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As expected the USD Index broke to a multi-week low on Friday. We now have all the asset classes (equities, commodities, treasuries and the USD) trading at multi-week highs/lows. We have not seen this behavior (where the behavior of all the asset classes are confirming each other) occur for a very long time. This confirming behavior suggests that there is still considerable more upside in equities and commodities and downside in US Treasuries and the USD.
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In the forefront of our minds are the consequences of the “reflationary” efforts by the FED and US Government. We are fully aware that the FED’s balance sheet has been increased dramatically (to put it politely) in a very short period of time. The charts above suggest that the reflation efforts are working (albeit from the market’s perspective) but that inflationary forces are likely to surprise on the upside. Our preferred trade to take advantage of inflationary pressures is long positions on the ETF “DBC”. It is the most liquid of commodity ETFs in both the physical and option market.
