Is This The Chart Making Bernanke Nervous?

Tyler Durden's picture

With the Fed nervous to even let a little MEP 'Twist' expire (tightening), we can't help but be a little nervous of their unbridled and passionate belief that if inflation should rear its ugly (or virtuous, perhaps, in their satanic eyes) head, they will be able to manage and tighten to control it. To wit, we note that one of the Fed's most-watched indicators of inflation - the 5Y5Y forward inflation breakeven - has just reached its highest level in 17 months and is near its peak since the financial crisis lows in 2009 at over 3.08%. We have six little words for Bernanke, Yellen, et al. "Be Careful What You Wish For." And by the way, the last few times, the 5Y5Y reached these levels marked a short-term top in the S&P 500.

17 month highs in inflation expectations...


These local peaks in inflation expectations have marked local highs in the S&P 500 also...


Charts: Bloomberg

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hedgeless_horseman's picture



If you eat, and are not proximate to the money printing, then these two charts should make you nervous...



kridkrid's picture

Well, I do eat, but since food isn't a part of CPI, I tend to believe that your fancy charts don't have much to do with anything. You can take your conspiracy theories elsewhere.

urbanelf's picture

A quick and easy snack in under 10 minutes!!!


  • 1 lb of fresh CPI
  • Olive oil
  • Light soy sauce
  • Salt

Stir fry the CPI on high heat for 2 minutes until the edges begin to brown.  Add a dash of the light soy sauce, reduce heat, cover with a lid and allow to steam for 6 minutes.  The CPI should be tender, but not mushy.  Turn off heat.  Give the CPI a light coating of olive oil.  Salt to taste.  Serve and enjoy!

Serves: Zero persons.

hedgeless_horseman's picture



We all have essentially four choices.

  1. Buy cheese and pay The Inflation Tax
  2. Take the "free" Government Cheese
  3. Trade for cheese in the black market
  4. Make our own cheese...

WhiteNight123129's picture

Looks like you know some nice craft Hedgeless horseman, congrats.

hedgeless_horseman's picture



I'll forward your compliment to Mrs. Horseman.  Her Colby is indeed sublime.  Milk from our grass-fed cow, salt, rennet, and craftsmanship.

AlaricBalth's picture

What inflation? (sarc) According to the BLS, people engage in substitution if prices get too high. When someone buys chicken instead of steak because meat has gone up in price, we all know cheaper substitutes are non-inflationary. Hell, I know of people who have substituted all the way down to cans of cat food.

To maximize the utility with the reduced budget constraint, BC1, the consumer will re-allocate consumption to reach the highest available indifference curve which BC1 is tangent to. As shown on the diagram below, that curve is I1, and therefore the amount of good Y bought will shift from Y2 to Y1, and the amount of good X bought to shift from X2 to X1. The opposite effect will occur if the price of Y decreases causing the shift from BC2 to BC3, and I2 to I3."

And here is my MIT approved chart to back my Hedonic premise:

Big Slick's picture

Bullish... once resistance is breached, my 401k goes to the moon!!

Seriously, the corellation between 5Y5Y and SP500 is amazing.  More amazing is the lack of consistent response to inflation during periods of easing. 

EVERYONE MUST WATCH THIS!!  NEWBIES ESPECIALLY!!!  Ann Barnhardt's 2.5 hour presentation "The Economy is Going to Implode... and You Deserve to Know Why"

MiltonFriedmansNightmare's picture

I suspect the correlation will break down this time around (at least in the short run, but perhaps not the long)....

Why?  Bernanke will print like a crazy MuthaFucka, ignoring the 5Y5Y, because he is scared shitless of deflationary collapse. 

Mi Naem's picture

It is refreshing to see a strong, well spoken woman tilting against the leviathon windmill. 

But, her slanderous mis-characterization of Ron Paul and intellectually disabling affection for Israel suggest that she's the one who's either "bat-shit crazy" or an operative for the traitors. 

NoDebt's picture

It's 11:30 and I see this.  Now I'm hungry.  Great.

That looks freaking DELICIOUS.  If I could reach through the screen that bread and cheese would be on my office desk right now.  You know how to live, my friend.

JeffB's picture

So was that you, or did Mrs. hedgeless_horseman cut the cheese?


metastar's picture

I would suggest we protect our cheese from the government rats who seek to steal it.

I am more equal than others's picture

You forgot the fifth thing.....cut the cheese.

Mentaliusanything's picture

Is that REAL bread I see, the type that was made once by hand on a daily basis.

Must be an Old Old image. Its been so long since I tasted real bread that I accept Micky dees buns are as good as it gets.

nope-1004's picture

Corn is in a bubble.  JPM has an unruly amount of corn shorts.  Keiser said, "crash JPM, buy corn."  Once all the corn is sold to Eastern interests, there won't be any physical corn left to satisfy delivery.  Oh ya, and, YOU CAN'T EAT CORN.



imapopulistnow's picture

I stopped eating hay and switched to alfalfa.  Should show up in the chained CPI numbers soon.

Tuco Benedicto Pacifico Juan Maria Ramirez's picture

You surely should not eat corn as it is all genetically modified crap now!


crusty curmudgeon's picture

Referring to inflation, Adam Fergusson wrote:  "The more materialist that society, possibly, the more cruelly it hurts."  - When Money Dies


This does not bode well for us.


SanOvaBeach's picture

Look under the bed!  Maybe you'll find the Hay/Corn conspiro's there...

eclectic syncretist's picture

Maybe they took food out of core CPI since everyone's on food stamps and gets it free.

McRocket's picture

What the heck are you talking about?

Of course food is part of the is just not part of the Core CPI.

Spastica Rex's picture

Only poor people in foreign countries worry about food prices. What does the graph for iPhone prices look like?

Cognitive Dissonance's picture

This doesn't affect me in the least. I don't eat (dry or wet) hay or corn grain. I just eat all that wonderful processed stuff grown at the local Safeway.


economessed's picture

And if you drink water or crap, the rate of annual inflation is now up to 18% in CPI utilities:

Snoopy the Economist's picture

Luckily, I kicked teh habit so I don't drink crap anymore.

Stoploss's picture

Yeah, here's where the "i can tame inflation in 15 minutes with a phone call" turns to complete and utter shit...



Im tellin ya.  Nobody has a clue what about to happen.

Nick Jihad's picture

Hay and corn prices aren't up because of infation - they're up because of the drought. The drought continues, because although The Won is capable of healing the planet and halting the ocean's rise, he somehow can't make it rain. The media aren't reporting the drought, because even they can't find a way to blame it on Bush or the Republicans.

High feed prices lead to higher meat prices, which means consumers will have less to spend on other things (or they'll go vegan in order to buy iPads), but that in itself is not inflation.


GetZeeGold's picture



Wait till he gets the bill from the drive-through at McDonald's.

camaro68ss's picture

When the dollar menu is gone, then its time to panic.

When the $5 footlong turns to $6 over man, game over.

hedgeless_horseman's picture



Wendy’s pulled the promotion plug on its W cheeseburger, admitting that the $2.99 introductory price was too low and that, as critics suggested at the time, the sandwich cannibalized sales of the higher-price Dave’s Hot ‘n Juicy Cheeseburgers, added just weeks earlier. Even though the W’s price was pushed up to $3.19, the problem continued.

Dr. Richard Head's picture

My liberal neighbor said that "There is no inflation, housing prices are falling.  When milk gets to $5 a gallon then let's talk."  Wait awhile, I told him.  Wait awhile.

Cognitive Dissonance's picture

Housing is a barbarous relic. Besides you can't eat your house.

nope-1004's picture

People own houses, because......   tradition!


falak pema's picture

you've never been in a pure ice igloo?

Bottoms up! When the temp rise occurs. 

kridkrid's picture

What's remarkable about your story... If we were just starting a second term with a "conservative" president, he'd be right there with you. Idiots suck. Liberal and conservative alike.

Dr. Richard Head's picture

Cognitive dissonance at its best.  He always agrees with my critique of "conservative" politicians, but quickly has knee-jerk comebacks when I go after the "liberal" politicians.  Oddly enough, my critique of both are the same at the core of the conversations, but he can't see that yet.

Big Slick's picture

Name a conservative politician.  There are none.

It's either Liberal, Liberal lite, or bat-sh!t crazy... seriously

kridkrid's picture

I would be willing to concede that there are no conservative politicians, but in doing so I would have to support the notion that there are also no liberal politicians.

Spastica Rex's picture


It's all "Neo" from here on out.

MachoMan's picture

Eh, no.  There are only liberal politicians...  no "neo" needed.  The conservative/liberal divide is solely predicated on their perspectives of the ideal size and scope of government...  conservative wanting less, liberal wanting more.  That's it.  In other words, because you would have to concede that there are no conservative politicians has nothing to do with bootstrapping an admission that there are no liberal politicians...  there are many.

Spastica Rex's picture

Well, I suppose you could use a component of the very traditional definition of liberal: "advocating unregulated markets," although that seems suspect as well. If you want to use a different component: "advocating the rule of law," you're SOL.

You can use whatever definition you like, but I suggest reading at least one history book before you decide.

The pen is mightier than the sword.

kridkrid's picture

Yes, that is the (or a) traditional narrative... But it isn't true. There is also a traditional divide over civil rights... Also not true. There are all sorts of false dichotomies engineered between the parties.

Spastica Rex's picture

American thought has no precision and little context.

We are so uneducated. 

By design.

MachoMan's picture

No...  this is the problem.  There is an actual academic definition for liberal and conservative...  that has nothing to do with what the parties engineer...  this is how common ground is developed to actually discuss the issue. 

PowerzThatB's picture

Yesterday, my liberal neighbor said: "Do you know who I think will be a really good candidate after Obama? Hillary!!!" Seriously, this happened.