No Longer a Disinflationary Environment

If you are new to The Rhythm of the $ystem, go ahead and check out the beginning of the series where I introduce The Economy Tracker. Doing so will help you better understand the information in this post:

• The rate of inflation has flattened above it’s 2% target.

• Commodity prices showing relative strength.

• FOMC (Fed rate decision) is this Wednesday, March 20th.

• Visualizing the credit cycle using The Economy Tracker.

The Inflation Rate is Flat and High

A quick peak at the newly updated inflation data reveals that inflation has flattened out above it’s 2% target.

Due to this, it’s no longer appropriate to say we are in a disinflationary environment and are now adding a new risk to the former downtrend in inflation rates with the reemergence of higher priced commodities.

Commodity Prices are Showing Relative Strength

Commodities tend to outperform most sectors as the economy rolls from Expansion to Slowdown. As J.C. Parets pointed out in his X post below, that has been the case over the past month. (XLE = Energy Sector / XLB = Materials Sector)

The weekly charts for copper and crude oil show their prices are on the verge of a possible rip higher after putting in perfect rounding bottoms, meaning this could be the beginning of a new and sustained uptrend.

Does this mean it’s time to flip out, sell everything, and expect economic carnage? Of course not. Don’t be an economic extremist.

Instead, you want to watch for continuation in this development over the coming months.

If we are indeed rolling into the Slowdown, it is important to note that this phase typically sees continued higher highs in markets during a Secular Bull, which is where we are currently.

It’s Fed Week

Jerome Powell will take to the podium once again this week, as The Fed will reveal their decision on interest rates on Wednesday afternoon.

Expect no change as asset prices continue to rise in the face of persistent elevated inflation along with risk appetite, which is indicative of a strong economy. Should The Fed cut into this environment they run the risk of unleashing even more inflation as the result would increase demand without adding to supply.

The longer the economy continues to expand without significant pressure in the system and low unemployment, the less inclined The Fed will be to cut rates.

Changes to the The Economy Tracker

I have been less active with posts lately due to digging even deeper into past cycles using The Economy Tracker than ever before.

Part of this has included running different scenarios and timeframes to refine it’s performance.

Doing so has been very illuminating to say the least. It is now exceeding my wildest expectations, and has allowed me to take this project a step further by giving visualizations of markets and the economy while they flow through a credit cycle.

The result of which will be quarterly changes instead of monthly moving forward.

This change helps reduce the shorter term movements and instead focus on the broader economic trends. Initially, I thought that tracking the economy via monthly changes and trends would be a long enough timeframe. However, scaling out for a wider quarterly view has performed better and smoothed out the readings to make it easier to follow for the more casual observer.

While I initially assembled The Economy Tracker for trading, that focus has changed to improving it for everyone else.

Visualizing the Credit Cycle

Here is a look at how The Economy Tracker worked when back tested with the new changes during the last credit cycle.

I now have visuals for the past three credit cycles going back to 1990, and will be sharing them as well as the current cycle in the near future.

There are no words for how excited I am about where this project is leading. Each new discovery has led to more research, learning, and refinement.

That has been a bit of a double edged sword as it has slowed down the launch of the book and subsequent projects to follow it up. However, doing so will provide an even simpler indicator to follow, and that is the main objective.

This has been 25-30 years in the making, with the last four years of total devotion.

I’m happy that you are all here to share in the journey. You’re going to enjoy it and at the very least, learn invaluable and actionable information along the way.

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