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April 17, 2013

Deflation Arising

For those of you who put weight on Fibonacci retracements... a subset of traders which excludes yours truly, by the way... the view on the Continuous Commodity Index is not looking good for inflation bugs.

Continuous Commodity Index Fib retracements

The retracement is measured against last year's 3-year cycle low. If Fibs have anything to say about the state of affairs in the commodity world, therefore, we are facing a failed 3-year cycle and a likely deflationary crash. And while I am not a proponent of Fib lines, I do recognize that the bounce out of last year's 3-year cycle low has been anemic. We should not see a 7-month retreat so early in the cycle.

Furthermore, oil's intermediate cycle is in danger of breaking down. As described in the Member Letter, an intermediate oil cycle usually only fails in association with a 3-year cycle decline by commodities. So we see several warnings that printing at the rate of $1 trillion per year by the FOMC and the BoJ... each... may not be enough to fight corrosion in the financial system. The long-prognosticated battle with rampant inflation may just have to wait its turn.

 

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