Systemic Stress is Building – – and it’s Bullish

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Using the spread between 30 year and 2 year US Treasury yields, we
can gauge when policy makers are in control of market participants’
perceptions and when they are losing control to the free market’s will.

Operation Twist was announced in September of 2011 in the aftermath
of the first phase of the Euro crisis as the yield curve had exploded
higher, taking the monetary stress barometer, gold, with it.  Over
bought on unbridled momentum, gold entered an extended correction in
line with the yield curve, which complied with policy makers’ goal of
calming down the system.  As shown many times in the past, gold and the
30-2 yield curve generally travel together.

By the time Op Twist’s extension was announced in June, an already
mature gold correction and an in-line yield curve unsurprisingly did not
respond to the manipulators’ directive.  The operation whereby the
Federal Reserve would buy up long-term bonds and sanitize the process by
selling off short-term ones was exposed as the macro parlor trick that
it is. It resulted in little more than a deflationary pretense against
which inflationary policy could be promoted anew.

In hindsight, the free market knew that a bald faced and more honest
inflation regimen would be engaged by policy makers desperate to keep
power, as the yield curve shook off the Twist manipulation and looked
ahead to full-on inflation or ‘i2k12′ (Inflationary 2012) as NFTRH coined it early in the year.

A rising yield curve is all about the promotion of inflation.  The
weekly view of the 30/2 yield curve and gold shows the Greenspan era
inflationary regime, which was promoted against the bear market early
last decade.  This was the kickoff to what NFTRH terms the age of
‘Inflation onDemand’.

Greenie’s version of ZIRP resulted in a credit bubble and
mal-investment far and wide.  When he tried to take it back by raising
short-term interest rates, the yield curve complied but a system already
too far out on the leveraged limb eventually began to fall apart.  The
system was beyond normal austere policy making.  To put it in
non-technical terms, FrankenMarket needed juice and it needed it fast.

Enter the man for the job, Greenspan lackie Ben Bernanke, the new
Federal Reserve chief, fresh with monetary and economic management ideas
straight out of academia.  Enter a whole new level of management where
an epic macro game  of ‘all or nothing’ came into play.

As US financial institutions began to fail, the curve began to rise
as the Fed cut rates as fast as it could.  Inflation was again being
promoted, but the act of inflating did not stop the oncoming liquidation
of Q4, 2008.  The curve declined from the 2008 stress spike as it
usually does during deflationary liquidations.  These periods of
deflationary pressure serve to build up the next stress spike in the

As QE1 eventually took hold, the curve rose into the events
surrounding the 2010 ‘Flash Crash’, at which point QE2 was promoted. 
This launched an intense phase of inflationary cost pressures that
culminated in the curve topping out in late 2010, with commodities
following suit in early 2011.  This resulted in the deflationary
pressures that held sway for the balance of 2011 before eventually
giving way to a new inflationary regime that was born in the summer of
2012.  Enter NFTRH’s long-awaited i2k12.

But the nominal 30 year bond yield has been declining since… forever; deflation is the play!

No sir, a wellspring of goodwill was passed on to Alan Greenspan by
Paul Volcker in the mid-80′s and Sir Alan borrowed against this goodwill
for all it was worth until finally, the system could not take it
anymore.  The great bull market of 1980 to 2000 expired and the age of
Inflation onDemand began.  The monetary metal was rightly
contained until the current era where inflationary policy is used ever
more desperately to battle the next oncoming liquidation.

There are no bond vigilantes anymore.  There is just a massive market
in US Treasury bonds being worked over by really smart people employing
really dangerous operations.  The middle chart above shows a curve that
is ready to continue upward into building inflationary stress.  The
last chart shows that gold has not been deterred despite what is made to
appear to be an ongoing deflationary continuum.

The current inflation could run until the curve reaches new highs
and/or the Continuum paints another red arrow at the downtrend line.  Or
it could just run until the system ends; it’s a which ever comes first
type of scenario.  That’s our system folks; very high risk and high
reward.  But it is terminal.  Hence the case for gold.  The barbarous
relic would help people bridge the gap between the dying system and the
one that comes next.  That is why it is not taking the bait anymore on
the periodic liquidations.

Be safe first… speculate second.  Safety means eliminate debt and own
things of value.  I fully believe that happiness can be achieved in
these painful times.  But you have got to take control and not take the
mainstream media bromides to heart.  I am not sure where this post came
from or even where it went to.  But there it is anyway.  A great weekend
to you.  Website:; Free eLetter.