Out of the three, stocks vs. gold, nominal long-term yields and the yield curve, it has been the nominal yields Amigo that has been the most questionable; what with there being no inflation and all ←sarcasm.
The 10yr is looking bullish and its lame big brother, the 30yr, is down trending but spiking today.
With respect to both of these, the theme is ‘to the limiters!’ as people get worked up about fiscal relfation AKA inflation. But the limiters are in the equation for a reason. 3.3% on the 30yr and 2.9% on the 10yr will be battle lines.
Somebody, I think it was Stan Druckenmiller, was saying the other day that deflation is created by inflation and the asset bubbles it creates. It’s so simple, isn’t it? You can’t deflate something that was not inflated to begin with.
So, while there is always the possibility that we will go full frontal von Mises Crack Up Boom a rational person might think about the maturity of the current asset bubble and what could happen if the yields Amigo gets to the limiter, especially if he gets there with two fellow Amigos at their targets (SPX fully retraced 38% vs. gold and the yield curve near flat, flat or inverted).
If inflation signals – and yields – do increase in the near-term I’d expect the asset mania to continue although traditional ‘inflation’ items may get the rotation, until all Amigos reach their destinations. This process could extend for quite some time. Maybe long enough to get everyone believing in inflation again. But again, the limiters will tell the real macro story. Short of those, it will be wise to tune out the commodity gurus and pitch men sure to crawl out of the woodwork.
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