The announcement Friday that in addition to the already historically high balance sheet the Fed has created, they agreed to purchase $1 trillion dollars in repos every day until the end of March.
What impact is this having on the credit, equities and commodities markets?
This chart measures the relative to the commodity market index PPI (Producer Price Index). When the ratio rises stocks beat commodity returns and when it falls commodities beat stock returns.
During periods of deflation, stocks and commodities are often both in bear markets, while commodities do better than stocks. These periods are followed by inflation, including inflationary events such as the Gold nationalization of 1934, the Nixon shock of 1971, and war (WW1, WW2, Vietnam, Iraq). Commodities well outperform stocks during inflationary times.
In 2020, with deflation on the tongues of many economists, there are a few of us like me, an armchair economist, that think we are more…