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Confusion Over Fate Of Inflation Reaches All Time Record: Are Bonds Actually Wrong?
While generically completely useless, both during increases and decreases as all it is, is a reflexive and very much coincident market indicator, the UMichigan consumer confidence index does have one useful feature: it tracks respondents' 1 and 5 year inflation expectations. For what it's worth these are very volatile, but by and large trend with the moves in short-dates bonds. Indeed over the past 30 years, the 1 Year inflation expectations has tracked the moves in the 2 Year bond very closely. Until today: the 1 year inflation expectations jumped from 3.4% to 4.6%, a 1.2% jump in one month, this is the single highest monthly jump in a decade since the 1.4% jump in December 2001, following the deflationary knee jerk reaction from the September 11 attacks. But what is most interesting is that as the second chart below shows, the spread between the 1 Year inflation expectation and the 2 year bond yield is now at a record wide. This means that either consumers and bonds are at record odds over how they view the inflationary environment in the future, or that there is no real bond market in the short end (all the way up to the 2 Year bond), which is dictated purely by the Fed, and its monetization activity. We believe it is a mixture of the two, although if even US consumers for whom non-core inflation is allegedly supposed to be less of a burden (and recall Dudley's Let Them Eat iPads speach) are starting to freak out about rising prices, perhaps for the first time bonds, courtesy of central planning, may actually be wrong.
Inflation Expectations and 2 Year Yields:
And the spread between the two. We are now at an all time record.
And as John Lohman clarifies, the same divergence can be observed when comparing the One Year inflation expectation and that holy of holies inflation indicator tracked by the Fed - the CPI.
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Is there a triple inverse confusion ETF I can go 250% long on?
You mean short. It's understandable. Not.
so basically treasury yields would rise...and fast, and the only thing holding it back is the feds buying. So, is this why the fed HAS to go with QE3? Because if it doesn't then short term interest rates, (of which the US has most of its debt to roll over) will spike in yield causing the US to pay more in interest and weakening the dollar? Really have trouble getting all of this but trying.
Bernake's son wants a date:
http://www.youtube.com/watch?v=eLYbDg242EY
Dog,
Yep...ticker symbol CDAD
Cool!
I would add to that the practise of obfuscation with relation to "inflation', when "cost of living" is more appropriate. As I understrand it, inflation is an increase in debt by issuance of FRN's or digital transfers etc. Money from nothing, which debases existing debt, as a form of flat taxation, unduly penalizing lowest income earners and the "great Marj Orrity"indiscriminately, whilst enabling the high money changers to prosper. An exponentially increasing "cost of living" violates the common man and his fecundity.
No disrespect, and subject matter aside, this article contains what is to me one of the finest examples of "economic" misdirection. You state that the index has jumped by 1.2%, from 3.4% to 4.6%. This is in fact an increase of 1.2 percentage points or 35.3% A more impwessive figure. This is the reverse of what often occurs when ex-spurts attempt to minimize a measurement. Nothing personal here. as I have the highest regard for ZH and its contributors.
bubblicious.
Obama must go
What? Is it his turn to t off on the 3rd hole?
you know it's "tee" and were just joshing us, right Rahm?
JOB FAIR in MA canceled due to lack of EFFING jobs!
http://fiatsfire.blogspot.com/2011/03/fukushima-faces-facts-on-nuclear-b...
WTF?!! What an effing joke
We had a cancelled jobs fair here 6 months ago.
Sounds like recent grads will go back home, work menial jobs and live swamped in debt as far as the eye can see.
Shanghai Taxi will take a table at that job fair.
That sounds like a happy life, happiness achieved!
Thats the spirit, I'm glad someone still believes in the recovery. That there will even be menial jobs for those already drowning in $100K of debt. Thank God and Obama for that bright light of Hope!
the jobs fair guys are now looking for jobs... thats bullish
Here's the best part:
"...the cancellation reflects the current economy -- even though things are getting better, companies are still cautious about hiring full-time workers."
No jobs. But things are getting better.
WTF!?
http://www.boston.com/business/ticker/2011/03/mass_job_fair_c.html?p1=We...
I thought that Fed guy said inflation expectations were low? Don't tell me he lied?
Oh shit.
JOB FAIR in MA canceled due to lack of EFFING jobs!
http://fiatsfire.blogspot.com/2011/03/fukushima-faces-facts-on-nuclear-b...
WTF?!! What an effing joke
Consumers need to substitute out of volitile food and gasoline purchases and into non-volitile durable goods and houses.
Got any good recipes for cooking a fridge?
common sense is at an all time low in heavy trading
Commen sense is at an all time low PERIOD.
I think bonds indicate below real inflation and even consumers indicate inflation below what it will be.
I think you're right pcrs. According to verifythecpi.blogspot.com, inflation is up over 4% so far this year, and almost 18% annualized!
Heh, I live in SoCal, I should take my paddleboard out into Newport Harbor, paddle out to "Drawbridge Island" (aka Harbor Island), and see if Bill Gross has finished building his new home yet.
http://www.bcre.com/harbor-island-newport-beach-ca.php
By the way, he tore down a perfectly good $23 million home there, to "start from scratch"....
http://online.wsj.com/article/SB10001424052970203863204574344950563627732.html#articleTabs%3Dvideo
LOL....
A $23 M tear down.
Reasonable.
catch that move in YOKU today? that's the chinese version of youtube. here ya go robo, and at least they put the commercials at the end of the vid.
http://v.youku.com/v_show/id_XMjUzMDg0ODg0_hd.html
I would not want to be on Harbor Island, the Peninsula, or Balboa if a Tsunami ever hit the coast.
Yeah, but imagine what the peak will be like at "The Wedge"
Ten years ago "the wedge" beat me into the realization that I was officially an old man. Lucky to get out alive, the other guy I was with fractured his neck.
and they say "you can't make a market." what i want to know is: "if a wife in Libya hits her husband in the head with a frying pan is it permissable under UN regulations to drop a 2000 lb bomb on them?" i say yes. what say all of you?
Only if the frying pan is dented or marred in any way.
I say we start enforcing Private Foreclosures. As in, we the people decide who REALLY should be foreclosed on.
His house would the make the list, maybe the first one we foreclose on. So I will grab my paddle board, and join you.
Time to sharpen our Pirate skills everybody!
Who?
He must utilize the same tax guys as GE.
I have zero faith in Bernanke therefore my money is all in on long bond.
WTF?
WTF indeed.
WTF "Winning The Future" - Barrock Obmaha
YEP! When I think Obama, I think WTF!
Hear, hear!
Me too.
"All in on long bond"
Explains the Hobo in your name.
Yeah, go out and buy long term bonds, better yet, buy long term Gov't Bonds, that will teach them.
How can bonds be the gauge of anything they are more manipulated than the stock market THESE DAYS
Exactly! This is caused by the Fed concentrating its purchases as part of QE on the short-end of the curve. The whole point is to get people to move out on the curve and take more risk by keeping short rates unattractively low. I'd say this is a rare case of bonds being wrong.
is it a brick wall and we're doing 90 or not? cuz "if we hit it we're all dead." i mean "there is no manual for sending in the 100,000 man army to deal with the neutreno thing?" yes, yes? but still "they send in the 100,000 man army" don't they?
Equity markets completely manipulated, bonds completely manipulated, hey I know lets debate which one is a better gauge of reality! Or, lets just pound our heads into a wooden fence all day.
or that there is no real bond market in the short end
Obviously...
"This means that either consumers and bonds are at record odds over how they view the inflationary environment in the future, or that there is no real bond market in the short end (all the way up to the 2 Year bond)"
We have a notional market. sub-2yr is all the way to the backstop.. It's gonna break your models.
They need an equity crash something fierce right now.
I stopped trying to make sense of any of this news and how it relates to the market hours ago. Opted for an early happy hour by the pool. Best decision I've made all week.
When nobody wants / has confidence in bonds there aren't a very good gauge of anything...inflation or other....
Gold and silver gone negative. Euro/USD gone negative. What happened in the last half hour?
http://www.forexpros.com/quotes/us-dollar-index-advanced-chart
Minus one percent on gold? Someone sneezed.
The whole freaking world is falling apart.
But stocks are up!
I dont get it.
neither do the people who do. it is not "made to be confusing"--it just is.
Massive amounts of liquidity being pumped into the system. Risk assets is the only place for it to go. The stock market will continue to go up as long as the Fed keeps pumping USD. Very simple really...
Yes, But economists , Analysts and naysayers need to eat too. They go around with their charts and Photo shop presentations and show off their Harvard Series 7 licence. Your post pretty much sums it up. Not really that difficult and no charts were needed.
About $5 trillion in all this printed up liquidity got to go SOMEWHERE! Hey I know, lets park it all in a discount travel agency PCLN at $500!
Dollar has found a bid - You could see a dollar short--risk on trade reverse???
Dollar up big...and U.S. equities still up?
Allow me to repeat this from the article above:
Bonds and stocks completely artificial at this point. Trying to devine any actual value in any of them is pointless. Lets stop all the printing, raise that BS rate from 0% to 2% and lets see what happens Monday!
As predicted, < 2 year bonds are now competing with actual greenbacks and I don't mean demand deposits. I mean non-counterparty green. Go long vaulting services and Wackenhut armed guard division. Guys with rolling stock are going to be rolling in the dough... deliver ten bags, keep one for yourself. It's technically called "The Ba Ba Blacksheep Theory" of counterparty free economics. Secretary Geithner told you about this a week ago and surprise!.... it's here.
www.tradewithdave.com
Bonds are ALWAYS right, well apart from Roger Moore, there was something definitely 'wrong' with him if you know what i mean.
By far the worse BOND...even worse the Harrisburg PA wastemanagement 2018
From the comments on the Charles Hugh Smith broken see-saw post of 3/23: http://www.zerohedge.com/article/guest-post-ive-got-funny-feeling-about-stock-market
"My call has been increasingly uncomfortable in light of the three stooges of QE, so putting in a hedge that calls for a dollar and market simultaneous rise would seem to be called for since your lose-lose see-saw would appear broken at the fulcrum, but Marty Zweig keeps whispering in my ear... "don't fight the Fed, don't fight the tape."
Bonds are like platinum blonds...dumb, but we always want to own them and muss them up. It's in our blood...so lets accept it...never ask a bond if it's going any where except to that wonderful place where life is usually horizontal. If you want vertical exercise try stocks. If you want to kite surf or ride the waves at Hawai, try the derivatives. If you want to snooze go to treasury notes. But the platinum blond is a bimbo that's a classic like MM...in "Some like it Hot" or ..."Seven year itch"...It's timeless...
how about a little ETF action in: TBT
Well, somebody's wrong here - my TIP's have acted like crap the last day and a half. And that's after a stellar 10 year TIP's auction y'day.
That does it. Selling all hard assets and buying tips. Someday