High Growth, High Inflation

Macro Perspectives

Stocks continue to respond to a massive fiscal spend, that bubbled up very quickly, to combine with a Fed that appears to be signaling a continued low rate environment.

As we discussed over the past two days, the advancement of these spending packages had "Build Back Better" written all over it - justified by high inflation and (manufactured) negative growth in the first half of the year. Biden couldn't help himself but to admit it (that it's BBB) in a speech yesterday afternoon.

Like it or not, this is more fuel on the fire - a green light for a resumption of the rise in asset prices…

Let’s take a visual look at asset prices.

This trendline representing the decline since March (when the Fed started rate liftoff) has broken.

And the combination of more fiscal spending and less monetary tightening should mean pain for the dollar (i.e. lower).

A falling dollar should resume the bull market in commodity prices ...

Welcome to the high growth, high inflation environment.

NB: I previously (10 July 2022) pointed out a Beta Trade Idea between the symbols UUP & GSG. For a numerical look at the spread relationship, please revert to the post.

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