At around the beginning of the year, I identified three fundamental “narratives” that would govern the general outlook of the market:
- That deflationary forces could prevail at any moment. This was the most bearish outlook, and it meant that one would chronically want to look for a major top at any moment.
- That the markets would price in reflation—but falsely so—for quite some time (months or more). This was a “let’s play along for awhile” outlook, and it meant that one would allow the market to act like it was going to come out of this whole mess in one piece, but knowing that the first option above would eventually take over.
- That somehow they actually did throw enough money (or “reserves” even, if you like) at the system that somehow we would enter a period of genuine growth. This was the most bullish outlook, and it meant that we were actually in the early stages of a multi-year bull market.
Last year I had been insisting on the first, but eventually I learned my lesson and accepted that either of the two other alternatives had some real grit. I have been toying with those latter two options ever since, letting those govern my general counts, and it’s been lovely. But, I think 3 is very unlikely now and I think 2 has probably played itself out, leaving us left with number 1.
What I want to do in this article is show how reflation versus deflation could manifest itself on the charts of the dollar, gold, uranium and oil.
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