Kevin Wadsworth: Spiking PPI Correlates with Political and Social Instability
Tom welcomes back The Market Weather Forecaster Kevin Wadsworth from NorthStarBadCharts.com to bring you the technical picture for the markets.
Kevin discusses the 100-year chart of the US Producer Price Index. This index is near historic lows in a long-term channel. The trend now appears to be higher. These periods of high PPI are usually tumultuous in terms of political and economic stability. We’re likely entering a decade-long period where things will become uncomfortable. The PPI was already testing support lines before Covid occurred.
Inflation in the United States has a clear resistance line on the 100-year chart. However, the metrics for measuring inflation have changed dramatically in the last thirty years. So it’s important to note that these inflation numbers are manipulated. He expects a correction near 11% levels on the CPI. He doesn’t believe that inflation will be transitory but there could be a pullback before a further advance.
The chart for the Fed Funds Rate indicates something historic is occurring. We haven’t broken through the bottom trend line since the 70s. In the past, we’ve seen gold move much higher around low rates. Don’t focus on the day-to-day price of gold but realize the long-term trend is on your side. We’re in the early stages for commodities that could be life-changing.
Kevin brings us another dome-ed chart showing how commodities in general have been performing. We’re now trending sideways while consolidating. We’re awaiting a further rally in commodities. Commodities reveal that inflation is occurring broadly.
The parabolic rise in U.K. natural gas and electricity prices resemble alt-coins. They’ve moved thousands of percent and numerous providers are going out of business because they are unable to charge full price. Kevin’s costs for energy have more than doubled. There is a lot of energy politics occurring around green energy and Russia at the moment.
The Euro has broken out against the dollar and the chart indicates it’s highly likely to breakout further to the upside. He theorizes what may be behind this move.
The dollar is in a bearish rising wedge and currently challenging the top of the dome. He notes there are three times in recent years where gold and the dollar have risen at the same time. The dollar index needs to be evaluated along with inflation. Gold remains the ultimate barometer for inflation.
Kevin discusses the eight-year cycle for gold. The next low in the cycle is expected in 2024. He believes there will another rally in gold before 2024. These cycles could be tied to the political cycles of the United States. Many markets including bitcoin show similar four-year cycles.
Time Stamp References:
0:00 – Introduction
0:41 – PPI History & Trends
9:10 – Visualizing US PPI
13:12 – U.S. Inflation
17:19 – Gold Yard Stick
18:26 – Fed Funds Rate
23:29 – Commodity Index
29:25 – U.K. Energy
37:06 – Euro / Dollar Chart
40:42 – Dollar Index
46:20 – Gold Chart
49:48 – Gold Cycles
53:27 – Bitcoin Cycles
55:42 – Evaluating Conditions
57:28 – Wrap Up
Talking Points From This Episode
- PPI Index, CPI, and more inflation.
- Fed Fund Rates and outlook for gold.
- Thoughts on Commodities in general and the next rally.
- Outlook for the Euro, Dollar, and Bitcoin
Kevin Wadsworth has a background in meteorology, having spent over 25 years in military and civilian weather forecasting. Over the years, his career has involved everything from briefing pilots to producing commercial advice to utility companies and providing TV and radio broadcasts. His current role is as a Civil Contingency Advisor consists of linking with the emergency response community. He gives advance notice of life-threatening weather events and advice during events influenced by the weather, such as wildfires and industrial accidents.
The science behind weather forecasting aims to unlock methods and techniques for predicting the future with ever-increasing accuracy. A friend and colleague helped spark an interest in the global economy and the financial world in the early 2000s. The financial crash of 2008 got Kevin hooked, and he gradually became aware of the similarities between forecasting the future weather and forecasting future price movements in the financial markets. Around that time, he read an abridged version of Strauss and Howes ‘The Fourth Turning’, which intrigued him.
The cyclical nature of markets mirrors the cyclical nature of the weather and seasons. The process of gathering evidence via multiple computer models that assess the likelihood of all possible future outcomes works just as well for predicting the future price of gold for indicating whether it’s likely to rain on the weekend or not.
His focus is on tuning out all the noise and presenting clear and uncluttered charts while gathering all of the evidence. Kevin tries to have no bias but instead follows the weight of evidence. He says, I’m not a bull or a bear; I’m simply presenting the evidence as I see it.