NFTRH+; an important macro consideration may be resuming

The view had been for the Continuum (our monthly view of the 30yr Treasury yield) to continue upward with inflation, as bond yields usually do. Here is the state of the Continuum. The target has been the 2.5% to 2.7% area and despite the market angst that has pulled yields back lately, the 30yr looks poised for that upside zone.

Here is the daily chart showing the yield possibly breaking its consolidation flag today. If it follows through it could be a trigger to a final drive to test the limiters as 2.5% to 2.7%.

Recall from the very start; I mean the VERY start back in the panic of 2020. We knew the Fed was going to inflate to beat the band and that they did. Full out inflationary panic. The gift that to this day keeps on giving. Think back to Q1 2020 and all the frightened herds on the deflationary side of the boat. Today? Ha ha ha, deflation? Ha ha ha.

But a coming liquidity crisis will be no laughing matter when this mess bloats to its max and starts to let the air out. That is why I have the limiters on the first chart above. If something has provided limits on every example for decades, should we not at least respect it? Yes we should.

In its least concerning interpretation the above is in alignment with my view that the Fed is not going to consider the war when it raises the funds rate next week. It will however consider some of the inflationary excesses the war has exacerbated. This charts shows that on the last two major stock  bear markets SPX did not top until the 2yr yield had topped and started to negatively diverge the Fed Funds rate. It also did so before the 2020 mini-crash.

The chart also shows the 3 mo. T-bill yield literally DEMANDING several rate hikes.

Stocks and commodities could resume/continue rallying in the face of a rate hike cycle, if history is a good guide. But the most concerning interpretation in my opinion is if the 30yr yield breaks through the limiters and into uncharted territory, not in nominal yields but in their relation to limiters, which have held in force for decades. I believe they are better limit tolerance points than nominal yields (like for example, the last two yield highs in the mid-high 3% area) because the system is more soaked and saturated with debt. I think it is entirely possible that the monthly EMAs 100 & 120 give us an accurate picture of ‘normal’ tolerance due to the system’s weakened ability to absorb more of it.

In other words, the worst scenario would be for yields to break out and keep rising as then the inflation would be morphing from an already destructive Stag as it is becoming now to something that could alter the very world we live in, complete with more wars, inequity, civil disobedience and who knows what other dispatches from hell.

Now, dialing back to the update’s original intent, it looks like the yield may be setting sights on the 2.5% to 2.7% range and as such, our long awaited macro decision point… a turn to disinflationary, perhaps favoring Tech (at best) or deflationary and mass asset market liquidation (at worst) vs. an intensifying inflation/stagflation problem and a potential crack-up-boom (von Mises). The decision between those outcomes can be aided by a simple tool like the Continuum and its limiters above.

From a financial market perspective, the war is a distraction and we should keep our eyes on the ball for signs of inflationary failure or intensification. Silver/Gold ratio is traditionally pro-inflation, but has not been that on this cycle. Could that all be due to the #silverqueeze canard or just a divergence? GYX (industrial metals)/Gold is still pro-cyclical while Copper/Gold is undecided. CRB/Gold, driven by oil is pounding the inflation message home. All of this in line with the rising yield on the first chart above. But these are the kinds of indicators we should watch for, in unison, for the proper signals if/as the Continuum dings the limit areas.