When The Tight Economic Rope Slackens

[edit] It’s probably best to read the article first and then circle back to this edit.

Upon completing the article I realized that no forward look at the economy and financial markets from an inflationary/deflationary point of view would be complete without consideration of the Yield Curve. Here is its status at the time of writing. It is making a steepening hint this week along with the rise in bond yields. That signaling is inflationary, at least for now. But in 2008 the curve morphed from an inflationary steepener to a deflationary one and that’s an important distinction.

You’ll notice that a blessed Goldilocks economy is mentioned below as a less favored option for 2022. She runs with a flattening curve like the one during the 2013-2019 phase. If it steepens forget about Goldilocks and prepare for either an inflationary or deflationary steepener.

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Stagflation and/or eventual Deflationary liquidation likely in 2022

We all know that the post-pandemic world is currently rife with supply bottlenecks and frustrated demand. We also know that the Federal Reserve and its fellow central banks sprang into heroic action (you know that is sarcasm) to fight the good fight against the dreaded liquidity event that came upon the macro markets and economies early in 2020. The combination of tight supply and printed money has obviously increased prices for materials, commodities, labor, and so on. Continue reading "When The Tight Economic Rope Slackens"

The Inflation/Deflation Debate Wears On

Our 30 year Treasury yield ‘Continuum’ chart indicates that deflation is the dominant trend, but…

Steve Saville has written a post that got me thinking about carts and horses and more precisely, which comes before which. Is the inflationary horse pulling the deflationary cart uphill or is the deflationary cart leading the horse to drink from the shrinking liquidity pool periodically?

See The Crisis-Monetisation Cycle

In conclusion to this short post, Steve asserts…

“The crisis-monetisation cycle doesn’t end in deflation. The merest whiff of deflation just encourages central bankers and politicians to do more to boost prices. In fact, the occasional deflation scare is necessary to keep the cycle going. The cycle only ends when most voters see “inflation” as the biggest threat to their personal economic prospects.”

And over the course of decades now that is exactly the case. Every damn time that the public becomes terrified of declining asset (especially equity) prices the Fed springs into action.

On March 19, 2020, we asked… Continue reading "The Inflation/Deflation Debate Wears On"

Signs Of Inflationary Reflation Running Low On Gas

The summer (inflation) cooldown continues…

We anticipated it in NFTRH well ahead of time using the (monthly 30yr yield) Continuum as a visual guide. The idea was that the inflation uproar of Q1…

Inflation

…needed to be tamped down, preferably to a roughly symmetrical right side shoulder to the one on the left side of a would-be inverted H&S. Continue reading "Signs Of Inflationary Reflation Running Low On Gas"

Inflation Cools (For Now), Stagnation Awaits

To maintain the inflation, a cooling of inflation was needed

That is one of those Alice in Wonderland-like statements, like the one I’ve got tattooed on my left forearm: “Contrary-wise, what is it wouldn’t be and what it wouldn’t be it would, you see?”

To maintain inflationary policy, as per various talking Fed (egg) heads, the hysterical run-up in inflationary expectations and fears had to be tamped down. And so, Google users have indeed eased their neuroses right along with a recent tamping of inflationary hysteria.

Inflation

While inflation expectations ease but remain on-trend. Continue reading "Inflation Cools (For Now), Stagnation Awaits"

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?"