The headline industrial metal, Copper, in relation to the precious metal, Gold, has been rising for a year now. You, I and Captain Obvious know this.
The herds are now inflation-centric whereas a year ago the herds never thought they’d see inflation again because it was full frontal deflationary Armageddon out there. Captain Obvious was reading the Prechter manual, Conquer the Crash * and preparing for the end of the system.
But we knew better. We knew the Fed had been given license to print and that Trump had been berating Jerome Powell to do so since well before COVID-19 made the scene. We knew, using the Continuum as a guide that there were a million miles of real estate for a dovish Fed to work with. Now? Not so much.
Like the seemingly unrelated chart above the cyclical metal positively correlated to the economy has risen to or toward a decision point vs. the counter-cyclical metal. Different this time or not? So far, as with the above, not. But Ms. Mester and other Fed jawbones are playing a game of chicken with inflation.
“I think the higher bond yields are quite understandable in the context of the improvement in the economic outlook. The increase has been an orderly increase,” Mester said. “So I’m not concerned at this point with the rise in yields. I don’t think there’s anything for the Fed to react to.”
So the course they are charting is to make it different this time. Soon we’ll find out if the market will allow them to set and stay that course.
* This is not meant to disparage CtC or Prechter, because both were sources of learning for me a couple decades ago.
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