Gathering Thoughts on the CRB, 30yr Yield and Inflation Expectations

I am aligning with other wise guys who see the bond bull getting over baked (how long ago it seems that the herds were on the exact opposite side of the boat, massively bearish bonds in H2 2018) and an inflationary outcome on the horizon.

But I am being very patient because first gold has to make its signals, then silver has to wrestle leadership from its stodgy old fuddy duddy dad and then the macro has to respond to the coming inflation in a cyclical way. And then there’s this (click for larger view).

crb

A couple things I notice in commodities over the deflationary/Goldilocks continuum of the long bond’s robotic multi-decade decline.

  1. Commodities have tended to go the way of the yield, which makes sense since rising Treasury yields often (usually) indicate inflation issues, and…
  2. That correlation was interrupted twice as bubble 1 and an echo bubble came about.

Did those bubbles come out of nowhere? Looking a little deeper we add an ‘inflation expectations’ gauge to the mix and find an answer. The answer is no.

Commodities got out of control when fears of inflation got out of control. I have to laugh (in a gallows humor sort of way) when I see the massive bursts in commodities and high levels of TIP/TLT compared to the robotic Continuum of declining yields. “Nope, no inflation here!” said the long bond just before the inflation was liquidated mercilessly in 2008.

crb

So what can be gathered from the above? One thing I gather is that the Treasury bond market is so well manipulated, used, abused and worked over by the Federal Reserve and associated US and global interests as to be a farce, at least to anyone who likes participating in free markets. Another thing I gather is that the stand-alone chart of the CRB index sucks… badly. Yet another thing I gather is that if we get the yield and TIP/TLT on the rise we will also get a big commodity rally.

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