Readers of this blog know that over the past few months we’ve been warning the financial markets have signaled we’ve entered a stagflationary environment.
Stagflation is defined as INCREASING INFLATION accompanied by DECREASING GROWTH. This is by far the hardest and most challenging economic environment for businesses to operate in. It’s no walk in the park for traders either.
The easiest and simplest way to understand the variety of different economic climates it to break them down into four distinct and separate quadrants.
These quadrants are differentiated by the level of growth in the economy versus the level of inflation.
To understand what type of climate exists you simply need to plot two data points and compare them to previous time frames. Those data points are:
- The Inflation Rate
- The Gross Domestic Product
The charts clearly point that inflation is increasing and accelerating.
And GDP is falling.
This definitely places the economic climate in STAGFLATION.
BUT…. (Drumroll please)
To add anxiety, stress, and drama to this moment, we have recently seen the YIELD CURVE invert which usually precedes a Recession by 12-18 months.
What does all this mean?
The most important price in capitalism, is interest rates. It is the cost of time and money which gets factored into the production of everything in the economy. Over the last 14 years the Fed has manipulated interest rates to ZERO and we have seen the massive price distortions in all economic activity. Interest rates determine whether people prefer to be lenders or savers. In today’s market environment you cannot be either. Everybody is forced to be a speculator.
When money is debased, and interest rates are pushed to zero out of desperation, many become gamblers and the financial markets act are simply a casino where people place their bets hoping they can outrun inflation and currency debasement.
Let’s look at the bond market domestically and internationally.
Right now, bonds look like what could be the worst possible place to allocate your capital. They’re a triple risk to your financial future because of three things: inflation, creditworthiness, and interest rates.
Let’s look at the chart maintained by the Federal Reserve which shows the 10-year note rate minus inflation, not seasonally adjusted.
What the graphic above demonstrates is that when you try to be a saver in today’s economic climate, you are GUARANTEED to lose money.
The risk is that there are trillions of dollars in bonds who are slowly and gradually being slaughtered. At some point bond investors will head for the exits.
The truly unfortunate part of the current economic climate is that it is blamed on capitalism. What has been practiced since the United States came off the Gold Standard in 1971 is not capitalism at all, but more closely related to debt and credit. The distinction is necessary. I refer to it as Debtism or Creditism.
Capitalism functioned from capital which was always savings. These savings functioned as a check and balance against foolish economic behavior. Risk was directly tied to the level of your savings and the losing side of the accounting ledger was always considered the most important lesson of capital allocation.
Debtism and Creditism functions from the eternal power of the printing press or through the extension of credit. Losses in these schools of thought enable a centralized political class to bypass markets and avoid consequences for bad decisions. We are living through the “Too Big to Fail” economic chapters today which precipitated the need to push interest rates to zero percent after the Great Financial Crisis.
What does this mean to you the trader?
A picture paints a thousand words. As I have been writing about for the last two years, the CHASE for YIELD is very REAL. But the YIELD FIELD (interest rate markets) have been completely decimated in this climate.
Study the graphic below and you will quickly understand what I mean. I have highlighted all the interest rate/fixed income markets in YELLOW. Notice the heavy losses they sustained in the last 3 months.
I’ve also included Wall Street darlings like the FAANG stocks so that you can see that even in a stagflation they have been poor performers.
Inflation in the first quarter of 2022, at 1.8%, has outperformed 90% of the performance of asset classes! That pretty much speaks the truth of the matter.
Here are the First Quarter of 2022 Returns for all different asset classes and market sectors.
As hard as it may be to believe look at the return of the FAANG stocks over the last 3 months and that will tell you how treacherous the markets have been.
Facebook DOWN 34.4%
Netflix DOWN 37.27%
NVIDIA DOWN 9.29%
Amazon DOWN 4.21%
Apple DOWN 4.0%
Google DOWN 4.02%
Microsoft DOWN 7.97%
How have you done in your trading so far in 2022?
Do you have the tools to find the best high probability trades?
The purpose of artificial intelligence is to keep traders on the right side of the right trend at the right time. That is what makes it so valuable.
In the present trading environment, only 34% of stocks are trading above their 200-day moving average.
Success in these markets is all about who has the best tools.
Let’s get candid here:
The market is brutally honest – there are winners and losers.
It’s very black and white.
If you need a friend, get a dog.
If you are going to win, someone else must lose.
If survival of the fittest makes you uneasy, stay out of the financial markets.
We live in unique times. The Printing Press is diluting the value of your money.
Artificial intelligence is so powerful because it learns what doesn’t work, remembers it, and then focuses on other paths to find a solution. This is the Feedback Loop that is responsible for building the fortunes of every successful trader I know.
If you think about this question, you will begin to appreciate that AI applies mistake prevention to discover what is true and workable. Artificial Intelligence applies the mistake prevention as a continual process 24 hours a day, 365 days a year towards whatever problem it is looking to solve.
That should get you pretty excited because it is a game-changer.
It sounds very elementary and obvious. But overlooking the obvious things often hurt a traders’ portfolio.
The basics are regularly overlooked by inexperienced traders.
It is incredibly sad, and unnecessary in today’s day and age of machine learning and artificial intelligence.
A stock may have a very alluring story.
A stock may have an amazingly effective management team.
A stock may have incredible earnings.
A stock may have infrastructure, partnerships, uniqueness, etc.,
But, if these elements are not reflected in the price, you are focused on what “SHOULD” occur in the market.
And the word “should” is responsible for more losses in trading than any other.
Bad Traders Obsess on the SHOULD. Every other word out of their mouths’ is SHOULD.
I can’t recall how many times a trader has told me all the reasons why his portfolio is heavily invested in a stock because of a great story, despite the stock being in a firm downtrend. It is horribly painful to listen to.
The beauty of neural networks, artificial intelligence and machine learning is that it is fundamentally focused on pattern recognition to determine the best move forward. When these technologies flash a change in forecast it is newsworthy. We often do not understand why something is occurring but that does not mean that we cannot take advantage of it.
Most humans have a really tough time learning from bad experiences. The ego gets in the way, each and every time.
Since artificial intelligence has beaten humans in Poker, Chess, Jeopardy and Go, do you really think trading is any different?
Knowledge. Useful knowledge. And its application is what A.I. delivers.
You should find out. Join us for a FREE Live Training.
We’ll show you at least three stocks that have been identified by the A.I. that are poised for big movement… and remember, movement of any kind is an opportunity!
Discover why artificial intelligence is the solution professional traders go-to for less risk, more rewards, and guaranteed peace of mind.
Discover why artificial intelligence is the solution professional traders go-to for less risk, more rewards, and guaranteed peace of mind.
Intrigued? Visit with us and check out the a.i. at our Next Live Training.
Discover why artificial intelligence is the solution professional traders go-to for less risk, more rewards, and guaranteed peace of mind.
It’s not magic. It’s machine learning.
Make it count.
IMPORTANT NOTICE!
THERE IS SUBSTANTIAL RISK OF LOSS ASSOCIATED WITH TRADING. ONLY RISK CAPITAL SHOULD BE USED TO TRADE. TRADING STOCKS, FUTURES, OPTIONS, FOREX, AND ETFs IS NOT SUITABLE FOR EVERYONE.
DISCLAIMER: STOCKS, FUTURES, OPTIONS, ETFs AND CURRENCY TRADING ALL HAVE LARGE POTENTIAL REWARDS, BUT THEY ALSO HAVE LARGE POTENTIAL RISK. YOU MUST BE AWARE OF THE RISKS AND BE WILLING TO ACCEPT THEM IN ORDER TO INVEST IN THESE MARKETS. DON’T TRADE WITH MONEY YOU CAN’T AFFORD TO LOSE. THIS ARTICLE AND WEBSITE IS NEITHER A SOLICITATION NOR AN OFFER TO BUY/SELL FUTURES, OPTIONS, STOCKS, OR CURRENCIES. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE DISCUSSED ON THIS ARTICLE OR WEBSITE. THE PAST PERFORMANCE OF ANY TRADING SYSTEM OR METHODOLOGY IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. CFTC RULE 4.41 – HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.
