About that inflation cycle? Banks say “ah no, we don’t think so”

The inflation cycle comes to an ignominious end with the banking sector’s theatrics

Or I should say that the inflation cycle is coming to what certainly appears to be its end to a majority of casino patrons, even though we’ve been anticipating its end since Q4, 2022 and advising people not listen to the perma-touts in various inflation markets.

Since the Fed began to inflate in Q1, 2020 we first expected, then managed the growth of and since last year have been managing the end of the inflation cycle curated by your Federal Reserve. The Fed was hell bent on hawking until something breaks and one of the Fed’s primary guides, the 2 year Treasury yield, may be breaking.

Note the wording; “may be breaking” is not ‘has broken’. But our favored macro view would have to start somewhere, eh?

2 year Treasury bond yield as the inflation cycle comes under pressure
2 year Treasury Note yield

Meanwhile, here is a look at the pigs, the Pigs/SPY ratio and long-term Treasury bond yields. Not a pretty picture. And it’s not a picture of ongoing inflation and a forward hawkish Fed.

Banking sector ETF (KBE), KBE/SPY and long-term Treasury bond yields.

I am thrilled. Not because my accounts (including short positions on Energy*, and a short-term Treasury bond) are green today. But because finally it looks like we’re going to change the macro, where all those autopilot fliers may get punished and those who can figure out the situation correctly and deploy may get rewarded. But, patience is still a thing too.

* Though I need to figure out whether or not to cover these shorts.

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Gary

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