This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Global Macro: Inflation Fears Subside

NEW YORK ( TheStreet) -- The weak inflation data seen on Tuesday was reflective of the overall sentiment surrounding the domestic and global economy.

China reported weak GDP on Monday, and gold subsequently tanked. There are many factors behind the gold freefall, but I like to think the lack of inflation to hedge as being a main driver.

With the string of bad data in the U.S. -- from the underperforming nonfarm payrolls to the weak manufacturing and CPI readings -- it seems the economic picture is not improving as hoped.

The Federal Reserve minutes released Tuesday show the unemployment situation continues to worry officials. Unless 200,000 becomes the norm for nonfarm payrolls, it is unlikely the Fed will takes its foot off the stimulus gas anytime soon. The lack of inflation fear can be seen across markets, and is especially apparent in intermarket charts tracking the phenomenon.

Courtesy of stockcharts.com

The first chart, above, is of iShares Barclays TIPS Bond Fund (TIP) over iShares Barclays 20+ Year Treasury Bond Fund (TLT). This ratio rises when markets are inflationary, signaling investors are buying inflation protected assets over risk-off long-term debt.


The ratio rose in stride with the SPDR S&P 500 (SPY) upturn during late 2012, but recently has broken the trend. Many analysts have cited that the economic speed bump hit towards the end of the first quarter, and this chart is a testament to that. The chart advocates for a turn to defensive portfolio positioning, but more evidence is needed.

Courtesy of stockcharts.com

A major turn of events Monday was gold's freefall, as referenced earlier in the article. The chart above of SPDR Gold Trust (GLD) over an equal weight DB Commodity Index Tracking Fund (DBC) shows that relative to the commodity sector, gold had been positioning for a major move lower.

Inflation fears had long been overdone without consistent growth coming in to back up the claim, and the drop in the ratio, although much more than expected, is evidence that the inflation bears have finally won out.

Courtesy of stockcharts.com

The last chart is of the DB USD Index Bullish (UUP) over SPDR Gold Trust. This shows the battle between inflation hedge, gold, versus the dollar, that gains strength when inflation pressure subsides. The price action had flirted with highs for much of the past year, but finally broke through with the volatile price movement Monday.

Many will attribute the extent of the volatility Monday to program trading and the power it has over markets. But regardless of the magnitude, the direction was justified. With global indicators breaking bearish, it is only a matter of time before equities break down as well.

At the time of publication the author had no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Andrew Sachais' focus is on analyzing markets with global macro-based strategies. Sachais is a chief investment strategist and portfolio manager at the start-up fund, Satch Kapital Investments. The fund uses ETF's traded on the U.S. stock market to gain exposure to both domestic and foreign assets. His strategy takes into consideration global equity, commodity, currency and debt markets. Sachais is a senior at Georgetown University earning a degree in Economics.

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,172.68 -107.06 -0.62%
S&P 500 1,994.29 -16.11 -0.80%
NASDAQ 4,527.6890 -52.10 -1.14%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs