"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat

Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput


Monday, August 18, 2014

Inflation Expectations Declining

Take a look at the following chart of the TIPS spread and note the sharp plunge in the spread that has been occurring over the last few weeks. It is now at the lowest level in 9 weeks. Clearly, there has been a change in the market's expectations regarding any onslaught of inflation pressures.

I think it no coincidence that this revised evaluation has taken place even as the commodity sector is plumbing new depths.

Just today, the GSCI scored a brand new, 16 month low!

I should also point out that interest rates have been moving steadily LOWER since the first of the year. The yield was near 3.0% when the year began. Today it ended 2.387%. That is most interesting given the Fed's steady march to wind down the Quantitative Easing program. Many pundits, traders, and investors ( including yours truly here ) believed that interest rates would begin a steady march higher once the market became convinced that the Fed was serious about this. While geopolitical tensions can produce money flows into bonds as safe havens, knocking rates lower in the process, there is obviously more at work here since the steady move lower in long term rates cannot be solely attributed to those geopolitical events.


  1. And will Copper Bounce off the 3 level Again? Stay tuned...


    1. Copper is bouncing precisely on its median. As long as it doesn't break through, it won't collapse short-term.


  2. Structural deficiency of "deliverable" bonds required for collateral / margin calls - triple whammy of Dodd Frank / EMIR centralised clearing, Basel III Liquid Asset Buffers (Liquidity LCR Ratio) and the fact that, although QE is winding down, those assets are still on the Fed's Balance Sheet and have not been released back into the market

    If you had to post collateral and had the choice of OIS, Bills or the running yield on long-dated Bonds, which would you prefer to invest in?

  3. http://davidstockmanscontracorner.com/repo/





  4. The "Horrifying Collapse and Endgame" is already happening.

    In the commodity sector.

    And bond shorts are also being carried out on stretchers, including Jim Willie.

  5. I wonder what would collapse when the fed quits fueling the market. Commodities will only drop to near the cost of production before they self correct.

  6. Despite general weakness in commodities I still think we are going to see a hulkamania type rally in energy before we see another 2008 melt down.

    Great documentary on the coming peak oil scenario. There is a reason the mid east crazies are high jacking refineries:


  7. Hi Dan,

    Regarding QE and interest rates, this chart might be of interest.
    Have a nice day all,


    1. Hubert;

      That is a very intriguing chart... thanks my friend!

    2. Hubert:
      Thanks for the post. Will have to keep this chart for future reference. Probably correlates pretty well with the general equity price movements and QE.

  8. SP500 weekly.

    Here is my updated chart. Hardest thing in T.A is to remain objective and update one's chart once in a while.
    The SP is within two upwards channels, but I don't think I can say that it broke above the black one as I wrote a few days ago. Here is the most likely slope of the oldest upwards channel in black.

    What will be imho interesting to monitor is the green support line of the strongest upwards channel. The angle of this channel is very steep and therefore maybe the black channel's upper resistance along with the 2000 level will prove to be enough to stop the bull's arrogance (and Mark's posts for a while :)).
    And as you can see, if the green support (now near 1910) gives way, there is a nice empty space to fill before we reach the upwards support of the black channel.


    Btw, if you think my posts are useful and help you progress in your T.A, you can always send 1 dollar to my PokerStars acccount, to help me finance my losing games : I'm a poorer poker apprentice than a trader apprentice :)
    Have a nice day,

  9. $100 / oz Silver - THE PROOF!!!

    Silver had its best day in [insert improbably large random period here] yesterday and defying all manipulative attempts by TPTB and their Evil Agents (see http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2014/8/18_Trip_Down_The_Rabbit_Hole_Of_US_Lies_%26_Disinformation_Agents.html for further details) to cap it, soared a stratosphetic 0.76% from an entirely artificial $19.55 to a technically strong (i.e, above the 32.8 minute Moving Average) to $19.70 thereby completing a triple Head-and-Teapot formation, which is historically a cast iron bullish indicator that the "firm hands" savvy Asian investors are coming off the sidelines and investing "t these bargain prices"

    0.75% in 1 Day! Compounded over 220 trading days, thats an earth-shattering annualised rate of well over 500%, PROVING mathematically that Silver will now rise to OVER $100 /oz@

    The Good News is that those figures are MATHEMATICAL FACTS (and you can't argue with FACTS - especially when they are written in bold capitals)

    The Bad News is that we will now have to wait until Silver is well into triple figures before we fan once again start bleating that it is geing systematically CAPPED (and note that it's no coincidece that the word "CAPITAL" is a verbatim recital of the instruction given by TPTB to the Bullion Banks)

    So, you gave been told! - 0.75% today, tomorrow to da Moon!


    1. This is such good news I just don't know what to say.

    2. When it comes to Silver, I am sticking with the Status Quo


  10. Today's Meme: - "Rabbit Hole"

    Can you say that? Sure you can! I knew you could......

    "Rabbit Hole" - it sure is a Wonderful Day in The Neighbourhood.....

  11. http://www.thedqtimes.com/pages/castpages/other/fredrogerscanyousayheropg1.htm

  12. With the just announced resumption of air strikes in Gaza gold should jump. Nope don't see it yet.

    Guess the lack of inflation expectations Dan details above continue to overweight the geopolitical risk premium.

  13. USD exploding , even if we get a pull back in equities , with the buck so strong .... can gold hold up ?

  14. https://soundcloud.com/bloombergview/barry-ritholtz-interviews-6

    this interview with Jim Chanos is quite lengthy but the best I have heard in a real long time. Especially at the end in his China analysis, in case you are still believing that they are going to rule the world going forward.

  15. Outright panic out of commodities and into U.S. Dollars and stocks is intensifying.

    Way to go KWN, they got it exactly backwards again!!!!

    1. You forget Mark that kwn knows that the sun comes up because the rooster is crowing!!!!

  16. Inflation Expectations Declining (CPI down?), housing starts exceeding expectations. Will be interesting how these play into the Fed speak this week if at all. So much data to evaluate and so many mandates to achieve... How does the Fed do it???

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