For further thoughts on inflation and the content of this article
The post title is best when drawled in Gomer’s thick southern accent. (e.g. “Surprise, surprise, surprise!”)
I realize Gomer Pyle was way before the time of much of my reading audience, but for the last few weeks I’ve been hearing him in my head as not only NFTRH, but now the wider financial media get on the idea that things are not as bad as had been generally perceived going into the hype fest known as Brexit. Most recently, a writer who always keeps an even keel, Chris Ciovacco, has summarized the situation nicely (as posted at Biiwii).
We have been tracking the coming of an economic bounce phase for a few months now. This dates back to pre-Brexit when market sentiment was over bearish but leading economic signals from the Semiconductor Equipment sector and manufacturing were arguing for economic firming. Voila! We have since had ‘economic surprise’ indexes turn up and it is now two strong Payrolls reports in a row. Funny how leading indicators… lead.
But another component of this economic view is the prospect that this firming could come with an old friend that always shows up eventually after policy makers have been given too long a leash (and since inflationary policy has been in effect in one form or another since Q4 2008, I’d say that is a pretty long leash). Yes, our plan is currently operating to the Greenspan era blueprint, an inflationary blueprint that can see asset markets from the Precious Metals to Emerging Markets to Asia to US Technology rise in tandem.
Yes, it’s another inflation post going up even as inflation expectations are in the dumper and casino patrons just cannot get enough of Treasury and Government bonds yielding 0%, near 0% and below 0%.
Feel free to tune out the lunatic inflation theories you’ve found at nftrh.com over the last few weeks. But if by chance you do want to look, here’s a visual path we have taken to arrive at the barn door, behind which are all those inflated chickens, roosting and waiting. All sorts of animals will get out of the barn if macro signals activate.
Recently I have gotten wordy about the decline in ‘inflation expectations’ beginning on June 2, right on through yesterday’s update of the TIP-TLT ratio and TLT in essence, attaining their targets. The implication would be that the mini deflation whiff is coming to its limits.
As often happens at potential limit points, the market’s crosscurrents are strong. As noted yesterday, USD, gold, silver and the gold miners all did in-day reversals as items that had been risk ‘off’ got hammered. ‘What, USD and gold in lockstep? What is the meaning of this?!?’ think inflationists. See yesterday’s in-day post Strange Bedfellows.
The meaning is that these items, along with the VIX and US Treasury bonds have been plays for a risk ‘off’ market as it got the jitters over deflation. Gold miners had been, however fleetingly, rising in line with their counter-cyclical fundamentals and this is the mirror image to the reasons why I so often parrot that if you are a gold miner bull, at least realize that fundamentally at least, the sector is done no favors in an inflationary backdrop (price, for long stretches of time, can be something else all together).
 Please see a new post with more perspective on a would-be ‘inflation trade’ and its limitations.
The following excerpt is the opening segment from this week’s edition of Notes From the Rabbit Hole, NFTRH 398…
Last week’s opening paragraph: “If we are going to highlight improving fundamentals, which we did as gold out performed commodities and stock markets, then we also have to highlight and respect eroding fundamentals; no ifs, ands or buts.”
This week’s opening paragraph: If we are going to highlight eroding fundamentals, which we did as gold under performed commodities and stock markets and Semi Equipment made an early positive economic indication, then we also have to highlight and respect improving fundamentals; no ifs, ands or buts.
Gold is about the economy, the market risk profile, implied confidence in policy makers and above all, the state of money and the perceptions of billions of people who hold this ‘money’ issued by governments with “Legal Tender” or other wording to give the holder a feeling of confidence in its origin, its backing.
I don’t write the title because the precious metals took off Friday on the bad jobs report. Far from it. That is what gold is supposed to do under such circumstances as its fundamentals got a boost and the perceptions of a hawkish Fed got repelled.
I write the title despite the fact that the inflation barometer, TIP/TLT, tanked and commodities were moderate, post-jobs. Yesterday we noted: Inflation Expectations Sagging, including a declining TIP/TLT and a bullish looking TLT (each a form of non-inflationary signaling). Friday they got bearisher and bullisher, respectively.
This is the opening segment from the May 15 edition of Notes From the Rabbit Hole, NFTRH 395. I am releasing it for public viewing because it seems, the title’s question has come roaring to the forefront this week. So the information (including the charts) is slightly dated, but becoming intensely relevant as of now.
We anticipated an ‘inflation trade’ or Anti-USD asset market bounce and this has been going on since mid-February. That was when silver wrestled leadership from the first mover, gold (which bottomed in December and turned up in January), and a whole host of other global asset markets began to rise persistently.