PPI: A fitting end to the ‘summer cool down’?

PPI +8.3% from August 2020

Producer inflation accelerated in August…

So the dominant trend (in place over decades) is for declining Treasury yields with the implication of structural deflation. I say “implication” because with the degree that the Fed uses the Treasury market as its own…

…personal financial experimentation lab who’s going to blindly trust the indicator (bonds/yields) that was taken so seriously by the Bond Vigilantes of yore? Not me, and maybe not you.

Against the deflationary backbone noted in this post the Fed inflates; is given license to inflate. The government then pushes this inflation into the economy as if given free (funny) munny to do so with.

What’s more, our “summer cool down” projection came at exactly the right time because the public was readying the pitchforks and torches for marches on the various Federal Reserve Banks (in my case, 600 Atlantic Ave, Boston).

larry

So yeah, Larry will probably be right again as we had surmised he would be. But for those concerned about multi-month counter-trend moves, it was convenient for us to know about the cool down to come. But did inflation go away? Not in the least. Perceptions went away, not inflation.

What’s more, the 30yr Treasury yield Continuum has ample room to move up to the red lined limiters where if reached, the real battle will commence. At that point Dovey Powell…

jerome dove eye powell

…could morph back to a more dead-eyed version; a more hawk-eyed version.

At that point he will likely be stern or at least pretending to be stern until the next inflationary green light. At that caution point market players should be girding their loins. Unless something that has not broken in decades breaks this time, smart players will want to stop listening to promoters of market dogma, stow their greed and prepare for a big time macro decision (failure as per the Continuum’s decades or ‘different this time’… and on to Stagflation and maybe even the mythical a Crack-up-Boom?).

But first, let’s see if the 30yr yield does indeed hold its right side shoulder and indicate the next leg of inflationary angst and/or speculation to come? I am sorry not to be a dogmatic cheerleader (of inflation or any other macro condition or asset). The teams are out there aplenty. Team Inflation and tattered Team Deflation. Personally, and with respect to NFTRH I want to be on Team Right. That’s all.

At this point it looks like inflation round 2 is setting up as expected. But let’s see the yield above and other market-based inflation indicators confirm before getting too hyper (pun sort of intended) about it.

The forces in opposition to the above? Well, you know who they are (or at least you do if you regularly read this website or subscribe to NFTRH)…

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