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let's see what's going on in the markets with our research firm macro ops so recently bridgewater published a report titled that it's mostly a demand shock not a supply shock and it's everywhere and you guys know bridgewater this is ray dalio's firm and it's been a while since we talked about ray dalio hasn't it good to see you again but in their paper they argue against the popular narrative that inflation pressures are primarily caused by covet-induced supply shocks because that's the main argument right kovitz screwed up a bunch of supply chains and now we're facing inflation because there's not enough supply to meet regular demand hence a supply shock but what bridgewater is saying is that it's actually a ton of demand that's overwhelming supply so the supply side is not the issue this is actually the result of demand coming from tons of stimulus cash repaired balance sheets in a tightening labor market plus rising wage pressures so those factors altogether are driving a historic wave of demand and that's demand that's likely to be sustained which is also saying that hey this inflation isn't transitory so overall this inflation is caused by all the demand that we have nowadays that's bridgewater's thesis and if this is true it's gonna have a lot of consequences for markets and policymakers going forward because that is very different than what everyone else is thinking but there was a pretty good counterpoint to this from matthew klein and he says the data really does show that these inflationary pressures are temporary so if you look at this graph right here the red parts represent the majority of consumer spending and the blue parts are pandemic specific so what this chart is showing is how much of each is actually contributing to inflation so the red parts which are the overwhelming majority of consumer spending only explain just 38 of the total increase in the cpi this year so cpi is 5.5 higher in october than it was in january but it would have been just 2.1 percent higher if these pandemic disrupted categories which normally contribute very little to changes in the total price index if they hadn't had such a massive impact so given that argument then yes inflation would be transitory now regardless of inflation there is incredibly strong demand and growth that we're seeing in the u.s and it's unlikely this is going to slow anytime soon so our macro ops growth composite index is coming off of record highs right now so we are firmly in an expansion and considering this backdrop it is pretty crazy that real rates are at all time record lows and financial conditions have never been looser so the fed really is just doing things differently right now but of course the question is will it last and if we take a look at the s p right now it is in a strong strong uptrend and what's likely going to happen is that these cell setups even though they look good like these down bars they're likely just going to get reversed because they're going to get bought up and then the bears have to cover their shorts and then it's just going to launch up even higher so right now we have a 4 800 measured move target on the smp and the way we got that 4 800 number is from the measured move level from its monthly io breakout pattern which we've talked about in previous videos so large buy climaxes like the one we're in right now they tend to peak near psychologically important round numbers so knowing that it is possible that the s p goes all the way to 5 000 before it tips over that means about 6.7 upside from here and breath credit liquidity everything is very supportive of such a move right now but of course there are some things that could kill this crowded trend early and one of them is a more hawkish turn by the fed which like the data we were just looking at yeah the fed probably should increase interest rates is nuts so we're going to do is ride the technicals but of course keep our heads on a swivel in case something changes and we gotta jump out now another space that we're tracking is agriculture so there's a lot of charts in this space that just keep setting up so here's a weekly chart of the invesco db agriculture fund which is dba you can see it's breaking out real nicely right here and it's been on a nice trend so this chart right here shows the correlation between fertilizer and agriculture spot prices and what it's saying is basically fertilizer prices lead agriculture prices and you can see fertilizer this blue line is shooting up which is why you should see this orange line follow so we're digging into a number of agriculture and infrastructure cat-backs plays this week agco is one that is on our list so this company manufactures and distributes agricultural equipment and related replacement parts worldwide and they're based out of georgia they're currently very cheap from a valuation perspective and they're growing their top and bottom lines which means their revenue and their profits and they are a perpetual cannibalizer of their shares meaning lots of buybacks which is good that's what you want to see plus the long-term chart which you can see right here looks ready to rip so a nice little consolidation right here so this is definitely one that you want to add to your watch list another one we're looking at is energy alternatives iea so they're the leader in the renewable energy construction space with strong growth a large backlog and a solid balance sheet once again chart is consolidating so that's one to put on your watch list and that's it for our market review this week if you want to see us next week make sure you subscribe so we can make that happen so subscribe and i will see you next time
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