Inflationary flicker

The Silver/Gold ratio (SGR) indicated an inflation bounce when silver tanked key long-term support at 14, reversed to close March back above it (potentially screwing deflationists not mention silver bears) and has propelled the SGR into a bounce, giving other inflation signals license to do the same.

Here is the TIP/TLT ratio bouncing above the EMA 20. Trend is obviously down.

tip tlt ratio

Here is a more dramatic TIP/IEF ratio. Trend is down here too.

tip ief ratio

And here is our old friend the Yield Curve, still sporting its steepening theme. The NFTRH view has been of an inflationary 2020 and COVID-19 has not deterred that view even as it has emboldened deflationists. Remember, the curve can steepen at the instigation of deflation (which has been the case in 2020) or inflation (current bounce is still just that, a bounce, so let’s not get too excited at this point) and my view has been that in 2020 it will do so under both conditions. In the best case for the inflationary view, this most recent downward consolidation in the curve may have been the transition but again, patience because the trends in inflation expectations still face downward.

yield curveyield curve

Policy makers are trying to blow an inflationary gasket and I think they will succeed. Yeah yeah, unpayable mega trillions of debt, derivatives dwarfing the inflationary bullets of the Fed and Treasury… yeah, yeah. I have spent years going on about those same issues.

But I think the inflation will eventually work because the US and global public have been herded into a stance where they want it to work and hence, confidence in these inflatable pigs is implied to be intact. You can’t just blame policy makers now. You can also 90% of we the public.

Meanwhile, if my big picture macro view is on target there is likely to be another bout of deflation before inflation expectations make a real bite.

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