Get Ready to Make a Killing

Hey There Income Hunters,

As regular readers know, I have been pushing for trades to front-run a change in the transitory inflation narrative and thought Friday’s payroll number might be the turn …

And it certainly was …

      • Non-Farm Payrolls came in much lower than expected at 235k versus 725k expected …
      • On the inflation side, average hourly wages came in at 4.3% much higher than the 3.9% y-o-y rate expected …

Slower growth and higher inflation.

It’s the worst of both worlds for the Fed and government because it demands a dovish (stimulative) monetary and fiscal policy in the face of higher inflation …

Today I’ll give you the trades that capitalize on any delay of a tighter policy and possibly further printing of money instead …

Signs of Stagflation Strengthened in August

Stagflation is an economic condition driven by slowing growth with higher inflation.

Let’s take a quick look at the key signposts …

The Growth side of the Economy

Currently the most forward-looking growth numbers have turned down, as validated by:

      • Consumer Confidence, as measured by consumer sentiment, is nearing record lows …

      • Retail Sales plummeted in July and have only shown a meaningful advance after stimmy checks were distributed …

      • Growth, as measured by GDP projections, is sinking for Q3 based on the Fed’s model and — and that is much higher than the average of top banks who report under 3%.

This is half as much Q3 growth as the bank expectations reported in May …

The Inflation side of the Economy 

      • Natural Gas demand is soaring, mostly for powering air conditioners during the summer months. We can also expect the same from oil, as increased driving drives oil prices back to the highs.

      •  Rare Earth Minerals prices continue to soar driven by demand for batteries, defense weapons, electronic technologies and green energy. These costs will have to be passed on for finished goods.

      • Transportation of Goods Prices have pressured the Baltic Dry Index, which measures the price of moving raw materials globally. These prices are contributing to supply chain issues, which continue to fuel higher prices of essential goods and services …

The Strategy: Purchase Undervalued Commodities

In my view, the energy sector via SPDR Select Fund ETF (Ticker: XLE) is a low risk/high reward strategy …

Consider purchasing a $XLE 50/51 call spread to Oct. 15 for $.30

This strategy offers a potential 233% gain with a decent probability of success based on the technical setup of a rising 200-day moving average and daily buy volume compared to sell volume …

You can use a close below $47.64 as a stop loss if you want to limit your downside …

iShares Silver Trust ETF (Ticker: SLV)

We all know the demand side of why silver prices will rise over time. Silver is not only a key ingredient for electric vehicles, but also for solar panels. The technicals are just turning positive with a strong move above the 50 DMA on higher than average volume …

We may see a test of the breakout, so look to put on bullish strategies on a correction towards $22.5 with a stop loss on a close below $22.12 …

 

I think the best value for the next month is to put on a bullish one-month month call spread …

Consider purchasing a $SLV 13/13.5 call spread to Oct. 08 for $.15 to $.20. This is an excellent risk/reward with a high probability of success.

Bring It Home

The trades I have been recommending are designed to get out in front of the “transitory inflation” narrative, which I constantly said is B.S.

Now the Fed has put itself in an even tougher spot

With growth slowing, the central bank may have to continue to let inflation go and the dollar decline, which means commodities will become overvalued once again.

Jump on these new positive trends in undervalued energy and metals and stay ahead of the crowd.

Have a great holiday weekend, and as always …

Live and Trade With passion My Friends,

Griff   

 

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