Alan's Alert 8-5-2021

 

Weekly unemployment figures came out this morning. Initial claims dropped by over 20k on a non-seasonally adjusted basis. Continued claims also dropped. They are down by over 181k. This is good news on both fronts. We also had a reduction of nearly 77k off the pandemic assistance.

However, we are still a long way from getting back to pre-pandemic levels. This means the Fed will still have license to buy treasuries and mortgage-backed securities. Their day of taper is still well out in the distance.

I had previously reported that the market was pricing in an announcement at the Jackson Hole Fed meeting this month. I believe the market is going to be sorely disappointed. The continued slow pace of the unemployment picture will either cause the Fed to go off-script and taper early or delay their taper announcement until later in the year.

This brings me to the meat of today’s alert; crowded trades.

As a former follower of Robert Wenzel’s daily alert, I was well informed of the coming inflationary wave. By continuing to follow the cues from the money stock reports, we can be prepared for added inflationary pressure. Since this data is publicly available, anyone with a eye on the Fed can also be informed of the rapid expansion of the money supply. Many doubt the Fed’s transitory stance. The thinking goes; they’ve been wrong in the past, they are probably wrong on this, we should position for it.

When this happens, the market gets skewed. Players in the market can overplay their hand. Then the Fed can come in and remind everyone who the boss is.

In reality, I should add an 8th rule to my list of trading rules; don’t fight the Fed. The Fed has way more staying power than your portfolio. If you aren’t prepared to cut your losses and be patient, you could end up like this:

So, when is the best time to get off a crowded train? As soon as you can. When you are trading with the herd, you’ll get stomped when they stampede for the exits. So what’s a trader to do? Be patient. If you’ve been following along, you know that this inflation is going to stick around. We are slowly getting confirmation of this trend. Once the market comes to the same realization, we’ll know where to be; silver, oil, gold, and short interest rate ETFs.

Tony Greer sat down with Real Vision a little over two weeks ago. Tony does macro analysis at his website TGMacro.com. He is a momentum guy and has tons of market experience. His interview with Real Vision is worth a listen. At one point he talks about gold. It seems that he knows, gold is where to be in the future. Right now, he cautions to stay away because of the Fed. When the momentum guys see that the Fed is involved, they don’t want to fight that battle. All seasoned traders know not to go toe-to-toe with the Federal Reserve. His advice; soft commodities and oil. If the Fed is keeping their eye on interest rates and hard commodities, you need to go somewhere else to watch your market thesis play out.