ETA To NEW QE: Don't Hold Your Breath Just Yet
Whether one believes that Bernanke's mandate mission in life is to 'save the banking system', 'reflate asset prices', 'devalue the USD' - all of which seem to err on the side of inflation (and ultimately hyper-inflation once the trust is gone); it seems more critical to focus on the other side of the coin - deflation. Bernanke's true raison d'etre is simple: avoid debt deflation and implicitly everything he has said and studied points to the avoidance of any deflation. For this reason, BofA notes that today's chart of the day is the Break-even inflation rate in the US. This has been the most consistent - non-numeraire-based - leading indicator of Fed QE efforts. We note that the initial QE2 decision took a little longer to enact but was signaled considerably earlier (Jackson Hole) as the break-evens dropped below its NEW QE threshold. But with the levels currently 25-30bps off their threshold levels, we suggest those holding their breaths for the next Fed-induced liquigasm in stocks, should practice Pranayama.
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