They say a picture is worth a thousand words.
Take a look at the four charts below for the ten-year Treasury bond yield ($TNX), Goldman Sachs (GS), Gold (GLD), and oil (USO), and they explain everything that is going on in financial markets right now. In fact, they could all be the identical chart.
They all show that after building very long multiyear bases they are breaking out to the upside. This almost always heralds successive new highs, if not new all-time highs.
These charts also all have another thing in common. They are all inflation plays. Yes, after a decade long hiatus, the I-word is back.
Of course, we haven't seen runaway price increases throughout the economy yet. Most of the inflation we have seen so far has been in asset prices, both in paper and the hard kind in real estate.
No, the charts are suggesting that while real inflation is not here yet, it may be just round the corner. And they may be right.
Look at the real estate sector of any major newspaper right now and it has shrunk to near invisibility. That's because homeowners have pulled their residences off the market, paring back both the listings and the advertising that go along with them.
They are afraid that if they sell their dwellings in these frenetic markets they won't be able to replace it with another one, except at much higher prices. Real estate has in effect become a one-way market.
I'll tell you where to find another one-way market and that's in stocks. With the Dow average up 7% so far in January, we have seen the most aggressive start to a new year in three decades.
Investors are similarly afraid that if that take profits they will have to buy back in at elevated levels. So they aren't selling.
It isn't just inflation that is driving investors into hard asset and rising interest rate plays. They are buying them purely because they are cheap. As I have said time and again, you should only buy cheap stuff in expensive markets. These are the asset classes that have languished for years.
If you have any quibbles with my logic, take a peek at the inverse stock plays and you will be horrified. This would include the (TLT) itself, REITS (SPG), and utility stocks (XLU), all sectors that suffer from rising interest rates and inflation.
These are some of the best shorts in the market right now. If you own them, better to arrange a going away party as quickly as possible.