The stock market has refused to break, and despite the war-driven spike in oil prices, the macro is in an interim disinflationary phase, not an inflationary one. Ref. this morning’s public article.
Where does Goldilocks live? Why, she lives in that pleasant way station between deflation (too cold) and inflation (too hot). She lives in a pleasant disinflation.
The above are just words. Below is a chart of the 10-2 yield curve indicating the macro may tip into a state preferred by Goldilocks, at least in the interim (“interim” is a word we’ve used often in this phase prior to the next inflation problem).
The yield curve is flattening out and this is being driven by firm short-term yields relative to long-term yields. The implication is that the still relative hawkish stance of policymakers is keeping inflation expectations under control (even as the oil price and associated rising prices create inflation headlines).
You could call this a mini Operation Twist in the bond market. The original Op/Twist was the product of the evil genius Ben Bernanke: we’re going to “sanitize” inflation. And they did. Wiped its signals right out of the macro.
The rising nominal yields in the lower panels could actually progress to indicate an inflation problem, and that will bear watching. But right now the firmness in the 2yr seems to imply stern policy and a Goldilocks atmosphere, however “interim” it may be.
I view this as a pictorial view of what the interim disinflation can look like. The Fed influenced short end is more hawkish than the freer long end just lately. This could be gold-negative and possibly Tech/Growth positive in the interim.
Crikey…. could there be a lot of fakery in the reporting of this war just to scare people out of positions. And so others can then massively profit?? Would they stoop so low so as to create a war for that purpose? Or is it mostly not real and mostly fake news?
Dunno, Michael. I just know these things usually end in buying opportunities, which is how I’m playing it.