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Stocks Showing Inflation



I posed a rhetorical question this morning on the buzz asking for the reason for the discrepancy between the Transport index and others such as the XBD:

"Would any technicians out there like to explain to me what is going on in the Transports index versus other indexes, like the XBD index (broker dealers).
The Transports have been driven to new highs perhaps exclusively by the packaging companies and railroads moving raw materials. But other indexes like the XBD look sick with heavy distribution and insider selling."

I then followed this up with another question about the strange action of gold, an indicator of inflation, mostly in terms of the dollar:

"Gold seems to be up to its same old pattern: creeping up day to day and then in one fell swoop gets slammed.
To me this is not natural action. I do believe that the last thing central banks which are running a negative real interest rate policy want to see is higher gold prices.
Any thoughts Laurie?"

I received the following response from a Minyan:

"Regarding your point this morning about why the packaging companies/railroads etc. are doing well here.....this is classic inflationary action. These companies will always do well in an inflationary environment as businesses scramble to secure material and resources before they again increase in price (which is now happening faster and faster).

It's the same dynamic as someone who carries a credit card balance with an interest rate that increases by 5% every month....that person will do his best to pay off that balance as quickly as possible to avoid increased pain (and actually, this dynamic accounts for the increased velocity of money recently as people scramble to pay off debts).

That's why the emphasis on the strength of the transports here, to the extent they reflect this scramble for resources, is misguided in my opinion...I believe it has as much a negative implication for the economy as a positive one. In other classic inflationary eras, such as Germany in the 1920's and the U.S. in the 1970's, the packaging companies, railroads, etc. all did extremely well which only reflected the underlying strength of what their customers were buying.


Well put, Ed.

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