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\\nDead Cat Bounce Flattens Out
\\nThe Dow Jones was down a little over 200 today, closing back below 26,000. NASDAQ composite down 124 - that\'s a bigger percentage decline, 1.7%, approximately.\\xa0 The Composite is being led lower by the tech stocks, particularly the FANG stocks once again taking a bite out of the market.\\xa0 The markets, though, were positive on the week, thanks to that huge relief rally that took place on Wednesday following the results of the midterm elections on Tuesday. But as I said on my Wednesday podcast, I thought that relief rally was\\xa0 just another dead cat bounce, that the fundamentals and the technicals still looked horrible for the U.S. stock market. I expected that rally to reverse, and of course that process had already begun Thursday and Friday.\\xa0 I think it will continue next week and I think the rest of those gains will be surrendered.
\\nHigher than Expected PPI Sparked Sell-Off
\\nThe catalyst for today\'s selloff was a much hotter than expected Producer Price Index number. The PPI was up .6% in 1 month, which is a big gain.\\xa0 In fact this is the biggest jump in the PPI in 6 years. On a year-over-year basis, producer prices are up 2.8%.\\xa0 The market was looking for an increase half that size: .3%, Even year-over-year, when you strip out food and energy we were still up 2.6%, which is considerably above the 2% level that the Fed is looking at. Of course, the Fed is looking at consumer prices, not producer prices, but of course, nobody can consume what is not produced.\\xa0 These are really wholesale prices and of course they are going to get passed on to the consumer, so consumer prices are headed higher.
\\nThe Markets Don\'t Get It
\\nBut, again, the markets don\'t get it.\\xa0 Gold dropped the minute this number came out, gold dumped about $10. It was already down on the day, and then it sold off and never recovered. On the other hand, bonds were relatively stable when the number came out. Maybe rates ticked up just a smidgen, but actually bonds rallied on the day.\\xa0 Now maybe the weak stock market had a little bit to do with it, but the irony of it is that you get these numbers that show much more than expected inflation, and what do investors do?\\xa0 They sell gold and they buy U.S. treasuries. Now, that is the worse thing to do if there\'s more inflation. Gold is an inflation hedge. So, if inflation is picking up, you would want to own gold to protect yourself from inflation.\\xa0 On the other hand, the one asset that suffers the most, where the most value is eroded away because of inflation is a bond. A bond is specifically payments of cash in the future, and the more inflation we have, the less that future cash is worth.\\n\\nOur Sponsors:\\n* Check out Rosetta Stone and use my code TODAY for a great deal: https://www.rosettastone.com/ \\n\\nPrivacy & Opt-Out: https://redcircle.com/privacy'