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The Great Global Reflation Trade

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Posted by Sean Broderick - The Edelson Institute

on Tuesday, 14 November 2017 05:09

A funny thing happened to commodities in October. They went up. All of ’em. Or nearly all. Enough that the CRB Index busted out like an escaped felon with nothing to lose.

This index tracks a basket of 19 commodities. It’s energy-heavy – 33% by weight. But it is stuffed with everything from cocoa to copper, hogs to gold.

And as a group, these things are headed higher. And higher.

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That tells us a lot about the global economy. And if you listen closely, the CRB’s price action will even tell you where to invest. To make handsome profits.

I’m talking about things that do well in global reflation.

 

What is global reflation, anyway? It’s when economic growth picks up all at the same time. Along with that, we see prices start to climb up.

That price climb is delayed a bit – for now. But economic activity is definitely accelerating.

How do we know that? Well, here in the U.S., GDP is expanding at about 3%. That’s after expanding at 3.1% in the second quarter. That’s better than the listless growth we saw during the Obama years.

And around the world, the IMF is boosting GDP forecasts for almost every advanced economy.

And here’s more proof: The number of countries in recession around the world has fallen to its lowest level ever. Ever!

Source

So, what should you invest in for the global reflation trade? There are a BUNCH of things that do very well. But let me give you one group to buy … and one to SELL!

Buy: Metals

Let’s start with copper. It’s the most industrial metal on Earth. It’s used for everything from buildings to electronics.

And copper is also vital to the electric vehicle megatrend. Copper is NOT in electric-vehicle batteries. But it’s in everything else in an EV. On average, an EV has three to four times the amount of copper wiring that an internal combustion engine car contains.

This means a huge amount of copper is going to be in demand in the future. I talk about copper a lot in this space and in my trading services because its potential is so enormous.

Nickel is another industrial metal I pounded the table about. It’s used to make everything shiny, from silverware to steel. AND nickel is an important part of EV batteries. So, it’s going to ride the EV megatrend, too.

I told you about the industrial metals rally in August. I showed you a chart of …

 

  • The PowerShares DB Base Metals Fund (DBB), which tracks a basket of aluminum, copper and zinc.
  • The iPath Bloomberg Copper Subindex Total Return ETN (JJC), which focuses on copper.
  • And the iPath Bloomberg Nickel Subindex Total Return ETN (JJN), which targets nickel.

 

Let’s see how you would have done if you’d bought     ANY of my picks then.

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Both copper and base metals have outperformed the S&P 500 since that issue ran. The real winner is nickel. A 28% gain. Wow!

I haven’t talked about gold or silver. Yet. Don’t worry, their day is coming. Especially as we start to see prices go higher.

Speaking of inflation, let’s get to my “sell” pick …

Sell: Bonds

There is already inflation in China and other “factory” economies. Stateside, we’re saved from that by technological innovation. But inflation will start to pass through.

Rising inflation tends to mean higher interest rates set by central banks. And that means Treasury yields will trend higher. And as yields go higher, prices go lower. That’s the simple fact.

To dig a bit deeper, negative interest rate policies have reached their limit in Europe and Japan. That means the deflation trade has run its course. The pendulum is going to swing in the other direction.

So, think about selling bonds. You can even short bonds through inverse funds. An example would be buying the ProShares Short 20+ Year Treasury ETF (NYSE: TBF). Speculators could consider buying the Direxion Daily 20-Year Treasury Bear 3X (NYSE: TMV).

The global reflation trade is here. It’s one of those megatrends I plan to keep talking about, because you should be aware of it. You can ride it to potential profits, or ignore it at your peril. Whatever you buy, do your own due diligence.

All the best,

Sean Brodrick


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