The near-term path is disinflationary, but the macro is now clearly inflationary
With Treasury bonds firming up lately, it is time to review the game plan NFTRH has been working to since 2023. After the macro not so subtlety obliterated its decades-long trend of disinflationary signaling in favor of inflationary signaling by the Treasury bond market, a cool down was in order.
To review, our “Continuum” chart was primary in keeping NFTRH, its writer, and its subscribers on the right side of the macro since the service was born in September, 2008 (into the teeth of a major macro liquidity event).
For example, you may recall the “Great Rotation” hype of 2013. That was when a bond market bear was supposedly brewing and a rotation into stocks would be at hand. Well, that second thing happened, but it was not at the expense of the bond market, as the 30yr Treasury yield rose to the EMAs 100 & 120, smashed against them, and reversed. That was one of several instances over 4 decades that the Continuum was tested, but remained in disinflationary lockdown.
Another notable event was the Bond King, Bill Gross’s 2011 gross exaggeration of inflation fears and new “BOND BEAR MARKET” hype. Ah no, Your Highness, no breakaway inflation, no bond bear. Ben Bernanke would “sanitize” inflation and your hysteria through the coming Operation Twist.
“Sanitize” was the word the Fed actually used at the time. This was back when they had free license to do whatever the hell they wanted where innovative, ingenious (and IMO evil) monetary policy was concerned. ‘No inflation signaling by the bond market? Let’s inflate and “sanitize” our actions!’ It was as simple as that until the Continuum failed to continue in 2022. New macro. Period.
In 2018 Trump was demanding that Jerome Powell drop interest rates at the same time the 30yr yield was highly elevated and banging the moving average limiters. We realized ‘no Mr. President, he’s not going to listen’. He didn’t. The bond market instructed Powell that he would do no such thing with yields on the verge of breaking out (but still contained). Trump eventually got his rate cuts (and then some), culminating the deflation scare of Q1, 2020 and the COVID mess. But only after the Continuum failed to break out.
Point being, the various inflation and “bond bear” hysterias of the multi-decade period beginning around 1980 were just that, hysterias, until the Continuum finally broke into a major new (up) trend and thus, a new macro. The old macro persisted in one form or another since gold blew out in 1980 and the stock market bottomed back then and began a secular bull market.
Ignore Macro Changes At Your Own Peril
The stock market is not soon indicated to go nominally bearish beyond normal corrections, due to the stimulus once again being pumped by the Fed and coming Republican fiscal policies. It may well remain bullish. But if these gentlemen are going to cherry pick 1980 (a then massive high in gold, and a low in the stock market) as the basis for a glib and dismissive laugh at gold bugs…
…then I am going to illustrate the chart above, showing these gentlemen to be artifacts of a macro phase that no longer is. Operating as if nothing has changed.
I will also illustrate this chart. Sure, SPX has out-performed gold since the cherry-picked year, 1980. But so too is the SPX/Gold ratio looking down toward those historical lows in a repeat of a yet another previous phase, the inflationary 1970s. Guys, you should not set your orthodoxy in cement. It’s not healthy, especially not financially.
Circling back to the opening theme, here we see a reasonable representation of the long bond (TLT, 20+ year) reasserting a potential intermediate trend change to up on a daily chart. That of course translates to down on the yield chart above.
This is a picture of interim disinflationary potential we’ve been anticipating. But it is temporary. If/when the Continuum chart above hits 4% it will be time to prepare for the next inflationary wave and associated problems. My strong hunch? It will be stagflationary and will drive the SPX/Gold ratio down to 1980-esque lows. That does not mean gold will not correct. But it does mean that “it’s that 70s show”, generally speaking. Gold, a real monetary anchor in world of debt and paper, is indicated to out-perform stocks for years to come.
Before closing, I should note that the above is written by someone anticipating the correction in the precious metals to be a multi-month affair. Unlike our chuckling friends above, the macro view is not set in stone. There are plenty of counter-phases within any given secular phase. I take pains to not be one of these ladies. Those touting the old macro and its conventions might also pay heed.
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