, they are essential consumer needs.

So I believe the Fed will be forced to abandon its inflation fight and go back to quantitative easing to avoid a debt crisis.

When that happens these commodities of choice will take off for the second leg of their long-term bull market. 

Bring It Home

Timing is everything. I believe the Fed will pivot away from tightening in the next 2-3 months. 

In the meantime, the Fed’s tough talk and high interest rates inflict a deflationary force on the markets that will pressure most asset prices into the summer … 

I am looking to build bearish positions in QQQ and real estate ETFs next week. I want to be set up for what I believe will be worse-than-expected earnings and economic data in July and August …

Stay tuned to Power Income free daily newsletters for more details throughout the week and as always …

Live and Trade With Passion My Friend,

Griff