Incrementum Inflation Signal Switching to „Rising Inflation“

Dear clients, investors and friends,

we would like to inform you, that the Incrementum Inflation Signal has recently turned to rising inflation momentum!

At the end of November 2016, in midst of the “Trump-euphoria” our signal switched to disinflation. Back then, financial markets were pricing in increasing growth in the US and market pundits were recommending to enter the reflation trade. However, inflation sensitive assets had a rather mediocre performance since then. The Bloomberg commodity index is down year to date, US-Dollar and Euro break even rates have also been trending lower.

This time around we are witnessing quite the opposite environment. US central bankers are increasingly worried about the lack of inflation and markets are pricing out rate increases.

https://www.cnbc.com/2017/09/05/feds-brainard-says-us-should-be-cautious-about-raising-rates-when-inflation-is-low.html

This chatter about disinflation is happening despite the fact, that the US-Dollar has had its weakest performance YTD since 1985. On the back of this development the price action of gold (especially priced in USD) is looking very healthy and recently also commodity prices in general seem to show some strength. If the dollar weakness should turn into a full-fledged USD bear market, we expect significant tail wind for the inflation/stagflation trade going forward.


Source: Fed St. Louis, Incrementum AG

Chances are, that we will enter a secular US-Dollar bear market once it becomes obvious that the normalization process of the Fed is faltering. 2-year treasury yields have been stagnating for a few months now whereas 10-year yields have come down despite the talk about the Fed balance sheet reduction.


Source: Fed St. Louis, Incrementum AG

We are increasingly convinced, that the unfavorable environment for inflation sensitive assets which has prevailed since 2011 has come to an end.

In our Inflation Diversifier Fund we have taken positions in inflation sensitive assets for the first time this year. These include FX Positions in commodity currencies, energy equities, gold mining equities as well as diversified commodity investments. As our inflation signal is not yet at its maximum, we still have some powder dry.

We are looking forward to inform you when things should change. We are also going to release a more detailed „Chartbook Inflation“ in the coming weeks.

Best regards

Mark J. Valek & Ronald-Peter Stoeferle