The Bottoming of Deflationary Expectations & the Treasury TIC Data

Here is the chart we have been using in NFTRH, showing inflation protected T bond fund TIP vs. regular T bond fund TLT.


This ratio has been bottoming for months now and in the last few weeks had made some failed efforts to break out.  Last week it closed above the bottom pattern neckline.

From NFTRH 252:

“TIP-TLT can be thought of as a barometer to ‘inflation expectations’.  That could be what the precious metals, led by silver, are indicating in tandem with the above ratio.  At the very least, it looks like a ‘deflationary expectations’ phase – which helped feed Goldilocks and croak precious metals – may be ending.”

Goldilocks lived by the deflationary pressures that Europe’s meltdown and China’s slow down exerted upon the world.  Now, with the latest TICS report showing China and Japan selling T bonds we suddenly have the Fed’s Huey, Dooey and Louie jawboning a ‘taper’ of bond buying in the media.  Ha ha ha…  as if they have a decision to make.


The Treasury TIC data are only through June, which just happens to be the month we observed the breakout from bottoming patterns in 10 year and 30 year bond yields.  But the play always (and I am talking nearly a decade since we began following this dynamic) been that America’s voracious consumption habits would be used to build out the Chinese economy on credit.  They would not let us abuse our ability to inflate without consequence forever.

Do they perhaps feel built out enough for the time being?  We’ll find out in future TICS reports.  But I’ll just say that everybody thinks they know that there is no inflation ;-) and in this market what everybody thinks they know could well stand to be wrong.  I have rarely seen so many of the right people on the wrong sides.