Chiswick, West London
Wednesday, June 17
By Tom Dyson, Investment Director
The Four Quadrants model we’re using, created by Charles Gave, has moved definitely into the INFLATIONARY BOOM quadrant.
This is the biggest news this week.
In the Inflationary Boom quadrant, stores of value like real estate, precious metals, commodities perform well. Gold beats stocks. Also, high fixed-cost, cyclical producers do well like shipping, like oil and gas infrastructure, and the new iron ore royalty idea we introduced last week.
The worst investments in the Inflationary Boom quadrant? Long term bonds.
More importantly, we can take down our Crash Alert flag as we’ve now left the Inflationary Bust quadrant, which Gave calls the ‘Equity Hell’ quadrant. All the major bear markets of history have occurred from the Inflationary Bust quadrant.
On the other hand, he says “nothing too dramatic tends to happen” in the Inflationary Boom quadrant.
Here’s the key signal. When the stocks/oil ratio is above its 7-year moving average, the model says ‘Boom.’ As you can see, the ratio is now well above the moving average. This signal doesn’t flip flop very often, notwithstanding the flip flop we’ve just had, so hopefully we’ll stay in the Inflationary Boom quadrant for a few more years now. We’ll see.
It’s important to note that this model doesn’t forecast or predict what comes next. It only tells us where we are now and what assets do best now. For all we know, oil could soar again, the stock market could dive and the ratio goes back below its moving average again. In which case the model would flip again. We’ll see. The chart is the chart!
