Despite volatility and rock-bottom sentiment, gold, silver and the mining stocks are poised for a major turn as inflation remains in high gear.

Real Reason We Don’t Have Normalized Interest Rates
February 3
King World News
) – 
Egon von Greyerz:
  The economists over at BofA are forecasting seven hawkish rate hikes in 2022. What they fail to discuss is that such rate hikes would mean an increased 4% to 5% borrowing cost for the US, which at those projected rates boils down to about $1.5T per year in interest alone.

Ready For A Turn
Graddhy out of Sweden:
  The triple support backtest at blue trend line + purple trend line + pink fib 61.8% retrace is still holding. Pretty good setup as it sits here, but not out of the woods yet though.

GDXJ Mining Stocks Poised For A Big
Surge After Holding Blue Trendline

With surface samples as high as a staggering 300,000
grams of silver, this company is looking to make
one of the largest silver discoveries in history!

Inflation Remains In High Gear
Peter Boockvar:
  To give some more anecdotes on why inflation will persist in 2022, albeit at a slower rate as stated here now many times, here are some company comments of note from earnings calls. From Cummins:

“Our industry continues to experience significant supply chain constraints resulting in elevated manufacturing, logistics, and material costs resulting in margins below our expectations, particularly in the fourth quarter. We have taken actions to improve margins in 2022 and expect to generate strong incremental margins through increased pricing, surcharges, a number of cost reduction initiatives and operational improvements.”

From Infineon Tech, the large German semi company:

Demand for semiconductors is outstripping supply by far. We expect the supply situation in some application areas to remain tight well into the current calendar year.” 

On the food side, the CRB Foodstuff Index yesterday closed at a fresh record high.

CRB Food Index Hits Another Record High!

BoE Move
The Bank of England raised interest rates by 25 bps to .50% and interestingly of the 9 voters, 4 wanted a 50 bps hike. They also said they plan on unwinding their corporate bond purchases completely by the end of 2023 by not reinvesting maturing bonds and outright selling them and they will also shrink their balance sheet of gilts starting now, aka begin QT. 

On inflation, they expect it to peak in April but at a 7.25% level. That is up 200 bps from their last estimate back in November and in part follows the spike in energy prices. They estimate that inflation will “fall back to a little above the 2% target in two years’ time and to below the target by a greater margin in three years.” As for what comes next, “some further modest tightening in monetary policy is likely to be appropriate in the coming months.”

Unanimous Concern About Inflation
Christine Lagarde was asked about the two rate hikes that have been priced into the market this year and she sort of punted on it by saying they will be analyzing the forecasts that will come for the March meeting but DID NOT DISMISS IT. She also did say that there was “unanimous concern about the inflation data.” It does seem that they still do not want to hike rates only until QE is done but which could happen by October. European yields are at the highs of the day in response 
as is the euro.

Euro Surged On Lagarde Comments

Particularly, the German 2 yr yield jumped by 7.4 bps to -.38% and the 10 yr yield is up by 6 bps to .10%.

German Yields Also Surged In Response

The January ISM services index fell to 59.9 from 62.3 but that was just above the estimate of 59.5. It is though the softest since February 2021.

Services Index Softest Since Feb. 2021

New orders fell by .4 pts to 61.7, the lowest also since last February. Inventories lifted by 2.7 pts to just under 50 at 49.4 while backlogs fell by 4.9 pts to 57.4, the lowest since last April. Ahead of tomorrow, employment sunk by 2.4 pts to 52.3, the weakest since June 2021 and only 5 industries see growth in employment vs 11 in the month before. Export orders plunged by 15.6 pts to well under 50 at 45.9 but only some service companies report exports. On the supply and pricing side, Deliveries bounced slightly by 1.8 pts after last months near 12 pt drop and 17 of 18 industries see slower deliveries. Prices paid remained very high at 82.3 but down 1.6 pts m/o/m and all 18 industries asked are paying higher prices.

Prices Paid Near Record Highs As
All 18 Industries Are Paying Higher Prices!

Of the 18 industries surveyed, 15 saw growth vs 16 in December and 18 in the two prior months.

ISM said this:

“Respondents continue to be impacted by coronavirus pandemic related supply chain issues, including capacity constraints, demand pull inflation, logistical challenges and labor shortages. Moreover, the omicron variant has disrupted operations, especially through reduced staffing levels. Despite these impediments, business activity and economic growth continue.”

Bottom Line
My bottom line is that because of what you just read and stating the obvious, business is very challenging for so many reasons as not only are companies dealing with all the supply issues, there is now a question of what the demand picture is going to look like this year mostly because of the stress of higher inflation on consumer spending, less government checks being sent out and now higher interest rates.

Here are some quotes from companies in specific industries highlighting all these stresses:

“Supply constraints and outages persist. With mechanical component parts, the problems are severe. We are finding widespread depletion of field service part inventories to sustain factory production of new product orders. The inability to satisfy replacement part demand creates tremendous operational risk.— Accommodation & Food Services

“Costs have escalated to what we believe are unsustainable levels. Available labor is nonexistent, so we have cut staffing and are taking on fewer projects temporarily in an attempt to reduce cost. Outsourcing where possible. We are not optimistic at this time.” — Construction

“Business activity is increasing, but professional labor continues to be in short supply. Virtual work is preferred by clients.” — Finance & Insurance

“January has been tough, as product quantities intended for holiday sales are just now coming in, inventories of seasonal products are (very) high and now dormant for nine months, cash flow is down, and new orders are delayed. Omicron is keeping between 20 and 25 percent of our workforce out daily. Inflation is a concern.” — Information

“Downturn in business in the last month due to outbreak in COVID-19 cases.” — Other Services

 “Business outlook remains cautiously optimistic, although uncertainty remains concerning the impact of omicron, inflation and the lack of major improvements to supply chain issues.” — Retail Trade

“Constrained supplies of many key product groups continue. Inflation worsening; however, sales and profitability continue to be strong.” — Wholesale Trade

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