This fascinating chart shows the link between commodity prices and populism

It’s not an uncommon opinion that the combination of superlow interest rates and bond buying by central banks with aggressive fiscal spending will lead to a surge in inflation.

Barry Bannister, head of institutional equity strategy at Stifel, won’t disagree but thinks it will take decades to play out. He expects the combination to end in tears — in the early 2040s.

Bannister recently shared this fascinating chart.

He notes that when commodities bottom in price, there’s been a rise in what he calls “reflationary political populism.”

MW IJ937 bannis 20200707112301 NS

That makes intuitive sense, as commodity prices typically rise during periods of economic strength. In periods of economic turmoil, it follows that there would be support for the government to take on a more active role in the economy.

On a 10-year annualized basis, it takes roughly a decade for commodity inflation to turn positive, Bannister says. Commodities rose over 10 years to a peak in June 2008, then fell for 12 years and are now bottoming.

“Trump doesn’t mind large deficits (he is a debt guy) and Dems don’t mind large deficits (they use fiscal to win support), so populist fiscal spending is here to stay,” Bannister explains in a follow-up email. “Monetary policy has facilitated fiscal.”

For now, Bannister is of the view that it doesn’t make sense to bet against a market when federal authorities are backstopping risk. Examining returns before and after 1933, he says the post–Great Depression backstop has rendered the selling of corrections inadvisable. Instead, investors should ride out volatility and buy the dips, he says.

Source link

Recent articles

Ohio Governor Says His Flawed Virus Test Shouldn’t Undercut New, Rapid Methods

Gov. Mike DeWine of Ohio, who last week tested positive for the coronavirus, then negative and then negative again, said on CNN on...

Egypt extends detention of Al Jazeera journalist Mahmoud Hussein | News

Egyptian authorities have extended the detention of Al Jazeera journalist Mahmoud Hussein by another 45 days. The extension on Sunday came more than 1,300...

Created with Blender 2.8: ‘Take on me’ cover: Arrangement for Flute orchestras

PiDi writes: 'Take on me' cover: Arrangement for Flute orchestras (Cover) Similar to the original video, it looks like a comic book. All image effects were...

Looks Like AT&T Cancelled Plans for WB Interactive Sale

Following months of reports about its sale, Warner Bros. Interactive Entertainment seems to be resting safely with AT&T for now, if comments by...

Leave a reply

Please enter your comment!
Please enter your name here