Greer: The Inflation Trade Just Caught Fire Again

Your Real Vision Daily Briefing for August 18, 2020

Ash Bennington hosts Tony Greer, editor of The Morning Navigator, to discuss the S&P 500 breaking record highs and the wild inflation trade.

  • Inflation is manifesting itself all across the market and multiple indicators are giving confirmation and confidence to lean into the inflation trades.
  • Inflation may also push bond yields higher, which could have impact on the stock market, however the broad S&P rally isn’t something to fade as long as low interest rates persist.
  • Investors should size positions carefully keeping in mind the distinction between an investment and a trade.

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We’re seeing inflation cropping up across the market and it seems like the inflation trade has caught fire again, Tony Greer, editor of The Morning Navigator Newsletter, told Real Vision during today’s Daily Briefing.

Greer said that there have been several legs to this trade: gold getting out in front, the economy is doing better than anyone expected, 5-year forwards are going higher, TIPS are trading bid only, and the yield curve is steepening. All indicators are giving confirmation and more confidence to lean into the inflation trades, he said.

Greer thinks inflation trades and the commodities breakout will continue and even accelerate through the second half of the year because central banks won’t pull back on monetization.

The bond market is pricing in more economic activity and possibly more inflation, Greer said, and he’s expecting a selloff in the bond market in response to inflation data that he thinks will be much higher than anticipated.

Greer said inflation is showing up all over the screens and he is expecting yields to go higher as a result. If yields go higher, it could have an impact on the stock market, but Greer thinks it will be met by the Fed, so the broad S&P rally isn’t something to fade as long as rates stay in check.

Greer said the market is handing out opportunities when it is trading at volatility like this, but urged investors to size positions carefully. Personally, he said these are trades for him and so he sizes them like risk trades.

His strategy is to move capital to markets when he thinks fundamental stories are going to pan out, establish a position, and leave a trailing stop as things go his way so he is always protecting his profits.

“Investments are one thing; trades are another,” he said.