Why Inflation?

The simple answer is that is what they are doing, inflating.

The slightly less simple answer is that they inflated in 2001 and it worked (for gold, silver, commodities and eventually stocks, roughly in that order). It also worked in 2008-2009 (for gold, silver, commodities and eventually stocks, roughly in that order).

The more complicated answer is that we are down a rabbit hole of debt and the hole appears bottomless. What’s a few more trillion on top of un-payable trillions? As long as confidence remains intact in our monetary and fiscal authorities – and COVID-19 or no COVID-19, stock mini-crash or not, confidence to my eye is intact, speaking of my country, anyway – they will inflate, and what’s more, they will be called upon to inflate.

Confidence may be failing in other parts of the world but the average American is behind this thing they don’t even really understand, known as the Fed. The average American expects the bailout checks from the fiscally reflating government too. Angst, of which there has been plenty lately, is much different from lack of confidence.

I can’t include here all the ways and means the Fed has (frankly, I don’t know about them all) to prop the system, but if you go to the St. Louis Fed website you will find a whole slew of Keynesian egghead stuff. They are on it! Continue reading "Why Inflation?"

The Yield Curve Steepens - Deflation To Inflation

This morning the 10/2yield curve is again steepening and that is the headliner and one of my two most important indicators (the 30-year yield Continuum being the other). But I thought I’d dust off a bunch of existing charts from my chart lists that tell their stories as indicated by the bond market to go along with said yield curve. But let’s begin with the headliner.

Is this just another bump as in 2016 (2nd chart) or is it a real steepener like 2007 (3rd chart)? After all that post-Op/Twist manipulated economic booming it is due, I can say that much.

yield curveyield curveyield curveyield curve

Everybody has the memo. Deflationary destruction it is! The yield curve (bottom) can steepen under either deflation or inflation. Right now it’s deflation hysteria… Continue reading "The Yield Curve Steepens - Deflation To Inflation"

Economist Lays Out The Next Step For The Fed

Mr. Steven Ricchiuto, he of a Masters in Economics from Columbia, has laid out the proper plan for the Federal Reserve in this oh so noisy environment in which an unassuming and fairly quiet man is trying to tune out a personal bully on Twitter, tune out the stock market’s daily whipsaw and do what he perceives to be the right thing.

Today, the academic named above throws in with Trump and politely harangues Chairman Powell thusly in an open letter. You can read it by hitting the graphic…

Stagflation this, Volcker that, deflation the other thing… blah blah blah. But then he gets to the interesting parts, the money parts. Of the post-Volcker era he states…

To rein in excess money supply growth, the Fed trimmed bank reserves — high-powered money — which resulted in dramatically higher short-term rates. This shift in policy served to dampen inflationary expectations, and thus inflation, while increasing central bank credibility. The dollar strengthened and elected officials became strong supporters of an independent Fed as a result.

Indeed, in microcosm, these periodic drives to the lower rungs of the Continuum are all about Fed credibility. Credibility rebuilt after events like last year’s break of the monthly EMA 100 limiter (red dashed line) on the 30 year Treasury yield.

In H2 2018 while the supposed bond experts were uniformly aligned in a BOND BEAR MARKET!!! posture and market participants were wondering why Jerome Powell was being so stern amid the stock market wipe out NFTRH noted that the Fed was not going to self-immolate in a blaze of inflationary expectations (featuring out of control long-term yields). Credibility would need to be rebuilt and here indeed it has been, and then some. Continue reading "Economist Lays Out The Next Step For The Fed"

When The Bond Bubble Blows Up

Amazing isn’t it? It was only back in H2 2018 when everybody but you (because you are as smart as I think you are or because you read NFTRH or nftrh.com) and I was unbelievably bearish about the TREASURY BOND BEAR MARKET!!!

Today… not so much. The herd is absolutely pile driving bonds right now.

tlt bond

I know this all too well because while my SHY (cash equiv.) position is doing well it’s not anything like the above, and is basically – given relative position sizes – offsetting a position in this, which I am still holding with all the stubbornness of a pissed off contrarian. Continue reading "When The Bond Bubble Blows Up"

You Have To Invite The Vampire Into Your House

A vampire needs to be invited in order to enter your house. So the story goes. But in this case, we are talking about the Macro house, with its nexus in the USA and its Central Bank.

You see, the Federal Reserve inflates money supplies as a matter of doing business, which is why I noted so strenuously in Q4 2018 that Jerome Powell’s then-hawkish stance in the face of a declining stock market made perfect sense… because the 30 year Treasury bond was not bullish; it was bearish and getting more so under the pressure of rising inflation expectations.

But now as we noted the other day the inflated Sub is losing pressure. As we noted before that Goldilocks is being threatened. Here are the updated ‘inflation gauges’ from that post, continuing to lose pressure.

Q4 2018

But in Q4 the Fed had a threat if its own to deal with as the repercussions of its previous inflationary operations could be exposed to the light of day by the breakout through the Continuum’s limiter if it were not arrested promptly. The orange arrow on the chart below shows the point of concern for the Fed. Continue reading "You Have To Invite The Vampire Into Your House"