J-Pow is the Fed-boy who cried wolf…

Hey There Income Hunters,


It’s awesome to turn the page on April showers and enter into the transitory period of May flowers.

However, before we get to the there, we have a bit of a storm to deal with next week as investors must absorb an all time record in the quarterly 3-year, 10-year and 30-year treasury bonds … 

And  in the middle of bidding for all that supply, the Bureau of Labor Statistics (BLS) will report what will likely be the highest Consumer Price Index (CPI) inflation number we have seen in years. (That will be announced on May 12.)…

But the inflation that’s coming will be anything but transitory.

And it’s not hallucinatory, exaggeratory or even inflammatory.

What it is … is here to stay.

On Friday, even the Fed’s manipulated inflation statistic — the personal consumption expenditure (PCE) was 2.3% — officially over the central bank’s inflation target of 2%.


The key now is the “10-year real rate or return,” meaning the 10-year rate minus the  inflation rate as measured by the consumer price inflation (CPI). Gold tracks the 10-year real rate very closely that is why it is such a powerful indicator…

As the real rate moves further into negative territory, silver and gold prices will rise — and last week the technicals in gold turned positive … 

Today I want to share two very important pieces of information that can help you in the days ahead:

  • My iShares 20 Plus Year Treasury Bond ETF (Ticker:TLT) short versus gold long is killing it and I plan on adding early this week …

  • There is also the top Gold miner stock reporting earnings this week … A major buy signal has also been confirmed with a doubling of the stock expected within a year while also collecting a 1.75% dividend …

There is also the top gold miner stock reporting earnings this week … A major buy signal has also been confirmed with a doubling of the stock expected within a year while also collecting a 1.75% dividend.


The 10-year Real Rate/Gold Relationship

 In two weeks, we could see the real rate go back below -1% …

That’s notable, because the last time it was there, gold was above 2,000 — and I think it will take out that high by the end of June.

The final big test for gold since it moves with Treasury Bond prices is getting through the next couple of weeks of record supply in Treasuries just as the CPI number is reported… 

You see, Gold and the 10-year real rate of return both track inflation… However in this cycle inflation is a much stronger driving force… I believe in the next 2-months Gold will lead the market higher as inflation is stronger the Fed anticipates…

That is why I am short iShares 20 Plus Year Treasury Bond ETF (Ticker: TLT) versus my silver, gold and gold miner positions right now… This trade perfectly fits my opinion that Gold will crush Bonds as inflation picks up…

 I own the TLT 139-137 put spread expiring May 14. So I’m looking for TLT to settle below 137 on that date. Here’s why:

 I am just as bearish on bonds as I am bullish on gold until the 10-year yield rises above 2%. 

That’s because this relationship is so critical as inflation rises. In the 1970s, the US had very little debt so when inflation rose and the Fed was able to raise rates over 6% in just a few years to fight inflation and bring real rates back to zero

And gold? 

Well, it collapsed after rising 800%. See it in the chart below …



Today, as inflation rises, the Fed will be forced to lower rates not raise them… this is because of the enormous debt… the Fed will have to deploy yield curve controls to hold rates down to ensure high real GDP (GDP + inflation) growth. 

Yield curve controls is simply the Fed using QE to buy bonds and keep their yields below a target they choose… Most likely that target will be 2% or 2.25%…

That is their solution for decreasing Federal debt …

The Fed can create 10% real GDP and that type of real growth over many years can get debt back to normal levels, meaning a move from 135% debt-to-GDP because at that level our enormous debt suffocates growth… The Fed goal is to get GDP as high as possible… Historically central banks try and grow their way out of debt…

A Gold Miner Ready to Break Out

The stock that Warren Buffet had a love/hate relationship with about a year ago, Barrick Gold (Ticker: GOLD), is hot again.

A few things to note:

– GOLD has very strong fundamentals and the technicals just turned positive as well.

      • – Barrick has a fairly new management team that has worked very hard to strengthen the company’s balance sheet.
      • – Leadership has worked to reduce long-term debt and increase cash and short-term investments.
      • – They are making a lot of money and report earnings pre-market this Wednesday.

What’s more, a key technical buy signal is also supporting the stock …

It’s called a moving average convergence divergence (MACD) and it’s a very useful momentum indicator that can help traders know when to buy or sell.

Here’s how it’s calculated:

      • – The MACD is calculated by subtracting a 26-period exponential moving average (EMA) from the 12-period EMA…
      • – That gives you the MACD line… Then a 9-day EMA of the MACD “signal line” is plotted on top of the MACD line…
      • – When the MACD crosses above the signal line it is a buy signal. Crossing below is a sell signal. 

In the chart below you can see the MACD crossover in the lower panel and the current prices rising above a rising 200-day MA which signals a continuation of the longer-term uptrend….


Bring It Home

Remember: positive fundamentals and technicals put the odds in our favor. As #IncomeHunters it’s what we seek — a favorable situation with powerful macro forces supporting us.

Have a great week and always…

 Live and Trade With Passion My Friends,

 Griff

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