Inflation is the key component right now
From the Stansberry NewsWire:
Global stock markets are experiencing a rout. Just last week, U.S. markets entered correction territory (a downward move of over 10% from recent highs) for the first time since early 2016. The key piece of data driving this move is inflation…
Since the beginning of the year, market strategists and fund managers have said their largest concerns for the markets was a pickup in inflation. The markets have enjoyed this incredible 10-year run due to a low-growth, low-rate environment. When taking a 10,000-foot view, the cost of fueling growth has remained incredibly low. Tech companies like Amazon (AMZN) have taken advantage and reaped the benefits. They have been able to grow and dominate their competition because the cost of capital has been so low. Coordinated global growth by the world’s central banks has helped foster this environment.
Now, the game feels like it’s beginning to change. Central Banks are feeling the need to retool their armories before the next crisis. The Federal Reserve is raising interest rates and letting debt investments mature without rolling the money back into the market place – in other words, they’re pulling back on stimulus.
European Central Bank policymakers have said they are open to adjusting their policy guidance to align more with a strengthening economy. The People’s Bank of China has discussed cooling lending in the country to bring its debt burden more under control. Bank of Japan are board members are questioning continued stimulus.
These moves are signals of easy money policies potentially ending.
Now enter the hedge fund masters – Ken Griffin of Citadel, Paul Tudor Jones of Tudor Investments, and Ray Dalio of Bridgewater…
They are great at their craft because they are genius salesman. They are always searching for the path of least resistance and know how to craft a story around it and sell it to the public once they’ve established a position. They have found exactly what they’re looking for with inflation.
They realized the markets had become so complacent that taking the opposite bet was a quick way to profit. They saw they euphoria headed into year-end and received confirmation just a few weeks ago when equity investment inflows saw a record $25.7 billion. It was time to pounce.
Since that time, all three have been outspoken on their inflation concerns. They have sent letters to investors that have miraculously found their way to the media discussing these concerns. As recently as yesterday, Mr. Dalio was making headlines for having increased his bets against the stock market.
Tomorrow morning’s Consumer Price Index (CPI) data will be telling for their directional bets. CPI measures a basket of consumer goods and services to gauge the cost of living for individuals. The market is looking for a 0.3% gain month over month, and a 1.9% gain year over year. If this data is in-line or weaker, Dalio, Griffin, and Jones are about to experience a “pain trade” as their short positions in bonds and stocks will need to be bought back in. But if the CPI data is stronger than expected, the rest of the market is about to experience a “pain trade” of its own.