Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Coronavirus: UK Parents Demand ALL Schools OPEN September, 7 Million Children Abandoned by Teachers - 9th Aug 20
Computer GPU Fans Not Spinning Quick FIX - Sticky Fans Solution - 9th Aug 20
Find the Best Speech Converter for You - 9th Aug 20
Silver Bull Market Update - 7th Aug 20
This Inflation-Adjusted Silver Chart Tells An Interesting Story - 7th Aug 20
The Great American Housing Boom Has Begun - 7th Aug 20
NATURAL GAS BEGINS UPSIDE BREAKOUT MOVE - 7th Aug 20
Know About Lotteries With The Best Odds Of Winning - 7th Aug 20
Could Gold Price Reach $7,000 by 2030? - 6th Aug 20
Bananas for All! Keep Dancing… FOMC - 6th Aug 20
How to Do Bets During This Time - 6th Aug 20
How to develop your stock trading strategy - 6th Aug 20
Stock Investors What to do if Trump Bans TikTok - 5th Aug 20
Gold Trifecta of Key Signals for Gold Mining Stocks - 5th Aug 20
ARE YOU LOVING YOUR SERVITUDE? - 5th Aug 20
Stock Market Uptrend Continues? - 4th Aug 20
The Dimensions of Covid-19: The Hong Kong Flu Redux - 4th Aug 20
High Yield Junk Bonds Are Hot Again -- Despite Warning Signs - 4th Aug 20
Gold Stocks Autumn Rally - 4th Aug 20
“Government Sachs” Is Worried About the Federal Reserve Note - 4th Aug 20
Gold Miners Still Pushing That Cart of Rocks Up Hill - 4th Aug 20
UK Government to Cancel Christmas - Crazy Covid Eid 2020! - 4th Aug 20
Covid-19 Exposes NHS Institutional Racism Against Black and Asian Staff and Patients - 4th Aug 20
How Sony Is Fueling the Computer Vision Boom - 3rd Aug 20
Computer Gaming System Rig Top Tips For 6 Years Future Proofing Build Spec - 3rd Aug 20
Cornwwall Bude Caravan Park Holidays 2020 - Look Inside Holiday Resort Caravan - 3rd Aug 20
UK Caravan Park Holidays 2020 Review - Hoseasons Cayton Bay North East England - 3rd Aug 20
Best Travel Bags for 2020 Summer Holidays , Back Sling packs, water proof, money belt and tactical - 3rd Aug 20
Precious Metals Warn Of Increased Volatility Ahead - 2nd Aug 20
The Key USDX Sign for Gold and Silver - 2nd Aug 20
Corona Crisis Will Have Lasting Impact on Gold Market - 2nd Aug 20
Gold & Silver: Two Pictures - 1st Aug 20
The Bullish Case for Stocks Isn't Over Yet - 1st Aug 20
Is Gold Price Action Warning Of Imminent Monetary Collapse - Part 2? - 1st Aug 20
Will America Accept the World's Worst Pandemic Response Government - 1st Aug 20
Stock Market Technical Patterns, Future Expectations and More – Part II - 1st Aug 20
Trump White House Accelerating Toward a US Dollar Crisis - 31st Jul 20
Why US Commercial Real Estate is Set to Get Slammed - 31st Jul 20
Gold Price Blows Through Upside Resistance - The Chase Is On - 31st Jul 20
Is Crude Oil Price Setting Up for a Waterfall Decline? - 31st Jul 20
Stock Market Technical Patterns, Future Expectations and More - 30th Jul 20
Why Big Money Is Already Pouring Into Edge Computing Tech Stocks - 30th Jul 20
Economic and Geopolitical Worries Fuel Gold’s Rally - 30th Jul 20
How to Finance an Investment Property - 30th Jul 20
I Hate Banks - Including Goldman Sachs - 29th Jul 20
NASDAQ Stock Market Double Top & Price Channels Suggest Pending Price Correction - 29th Jul 20
Silver Price Surge Leaves Naysayers in the Dust - 29th Jul 20
UK Supermarket Covid-19 Shop - Few Masks, Lack of Social Distancing (Tesco) - 29th Jul 20
Budgie Clipped Wings, How Long Before it Can Fly Again? - 29th Jul 20
How To Take Advantage Of Tesla's 400% Stock Surge - 29th Jul 20
Gold Makes Record High and Targets $6,000 in New Bull Cycle - 28th Jul 20
Gold Strong Signal For A Secular Bull Market - 28th Jul 20
Anatomy of a Gold and Silver Precious Metals Bull Market - 28th Jul 20
Shopify Is Seizing an $80 Billion Pot of Gold - 28th Jul 20
Stock Market Minor Correction Underway - 28th Jul 20
Why College Is Never Coming Back - 27th Jul 20
Stocks Disconnect from Economy, Gold Responds - 27th Jul 20
Silver Begins Big Upside Rally Attempt - 27th Jul 20
The Gold and Silver Markets Have Changed… What About You? - 27th Jul 20
Google, Apple And Amazon Are Leading A $30 Trillion Assault On Wall Street - 27th Jul 20
This Stock Market Indicator Reaches "Lowest Level in Nearly 20 Years" - 26th Jul 20
New Wave of Economic Stimulus Lifts Gold Price - 26th Jul 20
Stock Market Slow Grind Higher Above the Early June Stock Highs - 26th Jul 20
How High Will Silver Go? - 25th Jul 20
If You Own Gold, Look Out Below - 25th Jul 20
Crude Oil and Energy Sets Up Near Major Resistance – Breakdown Pending - 25th Jul 20
FREE Access to Premium Market Forecasts by Elliott Wave International - 25th Jul 20
The Promise of Silver as August Approaches: Accumulation and Conversation - 25th Jul 20
The Silver Bull Gateway is at Hand - 24th Jul 20
The Prospects of S&P 500 Above the Early June Highs - 24th Jul 20
How Silver Could Surpass Its All-Time High - 24th Jul 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

US Fed Wooing Inflation

Economics / Inflation Dec 19, 2019 - 07:03 PM GMT

By: Gary_Tanashian

Economics

The Continuum (the systematic downtrend in long-term Treasury yields) has for decades given the Fed the green light on inflation. Sometimes it runs hot (as per the red arrows) and sometimes it runs cold. One year ago people were confused about why a declining stock market was not influencing Fed chief Powell to reverse his relatively hawkish tone.


The orange arrow shows exactly why, per this post that will be one year old tomorrow (Dec. 19)…

FOMC at Center Stage (NFTRH 530 Excerpt)

Inflation is what the Fed does, after all. But it needs periodic deflationary episodes in order to keep the racket going. I will stick with my original view that the Fed is not adverse to a market correction or even a bear market. It is exactly what is needed to reload the next inflation gun.

The “BOND BEAR MARKET!!!” stuff ran very hot on this cycle as the 30 year yield broke the Continuum’s limiter (monthly EMA 100) before failing over the last few weeks (to the surprise of many, but not us ;-)). As I have noted previously, in my opinion the Fed does not want a bond bear (breakout in yields) or its running mate, a breakout in inflation expectations because the Fed is an inflation machine. But it has inflated against this pleasant continuum of declining yields over the decades that has encompassed the entire training of most of us as market participants.

I am not saying that a red dashed line is the be all end all of market analysis. But it is a marker that we have used in NFTRH since 2008 in order to correctly interpret the macro situation. My interpretation today is that the Fed has countered the cost-push inflationary pressures that by definition are injected through fiscally (political) stimulative policy by withdrawing liquidity until something breaks. Ironically, that has involved raising the Fed Funds interest rate and withdrawing QE, which theoretically would raise long-term yields. But when something breaks, the risk ‘off’ herds buy the bond driving yields down.

Fast-forward to today. The herds bought the bond alright; they bought it for most of 2019 amid ‘trade war!!’ and inverted yield curve!!’ headlines and associated economic fears. And so the Continuum dropped again, along with inflation concerns and logically, the Fed’s hawkishness after the Q4 2018 orange alert.

We used this chart earlier in the year to gauge the end of the plunge in yields and the bull bond hysteria going in the opposite direction to 2018’s bear bond hysteria. In order to get the prospect of an ‘inflation trade’ going we asked for TYX to rise above 2.2%, and there it is.

The above is only one of several measures of inflation signals but for the illustrative purposes of this post we’ll keep it simple. So far so good with the 30 year yield at 2.3%. Other inflation expectations indicators are also in bounce mode.

It is no coincidence that the CRB index has formed a daily chart bottoming pattern for a hearty bounce, at least.

What is interesting is that unlike in 2011 when Ben Bernanke virtually commanded the yield curve to flatten by implementing Operation Twist (selling short-term Treasuries and buying long-term Treasuries), the Fed today appears to be okay with a steepening curve (inflation is one condition under which the curve can steepen; the other being liquidity flight and/or deflation) as it focuses on purchasing short-term instruments. From Barrons…

The Fed Would Consider Buying Other Short-Term Treasuries if Necessary, Powell Says

The Federal Reserve would consider buying short-maturity coupon-bearing Treasuries at the end of this year if financing pressures hinder the central bank’s ability to administer its interest-rate policy, Fed Chairman Jerome Powell said Wednesday.

That would be an expansion of the Fed’s current bill-buying efforts. The central bank is increasing the amount of cash reserves in the financial system by buying Treasury bills, which don’t carry coupons. Powell also highlighted that money markets have been stable in recent weeks, so there is no sign that such a change would be needed.

He says there is no sign such a change would be needed, but if needed… like any modern central banker he’s keeping his toolbox close by.

I was prompted to write this post after reading a piece at MarkeWatch…

The Fed should be careful when it wishes for more inflation

The Federal Reserve has been trying, without much success, to raise the inflation rate to its 2% target ever since the central bank designated an explicit target in 2012.

2012 just happens to have been a year of what was then an all-time low in yields on the Continuum charts above. We have sunk to new lows since and pinged upward to lower highs. The Continuum’s downward sojourn is the picture of the “great moderation” as the MarketWatch article calls the post-1970s decades. It is also a potential deflationary whirlpool that the Fed and other central banks doggedly try not to allow the inflated mess known as the global economy to circle the drain into.

Bearing in mind that the CRB index and most commodities and resources are on a good bounce (we have our upside CRB target) but not in anything resembling a significant new bull market, we can enter 2020 on the commodities and resources bull, along with associated global trades. But people should remain aware of the 100 month EMA (red solid and dashed lines) on the TYX charts above. I call it the limiter for a reason and until it proves otherwise by failing to constrain the yield (always a possibility for massive paradigm shift), that is what it is, as was most recently proven one year ago.

Let’s touch base in another year and see how things have worked out.

Subscribe to NFTRH Premium (monthly at USD $33.50 or a 14% discounted yearly at USD $345.00) for an in-depth weekly market report, interim market updates and NFTRH+ chart and trade setup ideas, all archived/posted at the site and delivered to your inbox.

You can also keep up to date with plenty of actionable public content at NFTRH.com by using the email form on the right sidebar and get even more by joining our free eLetter. Or follow via Twitter ;@BiiwiiNFTRH, StockTwits or RSS. Also check out the quality market writers at Biiwii.com.

By Gary Tanashian

http://biiwii.com

© 2019 Copyright  Gary Tanashian - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Gary Tanashian Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules