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Weekly Memorandum 3/8/2021

Futures are mixed to start the week with the Dow up, S&P flat, and Nasdaq down. This has been the tale of the tape as of late, and it appears to be the end of a multi-year trend of growth and tech outperforming value. Since the Nasdaq is more skewed towards growth and tech, we could see how this sector rotation is causing this index to lag. We're seeing inflation-sensitive sectors catch strong bids, as inflation expectations are now at 12-year highs. We really can't emphasize enough how significant this is-- Inflation expectations are at their highest level since the financial crisis of 08/09. This is *supposedly* what the central bankers have been wanting the whole time. Let's see how this actually unfolds.

Crude Oil surged to multi-year highs last week, and closed out at its highest weekly level since October 2018. It has now erased all of its hyperdeflationary losses, and rallied over $100/barrel (if we factor in the negative prices) in less than a year. This is the type of behavior witnessed in bull markets. Crude Oil carries the largest-weighting in most commodity indices. As such, we can deduce that it has the greatest effect on inflation expectations.

Grains and other agricultural commodities spent last week consolidating their gains near multi-year highs. Oats broke out to a new 7-year high. Many of these gapped up and are trading higher since Sunday night's future session.

The bloodbath in Treasuries continued last week, as prices are back down to their pre-corona-crash levels now. Interest rates have an inverse correlation to bond prices. That is, prices fall when rates rise. Interest rates are a function of inflation expectations, demand for money, and risk premium. The first two factors are firing on all cylinders at the moment, while the third factor will likely increase in significance as rates continue to rise.

Gold traded down to its lowest level since April 2020 last week, while Silver held up better, but still finished lower. The 'Big 3' cryptocurrencies, Bitcoin, Ethereum, and Litecoin all recovered nicely last week, but are still consolidating near their highs, which is constructive price action. The dollar saw a nice relief rally too.

Overall, the economy appears to be on a one-way ticket to stagflation. This is something we spoke at length on last year at the beginning of the corona-crisis. Stagflation is an environment with high inflation and high unemployment. Seems to be increasingly the case now.

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