Tag Archives: inflation

Inflation Fears? TIP-TLT Says Not Yet

The economy and the stock market depend on inflation. Get serious giddy stock bulls, they inflate, you make money.  They fail to inflate and the tide turns deflationary, your gains go poof, money heaven.  I’ll dig out some of those policy-profits-S&P 500 corollary charts again soon enough.

The relationship between TIPS (inflation protected) and TLT (regular long-term T bonds) is one indicator of inflation expectations and while it seems to have spent the last 2.5 years in bottoming mode (allowing Goldilocks to pig out on porridge) it is still going nowhere.

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TIP-TLT ratio weekly, from NFTRH 277

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Stock Market’s Goldilocks Story May Be Ending

I am going to stick with the view that the market can top out here for a resumed correction.  I know I know, the Markit Flash PMI improved implying a bounce in manufacturing now that the cold weather will be (hopefully) leaving us.  But then Philly Fed came in lousy.  Okay, a wash.

Still for the sake of my mental health if nothing else, I allow for a final top in the market out to mid year or so and I’ll get rid of the puts (still slightly profitable) if resistance parameters break.  I don’t fetishize the bear case.

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The Marie Antoinette Rule

Guest Post by Michael Ashton

The biggest surprise of the day on Tuesday did not come from new Fed Chairman Janet Yellen, nor from the fact that she didn’t offer dovish surprises. Many observers had expected that after a mildly weak recent equity market and slightly soft Employment data, Yellen (who has historically been, admittedly, quite a dove) would hold out the chance that the “taper” may be delayed. But actually, she seemed to suggest that nothing has changed about the plan to incrementally taper Fed purchases of Treasuries and mortgages. I had thought that would be the likely outcome, and said so yesterday when I supposed “she will be reluctant to be a dove right out of the gate.”

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NFTRH 276 Out Now

This one slims down to 31 pages of quality financial market analysis.  These reports, which should be between 15-25 pages normally, are what they need to be for me to get enough data points analyzed given the current situation where 2014′s financial markets are grinding toward our expected changes.

There is no ‘set it and forget it’ right now.  I am in full geek mode.  Later will come the relatively fun part, like making money on new trends.

NFTRH 276 out now…

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Treasury Bond Talk on FOMC Day

Because it is Fed day (don’t you just love Fed day?) and because I have got Prechter in my head, we’ll stay on the topic of the long bond.  The FOMC ostensibly has some kind of decision to make about Treasury bond manipulation today.

Dial back with me if you will to a happier time for inflationists.  It was the spring of 2011 and the ‘right’ kind of inflatables were blasting off all over the place, led by silver.  The inflation bulls were geniuses then.  Why, even the Bond King declared his bearishness against long term T bonds and put his high profile bond funds short against it.  Ah, no dear sir, incorrect.  The ‘Continuum’ was at a turning point from up to down.

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What was actually in store was a deflationary environment during which the usual inflatables got hammered along with much of the world.  Here in the good old US of A the effect manifested as Goldilocks, with genuine deflation forestalled at least.

Today, in keeping with the theme that has seen legendary market luminaries and long time newsletter writers alike close up shop due to confusing market signals that just don’t seem to make sense, we have the Deflation King (Prechter) declaring he is bearish on T bonds, expecting as Gross had 3 years ago, for the yield to break out… this time (in response to inflation).

Sometimes I think it is an advantage being a relative simpleton instead of a market luminary.  I have no clue if the yield is going to break out this time (nor if the ultimate condition for the next year or two will prove inflationary or deflationary for that matter) but I do know that I am not smart enough to make predictions like that.  I am, in the tradition of the earliest Hominids, a simple tool user.

The tool above says that nothing has happened yet that threatens a condition in T bonds that has been in place for decades.

Commodities Falling Despite QE

Guest Post by Elliott Wave International

Robert Prechter: “Charts tell the truth. Let’s look at some charts.”

During QE3, the latest round of the Fed’s quantitative easing, the stock market rose. We all know that.

But did you also know that commodities fell? [ed.  errr, a Captain Obvious moment guys?]

That’s right: QE3 had zero effect on commodities — or maybe even a negative effect. In fact, an unbiased observer of the trend might conclude that the Fed drove commodity prices down.

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