This is a headwind for equities that has started to pop up over the past couple of weeks. Yet, it has taken years to ferment and likely will persist for the foreseeable future. The headwind I am talking about is inflation.

Inflationary pressures -whether real or perceived - will likely remain high, and this can be seen in our inflation indicator that looks at the trends in crude oil, gold, and yields on the 10 year Treasury. See figure 1, a weekly chart of the S&P500 with our inflation indicator in the lower panel. With strength this past week in crude oil, gold, and yields, the indicator is back in the extreme "high inflation" zone.

Figure 1. SP500 v. Inflationary Pressures

As discussed in the article "More Headwinds To Worry About", inflationary pressures are a significant headwind for equities even in the bull market of the 1980's and 1990's. This should be clear from the study presented in that article. When the trends in crude oil, gold, and yields on the 10 year Treasury are strong and rising, equities tend to under perform.

By Guy Lerner

http://thetechnicaltakedotcom.blogspot.com/

Guy M. Lerner, MD is the founder of ARL Advisers, LLC and managing partner of ARL Investment Partners, L.P. Dr. Lerner utilizes a research driven approach to determine those factors which lead to sustainable moves in the markets. He has developed many proprietary tools and trading models in his quest to outperform. Over the past four years, Lerner has shared his innovative approach with the readers of RealMoney.com and TheStreet.com as a featured columnist. He has been a regular guest on the Money Man Radio Show, DEX-TV, routinely published in the some of the most widely-read financial publications and has been a marquee speaker at financial seminars around the world.

© 2009 Copyright Guy Lerner - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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