Chart of the Day — And — Additional Evidence/Trends Supporting Our ‘Longer-Term’ Inflation Thesis

by Marty Mazorra CFP®, ChFC® Founder & Co-Chief Investment Officer

Yesterday I suggested that the setup for today (Fed meeting wrap up) was volatility.

With the Dow down 162 points, and the SP500 down 0.08% and the Nasdaq Comp off by 0.28% — well..… volatility? While equities did jump around a bit as Powell spoke, not so much, at least not in stocks…

Bond volatility, however, is worth mentioning.

Here’s the 10-year treasury yield today:


The yield spikes came when he talked up the economy and/or acknowledged inflation, the plunge at the end was around his adamance about inflation right here being “transitory” and not problematic longer-term. 

I.e., he’s not the least bit sympathetic to our present thesis — although if he were, and voiced it, yields would be through the roof, and stocks through the floor right about now. Which means even if he did sympathize, he wouldn’t dare confess it.

To add a bit to our narrative, here’s my comment to a presentation yesterday, where I referenced the work of another analysts who makes a compelling longer-term inflation case having to do with Asia’s evolution/development.

I’ll parenthesize where clarification is needed:

“Really don’t think the Fed “wants it (inflation) hot”. “Hot” would have them tightening.

The Fed talks up what they want, especially when it’s not there. They have been talking down inflation (or talking up “transitory inflation”) because if indeed it’s running hot, they’ll have to tighten — and in this setup they’ve backed themselves into — tapering is indeed tightening. I.e., tapering will have a serious knock-on tightening effect in markets.

Longer-term, analysts like V. Deluard make a compelling case for structural changes in Asia — moving from export driven (exporting deflation) models to consumption, which, along with what amounts to heightened pushback against globalization — leaving a real risk of structural/long-term global inflation going forward.

Not to mention, we’re looking at a fiscal impulse that — when coupled with a debt bubble that presents the greatest ycc (yield curve control) odds since the ’40s — could very well provoke longer-term inflation without the normal interest rate mechanism doing its job (in terms of cooling)”

 


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