I just saw a chart from Lehman’s Degraaf (enclosed below) that is both shocking but explains some things – to me anyways. Inflation expectations are extremely low.
Retail stocks are acting giddy. Best Buy, Nordstrom, Abercrombie, American Eagle, Gymboree are all running at or near all-time highs. HUH! Harley Davidson, a favorite of shortsellers for… well forever, is hitting all-time highs.
The American consumer is TEFLON. Make that ZINC. Take a look at the ZINC chart as well. I put it on my huge nose in the summer, but there must be other markets.
Here is my takeaway. I don’t like the inflation chart. I have no real evidence of this chart alone that inflation expectations or the market will give, but I have an inkling that the gap will close.
I hate owning retaill stocks. I avoid them if given a choice. I have plenty of them now (choices). The two that I own, Chipotle and Apple are rock solid stories for ME. Maybe not for you.
Although the goldminers have been shellacked, I am impressed with the actual price of gold considering the huge drop in inflation expectations. I am inclined to add to my long-term positions here as hedge on rising inflation expectations. I started nibbling last week on some beaten up gold stocks. I will let the retail stocks run without me and look through the hundreds of all-time highs for more satisfying longs.
With respect to real inflation – Come on…. airfare, eating out, hotels, porn, Chartreuse’s new site :) . I see inflation everywhere.
You gotta trade what you see. I too see inflation in the pipeline, lots of it including that stealth inflation crap. However the gold and oil markets are being held down by unknown forces. Maybe by UFO’s? Ulterior Financial Officers?
So in da meantime I drink wine.
Inflation is to gold what earnings are to a stock. When the stock is overpriced and on its way down from a speculative peak, even increased earnings won’t necessarily drive the stock to new highs. Gold is in a downtrend and potentially hitting support soon, but it is in a downtrend from a speculative peak.
I’d think the best that could happen is gold breaks the downtrend and consolidates between 575-600. The worst is it breaks 575 and rejoins its old trend channel.
Not arguing that inflation doesn’t exist – it does – just arguing that gold’s speculative bubble has (temporarily) disconnected it from inflation.
Inflation/stagflation – my guess is they will come back in full force once all the housing BK’s start filtering into the mix – mid to late 2007. But until then, enjoy the ride up.
I too dislike retail. The kids change their fashion likes and dislikes too frequently for me.
Tom: Nice UFO comment. Someone is doing a good job! Maybe the Plunge Protection Team has more than one motive!!!!