It’s a new quarter and that means it’s time for a fresh look at the Synthetic Systems outlook for the financial markets. I’ve just run the updates and posted the charts. You’ll find them on the site menu under Market Analysis.
Broadly speaking, SS sees a deflationary cast to the near term environment. Cash, gold and Treasuries are seen to outperform stocks and industrial commodities. This may seem counterintuitive given the recent headline grabbing levels of consumer price inflation and ongoing inflationary policy, but it’s par for the course. Markets are forward looking. Once inflation is making headlines, they begin to anticipate a policy reaction. As we’ve stated many times before, consumer prices and wages are at the tail end of the price effects of inflation. Once it’s obvious there, it’s too late to invest for it. The early bird has already gotten the worm.
Those of us who have been following Synthetic Systems have been those early birds. SS has been forecasting the 2021 inflation since 2017. It’s been looking for a pullback in the fourth quarter of 2021 as well, as you can see from the legacy forecasts that are maintained along with the latest update.
The change in trend, like any other, is far from permanent, however. SS expects this deflationary phase to dominate a mere single quarter before the larger inflationary trend reasserts itself. If in fact the fourth quarter plays out as SS expects, it will provide an opportunity to reload. Bear in mind though that quarterly is around the lower limit of resolution, the market noise floor, and that at higher frequencies forecasts are even more speculative and that SS is at its best with trends longer than quarterly.
As always, in the spirit of a picture is worth a thousand words, we’ll let the charts speak for themselves …