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Since this is Inflation Week (and, in a way, I suspect every week for the next couple of years will be), all eyes were on this morning’s PPI number. As I am typing these words, the actual figures were just released, and it’s a scorcher.
The prior month was 0.8%. The expectation was 1.1%. The actual number (which, let’s please keep in mind, is heavily discounted from reality since the government has a vested interest in keeping it low) is 1.4%, which annualizes out to 16.8%. So, in fact, we’re probably in a 30% inflationary environment right now, thanks to the bumbling, criminal Federal Reserve.
Like the larger media this tiny little spec within the media reports the news to you. The 10yr-2yr yield curve has inverted (ref. Yield Curve inversion upcoming). Now, what does it mean?
Well the first thing it usually means is not to panic (especially now that High Yield credit spreads are easing), but do tune out the media hype about it because it is not the inversion that tends to signal an economic bust but instead, the steepening that follows it. Among the important questions are how long will it remain inverted and how deep will the inversion go before the next steepener?
As the Yield Curve flattens, this inflation is different from the 2020 inflation
In 2020 an inflationary yield curve steepener was in the bag as the Fed dropped and pinned the Funds Rate and sucked up every bond it could get its hands on (in order to monetize/print). The bond market made the logical signals about the resulting inflation as the short end was pinned by a combination of Fed policy and the frightened, risk ‘off’ herds clustered in T-Bills and short-term Treasuries, relative to the long end.
Gold and then stocks picked up on it first, followed by commodities, which were tardy but are now the star performer late in the inflation cycle. Hmm…