Yield Curve Continues Firm Rebound

Jerome Powell (I have to believe purposely) rammed it back into gear. Deflationary or even Goldilocks signaling will not do. I don’t pretend to know exactly why, but it appears that inflationary signaling is preferred in the US over Goldilocks signaling, which served it so well post-2011. I think it has something to do with the structure and intents of the Trump reflation.

Anyway, a steepening yield curve/spread can be a sign of deflation or inflation. But in either case it would be a sign of big changes. It held the higher low to May by the hair of its chinny chin chin. Here’s the 1 year view and you can toggle other time frames here.

I’ve had a theory for a while now that the next dynamic market event may not be like the last one (Armageddon ’08’s massive liquidation). As I watch my home-made yield steepener (long SHY, long TBT AKA short the long bond) do well this week and think about the balls out efforts central banks are making to inflate assets of all kinds I think this steepener, if it come through as expected, will be the product of inflation expectations rather than deflationary terror.

The other day we had a post talking about how gold is not about ‘inflation expectations’ as it would under perform cyclical metals. But gold would care more about the state of the yield curve than whether or not it is steepening under inflationary or deflationary pains. So gold would be fine as would the miners until some out on the horizon point of critical (inflationary) mass.

Bottom line however, is that we want change and the picture above says that change is still on schedule. It also asks us to keep in mind von Mises’ Crack Up Boom (CUB). Martin Armstrong has some other thing called a Slingshot move in stocks, but as I get it he’s stock market focused and I don’t hear much of an inflationary component in his presentation. Per (as I understand it) the CUB, I think they are trying to incinerate debt.

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