Inflation Bonds Charts and More

Transition periods are always volatile and lead to a lot of one way up and down movements across all markets. The hardest part for navigating markets is the fact that the choices you are making are generally meant to be forward looking and that is very difficult, because prediction and success are generally not synonymous. Generally, traders and investors react rather than look at the bigger macro picture. Don’t get us wrong all investors appetites, time frames and skill sets are well varied and goals, risks and tolerances are not equally distributed. So let’s take a look at the US 10yr yields and you will see a one way panic sell off that has seen yields jump over 2.5x over the course of the last 7 months.

The FED has made it very clear; they are ready to let inflation run above trend (if possible) why? Because the FED understands the monster or what we would call “The Economy.” Debt growth fueled by excessive QE designed to do one thing, concentrate wealth within the narrative construct of “necessary evils.” A free-market capitalist would never agree to monetary artificial printing to be used to protect risk players, or worse to bail out those that continue to use leverage (1998,2008 and today)

The monster has grown well past natural designations and now even worse the socialist liberal agenda continues to push pseudo UBI or what others call stimulus across a wide swath of America. Look we get it this is an absolute necessity given the draconian lock down measures for main stream America, that is not what is in question, rather the delivery mechanism and conditioning that something like this implies.

Lest not forget in a fractional reserve fiat system, every dollar created also creates a dollar of debt. This co-symbiotic nature, this duality is the real elephant in the room. Why? Well, the why is very simple, INTEREST COST.

So, when the analysts are all clamoring for continued inflation run, know that it is indeed “transitory” as Powell stated, it may be the most honest things he’s said in quite some time. He understands that this global economy cannot operate without YCC. Also know that the FED is continuing to buy bonds at a rate of $120 billion a month. Think about that for a second, that is $1.44 Trillion a year in known demand, yea it’s not all the issuance, but you get the point, its MASSIVE. Yea GDP is supposed to hit 6.5% this year and that will have the inflationistas clamoring for the FED to get ahead of the curve, but they will not budge, they will not be raising rates preemptively no matter how hard the bond vigilante’s push. The house of cards will not allow it and the FED will use other measures, because let’s be honest its not central bank money that leads to velocity in money to spike, its loan issuance and we all know banks are in zero position to take risk. Yea we have heard talk of an adjustment to the SLR but that’s a moot point the supplemental liquidity ratio is a risk-based tolerance metric, but in reality, even if it is loosened it doesn’t mean capital lending will be unleashed by any significant measure. Everyone knows it’s a house of cards and we are one more Covid event from a full-blown meltdown and repricing. QE should never be the answer in fact it’s become the defacto weapon and rather being an exception, it’s become the rule. QE is not some magic wand of growth, It’s all future labor and revenue brought forward and let’s be honest, where will all this stimulus end up? Yea paying bills, having fun and right back into the coffer of excess reserves at the GSIBs.

With $1.9 Trillion in stimulus, with a FED leaning dovish and letting inflation run, it’s no wonder house flippers are back and profits at 2006 levels again for them, we can tell you from firsthand knowledge that housing is en fuego and it’s leading once again to consumer price chase. This time however it’s not NINJA loans fueling it, its Covid, both on the low interest rate front, as well as the migration front as Arizona, Texas and Florida are all the recipients of massive migration out of high cost, high tax states.

We highlighted the US 10yr yields in the last chart, so let’s look at The US Treasury 10yr future which is running into some decent support here:

The long end of the US treasury market or the Ultra bond future is now back to and holding 2020 supports. With so many looking for the FED to acquiesce and respect the markets front running, we would rather think Powell and company are going to stand pat and the long end may be due for some decent short covering:

With all of this funny money floating around and the specter of inflation its no wonder Bitcoin continues to roll on and we will continue to believe that it is the ultimate fiat discounter. Although if asset prices start to turn South we would suspect Bitcoin to follow suit as well. We do like the massive influx of institutions involved now as well as a more general overall sense of ease in regards to categorizing it as a viable asset class all unto itself:

Moving over to the Nasdaq a third rejection of the top of long term trend channel model is giving us some concern here as it sits below the 50eMA:

The US Dollar has begun to rebound from 2015 and 2018 long term support areas and there is no doubt many are short this and this could lead to a nice snap back rally catching many shorts offsides, and would coincide with a turn down in equities as well:

On the flipside the Euro Currency continues to falter as it failed its second attempt at 121-70 area and is now firmly below the 50eMA:

Oil is also looking vulnerable here and a turn back below $58 would look like a decent head and shoulders top set up:

Moving over to the metals we have Silver which continues to bounce around in the long-term basing area. We are still bullish longer term however we would like a shot at buying this below $23:

We made a comment on the Amazon chart a few weeks ago and noted that the $3k level would be the key driver of direction not only for the stock itself, but the overall equity markets in general and by the looks of it now, well you make your own decision but this set up doesn’t look good for the bulls:

Finally, we were going to post a Tesla chart, but rather, this picture might just sum up our view on it:

The real EV just showed up! Sorry Tesla but there is no comparison.

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-Magnelibra Econemotions

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