Notes From Underground: SIN or WIN, It’s a Generational Thing

In 1976, when I was beginning my long march toward acquiring knowledge to analyze markets Gerald Ford was running for reelection. Inflation was gaining strength so the FORD campaign was bent on making America believe that he had the fortitude to break the inflation spiral threatening the Middle Class. Campaign buttons said W.I.N. (whip inflation now). Getting inflation under control was seen as the paramount issue.

When I was wandering through a flea market in New York in 2007, I found an original WIN button that I bought for $1.25. See? Paul Volcker did whip inflation. (I gave the button to the best financial plumber, James Aitken, as a token of appreciation for all the knowledge he imbued in me about the plumbing of the short-term funding markets.)

In 2008 (and in the present),we changed the mantra to S.I.N., START INFLATION NOW, as the FOMC was trying to prevent a deflationary spiral from taking hold during the onset of the GLOBAL FINANCIAL CRISIS. The great fear of then-Federal Reserve Chairman Ben Bernanke was that the entire financial system would go into liquidation meltdown as debtors/creditors rushed to sell assets in an endeavor to cut losses while raising cash to meet margin calls. Bernanke was terrified of a repeat of 1937 when the U.S. economy went into a severe recession because of FED and TREASURY moves to begin austerity in the face on rising growth.

The TREASURY was in a hurry to rein in the massive deficits instituted by the Roosevelt New Deal, though it was too soon as it while the FED was tightening a bit. (We call this the DOUBLE WHAMMY of economic contraction.)

Now, the FED seems more concerned with unemployment than inflation as Federal Reserve Vice Chairman Richard Clarida last week noted that REAL unemployment was still 10%. The central bank still points to unmet inflation targets as being the most important policy to pursue. So let us all get our S.I.N. buttons on because the FED wishes us to START INFLATION NOW as it pursues employment while using monetary ILLUSION to lessen the massive debt overhang.

Monday on Bloomberg T.V. Alexandra Harris (who also happens to be my progeny) laid out the battle of the market pushing the long-end of the curve higher in an effort to elicit some response from the FED about what level of steepening causes the most angst at the FOMC. What this means is where/when will the FED engage in Yield Curve Control in an effort to keep long-term yields down so as not to disrupt the BUDGET. How much will the curve steepen is the operative battle cry of traders?

Historically, the long-end of the curve has not been the determinant variable in setting asset prices BUT WITH SHORT-TERM RATES NAILED TO THE ZERO BOUND THE ALGOS HAVE LEANED UPON THE 30-YEAR BOND AS THE DETERMINING VARIABLE OF MYRIAD ASSET PRICES. Algos work until they lose the true CONTEXT of the UNDERLYING FUNDAMENTALS. As always, markets are dynamic where LOUIS GAVE has it right: Adaptation is the key to successful trading/investing while FORECASTING IS FOR HEADLINES.

Put on your S.I.N. buttons and drive the FED to YIELD CURVE CONTROL, the mother of all tools in the YELLEN/POWELL toolbox.

***As a follow up, I will discuss the FED, ECB, PBOC, DOLLAR, METALS and anything else on your minds.

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46 Responses to “Notes From Underground: SIN or WIN, It’s a Generational Thing”

  1. Trader 1 Says:


    Do you have any thoughts on the China Digital Currency — How will this play into the global themes you’ve “nailed” going forward.

  2. Michael Temple Says:

    SIN vs WIN

    I think you may be overlooking a key shift that most market players/commentators are missing.

    You advocate that “we” should put on our SIN buttons and force the Fed’s hand to enact YCC in response to creating the inflation that the Fed so desires.

    WIN failed back in 1976. Why? Because LBJ’s “Guns and Butter” policies had been in effect for well over one decade by the time Ford declared war on inflation. And, Nixon had taken us off the gold standard nearly 5 years beforehand.

    A full decade of gestation had given birth to inflation and nothing short of a Volckerian hammer blow beginning in 1979 was going to stop it.

    Fast forward to today…..The Fed has been stoking the coming inflation since late 2008 when QE was first enacted in response to the Lehman/AIG crisis. Unfortunately, QE1 gave birth to QE2/3/4 and then Covid kicked the party into an entirely new stratospheric gear.

    Yet, NO inflation….Forget the “phony baloney” doctored CPI data. Real world inflation never materialized in the 2010s.

    My explanation is simply. Monetary Velocity continued to drop drop drop. All the money that the Fed conjured stayed stuck inside the banking system which recycled it back into financial markets, but not much into the real economy…..Some would argue that this helped contribute to the continued yawning economic gap between the haves/have nots that ultimately found political expression in Trump’s 2016 election.

    But, the point is this……Monetary velocity fell even further in 2020 and into 2021 as Covid brought the global economy to a halt.

    As we now see here in 2021, commodities are on fire. Yet, I am not quite ready to assert that this has its roots in inflationary seedlings. NO. Rather, I think we have witnessed more SUPPLY DESTRUCTION than DEMAND DESTRUCTION.

    This very point was made recently by Trafigura’s chief economist. In fact, he believes that most commodity prices have yet to incorporate FUTURE DEMAND increases.

    Palladium is at all time highs because of supply deficits (going on now for years)

    Global oil consumption today is 4MM barrels/day less than pre Covid, and yet WTI is back to $65.

    Lumber is another example of tariffs and reduced supply, as opposed to extra ordinary demand.

    So, what we are seeing today in commodity markets is, imo, NOT really inflation where too much money is chasing too few goods.

    However, we have stoked the monetary base with trillions of tinder in the last 15 months. Measures of M1 and M2 have simply EXPLODED. Why no inflationary combustion? Because monetary velocity continued to plummet as our economy went into shock last year.

    Now, however, the miracle of the great vaccines has brought us hope and liberation. People are out and about and every day brings new stories/anecdotes of further economic reopening.

    Therefore, I believe that 12 years of extraordinary monetary easing, now coupled with even more trillions of fiscal stimulus from the Bidenistas, is going to finally IGNITE monetary velocity.

    In other words, SIN misses the BIG PICTURE.

    “They” have already begun a repeat of LBJ’s “Guns and Butter” policies. Been mostly monetary since Lehman…That is 12 years NOW. Now, Biden is adding fiscal stimulus and going into monetary overdrive with the introduction of MMT and UBI.

    And since no inflation has yet occurred, all the more reason to keep on doing what they are doing, because there is NO INFLATION…..Yet

    Jerome thinks these extrordinary commodity prices are transitory, mostly supply chian HELL writ large. Certainly is true in many cases.

    But, as I said, I think the monetary inflation is already baked into the cake. As monetary velocity picks up alongside a return to synchronized global restart, “Katy, bar the door”

    The inflation bogeyman is here…..Hiding in plain sight. He is about to come out of the closet as economic players all come out of their closets and re-engage in the real world economy.

    This time….Ain’t no way we will allow the second coming of Paul Volcker to vanquish inflation.

    It will be part and parcel of our daily lives.



    • David Richards Says:

      Hi Michael. I’m not Yra but here’s my two cents (now actually three cents and next month four cents… inflation).

      Not sure I’d say there was no inflation in the 2010s, AYK if you look at some (but not all) asset prices. However, indeed it was far from across-the-board price inflation.

      Certainly it’s easier to SIN than to WIN… As you point out, it just needs sufficient fiscal stimulus added to sufficient monetary stimulus.

      Although some might point out, such as the MMT advocates, that Japan once had both substantial fiscal and monetary stimulus – with little inflation. But Japan had large local savings/funding, a large current account surplus and NIIP. Whereas instead the US has large current account and NIIP deficits, and relatively little local savings/funding.

      That combined with its high debt/GDP ratio forces the US into a more “Weimar” like situation of spending via rising debt monetization, guaranteeing inflation and even high inflation, absent a marked change in US government spending that would necessarily include large spending cuts to entitlements, defense, all discretionary spending and intererest payments (further financial repression of savers). To be blunt, the only politically palatable cut for now will be to interest payments, which is likely to necessitate YCC in the inflationary, weak dollar macro environment.

      But if it’s any comfort (it shouldn’t be), the US probably won’t be alone and maybe not even first in this predicament. We’ll see.

      • David Richards Says:

        … so assuming no about-face reversal of US fiscal and monetary policy, I’m talking about an environment of hot US inflation, negative real interest rates including YCC, weak dollar, rising debt monetization and fed balance sheet, and over time a stable or possibly slowly improving debt/gdp as well as, if lucky, a slowly improving trade balance and current account. So not all bad news.

        Also, as I’ve said before, generally rising stocks in nominal terms, though US stocks should underperform most real assets and many foreign investments in the relatively better managed jurisdictions, on a currency-adjusted basis.

        If we look at the Weimar period, it was extremely volatile even for assets that went parabolic overall. Zoom in on the charts, for example gold in marks. There were brief but vicious “corrections” along the way. Lots of whipsawing. As German policymakers tried to get back control but failed as the pressure was too great, just as could probably happen to US policymakers with the path they’re on, IMHO. Even some the great traders back in that day got wiped out by that volatility. So be careful in the event of a high or runaway inflation as that will amplify volatility.

    • David Richards Says:

      Michael I forgot to include in my first reply to your excellent comment, with which I wholly agree, that besides the unprecedented fiscal + monetary stimulus throughout the West (not just the US), indeed the demand-pull and supply-push factors should significantly exacerbate price inflation. And I forget to say that the Japanese “deflation” example that some like to use as an analogy, lacked demand-pull price pressures (especially during the coinciding 3 brutal global recessions in the 1990s-2000s) and also lacked the supply push price pressures of today.

      To further exacerbate price inflation, the demand-pull factor you identify coming down the pike is probably even greater. Because besides the pent-up US Covid demand, there are also billions across Asia and Eastern Europe who ae clearly very rapidly moving up the ranks from the lower middle class to the GLOBAL middle class and upper middle class ranks. For eg, this is so visible just across ASEAN, a somewhat small slice of Asia overall, but ASEAN alone has nearly double the population of N.America (US+Canada), including the emerging giant of Indonesia that will soon be as populous as the US. There are almost 700M people in ASEAN with a much younger median age than in the West who are gradually starting to consume, for their first time, everything from air-conditioners and more energy and “better” food to inexpensive Asian vehicles/EVs for some, as their rising incomes and currencies permit.

      Huge new potential demand exists across Eurasia, population 5.5-billion, or equivalently 4X as big as China or 17X as big as the US, increasingly competing for limited resources that are already supply constrained, which will add ever more demand-pull price pressures.

  3. David Richards Says:

    A note and a question.

    I’m no yield curve trader. So for others like me who might like to dabble in that, note there’s an easy way to play the steepening US yield curve. It’s through the IVOL ETF managed by the brilliant Nancy Davis of alternative asset mgmt firm Quadratic Capital (I’ve no affiliation except as an individual investor). You can look it up but generally it rises as the yield curve steepens. Anyone following this blog knew last year that this was coming and why. So IVOL has usually been a good place to hold dollars for those who have been in it since last summer when US bond rates & inflation expectations were ridiculously low with many calling for lower yet. Sometimes one needs or wants to hold some dollars somewhere for awhile and with the US ZIRP policy, IVOL has been an easy, liquid, reasonable alternative for the risk.

    The question is, when will US yield curve control happen? At some point, having a position in something like IVOL will be like picking up nickels in front of a steamroller. Plus double the pain, if or when YCC is announced, expect both IVOL and USD to puke together, ouch. If US policymakers give a whit about the public’s purchasing power (inflation) or people’s standard of living, and the abilty of the US military to retain a global presence rather than be forced to retreat due to affordability problems abroad (as in 1970’s Vietnam and as the Chinese are counting on for the US in the long run), then policymakers can’t be seriously considering YCC anytime soon and thereby possibly trigger a disorderly dollar collapse. In the alternative of no YCC and if longer US rates rise above 2-3%, then as we’ve seen from two recent episodes, US equity markets crash and take down with it the financialized US economy (in late 2018 and early 2020 before Covid). Option 3 is to slash spending so that US rates don’t rise and YCC isn’t needed, but clearly this option to slash spending is a non-starter politically in the US; in fact spending more is in vogue. Yikes.

  4. Asherz Says:

    Inflation hasn’t arrived yet? Someone hasn’t been to the supermarket lately, or taken a haircut, or bought a house. Inflation is here and gaining momentum. And when it becomes obvious to all, monetary velocity will pick up. The road to hyperinflation..
    And that is the biggest tax of all. The purchasing power of the dollar entering a precipitous decline will decimate what is left of the middle class and kill small business.
    The Volcker hammer is no longer in the tool box because of the enormity of the global debt. The Biden fiscal policy assumes that there is a free lunch.
    The wages of SIN are death -for our living standards. Help!

    • David Richards Says:

      Yesss. But perhaps it’s what US policymakers want? ie, crash the dollar in order to reduce the debt/gdp ratio & national debt in real terms, lower the deficit and revitalize US industrial production (via a combo of stimulus and beggar-thy-neighbor). And insiduously raise taxes, especially on bondholders, who they don’t care about.

      I wish there was an edit or delete key, as all my earlier replies today, especially to Michael’s outstanding comment, were too long and rambling with some errors :(. Hopefully this time I’m more succint.

      • Yra Says:

        David—read the Longer Telegram and find a very great concern about not weakening the dollar so somebody ought to tell the arrogant yellen/powell team that they are in contrvention of the foreign policy establishment –hmm John Connelly back–our dollar your problem

      • David Richards Says:

        Yes it kinda feels like Connolly and 1971 deja vu in more ways than one. Oh, does that also possibly portend something similar like this time closing the cryto window? Cuz why do the pleebs need crypto when they got fed-coin and e-yuan, lol.

      • Yra Says:

        David–all of this discussion makes this BLOG worth the price

  5. Arthur Says:

    Yra, as always great!!

    Bob Prince on Monetary Policy 3, Inflation, Diversification Between East and West

    Geopolitical Calendar… May 11
    Countries negotiating their EU membership: Albania, North Macedonia, Montenegro, Serbia, Turkey

  6. Michael Temple Says:

    Let me repeat. I am NOT asserting that prices have not been rising.

    However, I don’t think we’ve seen anything yet because the classic definition of too much money chasing too few goods has yet to kick into gear. VELOCITY has been muted throughout the pandemic, in keeping with the decade-long decline beforehand.

    My point…..It is only going to get worse because it has been organically seeded for years. Inflation (in the real economy, but certainly not Wall Street) was held back because the “money” created by the Fed never made it to Main Street. It remained stuck inside the banks who parked the “excess reserves” with the Fed in a daisy chain.

    Now with the Great Reopening, coupled with direct infusions of stimulus to Main Street with UBI checks and all manner of fiscal stimulus, MMT has kicked into gear. And, the argument MMTers use to justify their policy is that “See, no inflation….We owe it to ourselves, so RELAX.”

    I simply believe that the monetary tinder is going to combust and velocity picks up BIGLY.

    A little known commodity is soy oil. Price has EXPLODED since just December when Cargill traders caught the market off guard and “stopped” tickets at CBOT, an action that had simply never taken place since the 1970s!!….Extreme global shortage of veg oil and Cargill recognized the cheapest place to get “physical” was via CBOT.

    Since then, prices have skyrocketed to the 70 cts level (cash basis). And NOW, the Big Boys are finally convinced that these high prices are here to stay and they are beginning a big cycle of CAPEX spending to build further capacity. Hundred million dollar plus new refineries to be constructed in the years ahead.

    In short, here comes the VELOCITY into the real economy.

    Just wait until Goldman and the rest of them start marketing billions in commodity pool funds to institutional investors as the best way to get in on the next “new thing”

    IMO, get ready for $10 Corn, $20 Soybeans, $7 Copper in the next calendar year.

    • David Richards Says:

      And what about Brent and natgas? Those are still well below their 2018 prices. So most individual commodity charts have indeed exploded higher but not so much the commodity indexes, as oil in particular is usually weighted more than all other commodities combined.

    • David Richards Says:

      Block cheese chart looks subdued.
      Let them eat cheese, lol.

  7. Mike Temple Says:

    Care to guess what daily global oil consumption is compared to pre Covid?

    We are consuming 4MM barrels/day LESS than pre Covid. Yet, WTI is $65!!

    If you believe we close that 4MM barrel shortfall over the next year, does oil flirt with $80? $100?

    Last spring, toilet paper prices EXPLODED. So, too, did the cost of yeast, used for baking, rising 600%!,

    Yet, I would not characterize those idiosyncratic price explosions as evidence of inflation.

    Today, however, I think we are beginning to transition towards greater economic activity, mobility and, therefore, monetary Velocity.

    Copper hit $4.80/lb yesterday. Yet, actual demand/usage has yet to kick in. Yes, Mr Market is beginning to Susa out future demand.

    But, in 2025, industry experts expect there to be 100 car brands with EV systems. Today, I think the figure is inching toward 10 that are in functional supply.

    EVs use roughly 3X as much copper as ICE cars.

    The demand for commodities is only growing, but now against a backdrop of monetary conditions that could easily ignite into the classic “too much money chasing too few goods” as the $15+trillion of global monetary creation in the past 15 months finally germinates.

    Sadly, given how overindebted the US is, I actually believe “they” want to inflate as the world will not tolerate a 1930s deflation

    • David Richards Says:

      Michael, agreed. My point is that the heavy weighting of oil & gas in commodity indexes is so far keeping the broad commodity charts looking subdued compared to those other individual commodity charts. That could change and if so, further stoke inflation expectations as well as the demand by investors for exposure to broad commodities as you were driving at, especially if commodities incl particularly crude begins to outperform on a sustained basis. Potentially triggering a feedback loop of rising commodity & energy prices. During which time the ESG crowd will look bad financially for having flushed fossil fuels from their portfolios and funds – and for making many Western energy companies dump their best projects & prospects to Asian energy companies at deep discounts lately (like BP for eg, now more of a solar & windmill company, but most of them are “woke” to some extent now).

      Remember texas in march? What happens to some woke countries’ energy security and their economies as your SUPPLY DESTRUCTION materializes in legacy energy, and then crude breaches $100 or $147 as oil/gas supply becomes as tight as some other commodities are this year? Wait and see, it could happen in time. Disclosure: I’m a long-term investor in Asian & Russian oil & coal companies (with high dividend yields from appreciating stocks in some rising currencies), and in some cases the high yielding bonds of them and their service providers. Looking good, BICBW and it’s not without risk. Interactive Brokers gets you easy access at lowest cost, God bless the US brokerage industry for having transformed the playing board for all participants everywhere.

    • David Richards Says:

      And returning to block cheese which like crude hasn’t fully recovered in price yet, do you know whether consumption of cheese is still below the pre-Covid level like crude? As personally, my cheese consumption has soared from before, to help counteract my gut reaction to the current geopolitics that otherwise would have me shitting my pants.

  8. Fred Geschwill Says:

    How long until the government realizes that there stimulus checks are keeping the unemployed from seeking employment? This is not so say they where not need in the beginning of the crisis, but I worry no politician has the stomach to remove them now. I think the last employment reports have shown many more jobs available than accepted.

    • Yra Says:

      Fred –it is the American way as why the non-means testing of medicare and social security became the third rail of US politics over the last four decades–cannot take away what thou has giveth—the Dostoyevsky’s “Grand Inquisitor” for the literature based explanation

  9. Financial Repression Authority Says:

    […] Link Here to the Blog Post […]

  10. David Richards Says:

    Live quote minutes ago from Fed watcher Danielle Dimartino Booth on Hedgeye about Powell:.. “We know from the era before the fed pivot of 2019 that somewhere inside that head is the vestiges of common sense … He just has to hold on for 8 months without the end game and then he’s out the door … People need to understand that he is a republican, and having monetary policy facilitate socialism was not on his to-do list.”

    I’ve heard rumors of Powell’s successor from michigan who’s said to be sooo bad that you’ll miss Powell terribly, and is even worse than Brainard and Kashkari, combined. Anyone know?

    • Yra Says:

      David — iwould be hard pressed to think it will not be Brainard—she is an advocate of YCC and the shit paper of record –NYT—-had her named as Treasury Secretary so other positions await—from Michigan who could it be—Joseph Stiglitz—sorry doesn’t fit the the standards of diversity from the ESG crowd—we will see–but I really think Jerome leaves early which I advised he should do when Biden got elected.I advised he should resign with dignity allowing the Biden admin to select its own choice and it could have been Powell but at least the choice would have been Biden’s and Powell could leave at the top—now he has been disgraced by Yellen’s seeming to take control of the tool box

      • David Richards Says:

        So I know nothing of this but the editor of The Daily Dirtnap said he was told the powers that be currently favor a women professor from U.Michigan but he couldn’t name her. And Rosengren will be gone next year.

        I think it doesn’t matter much who’s the Fed chair insofar as there’s no room left for choice in monetary policy. Maybe it matters somewhat for other issues. But whoever it is will print-print-print and balloon the Fed balance sheet and stomp on the price of money, and the dollar will continue to weaken over time, albeit maybe not in a straight line. This is among the easiest macro calls out there. What else will any policymaker do, instead let the US suddenly collapse into the great depression?

        Reading history, those charged with making policy in Weimar Germany faced a similar choice. Deep down, they knew better but did what they did and hoped for the best. US will likely be similar IMHO.

  11. Mike Temple Says:

    I think Yra would wager you that Powell resigns before his term comes to an end.

    That would definitely upset the Apple cart

  12. kevinwaspi Says:

    Let the wager begin! I’ll hold the margin deposits.

  13. Asherz Says:

    The Fed is faced with Hobsons Choice. Either stop printing and have total collapse (tried in December 2019andfailed) or inflation. Chose the second and hoping for the best.

    • David Richards Says:

      Right, inflation. Witness today, 4.2%. Really 9.6%.

      How 9.6%? Housing portion of the CPI was a ridiculous 2% rise for the year based on the non-market fake “owner rent” calculation, instead of house prices which rose 18.1% for the year. As housing is 33.3% of CPI, let’s remove owners rent (33.3% x 2%) from this months CPI and insert housing prices (33.3% x 18.1%). Therefore we adjust the 4.2% CPI as follows: 4.2 – 0.6 + 6.0 = 9.6% CPI, the way it was calculated a few short decades ago.

      Last week I posted that soaring pork was substituted with possum. Otherwise we’d have ~10% inflation. Yes, double digit inflation.

      But 10% is what policymakers quietly *want*, to inflate away the debt. So they misrepresent and mislead. I’m looking at Clarida’s pathetic response today, “Transitory”. Like Powell’s favorite word this year. Like barbie dolls whose pull string only says one thing. Transitory. Are they talking about inflation or themselves?

    • David Richards Says:


      Your option 1 means there’s lotsa stuff at good prices but nobody has money to buy (1930-33)

      Your option 2 means everyone has lotsa money but they can’t buy anything with it (1978-80).

  14. Recoba Bacci Says:

    I would broadly agree with you, although I would add that Monetary Velocity is only an IDENTITY. MV=PY. M going up but not PY? V must be going down! Its just a mathematical construct, used to explain the difference between the monetary base and inflation. It has never been measured or directly observed, so Im not so sure “the velocity of money” is Real.
    Which leads me to my Car analogy(thought experiment):
    Suppose there is a Car being driven across Nevada but all we can observe is the speed (PY) and the position of the accelerator (M). After several observations, we notice a very strong correlation between M & PY, but its not perfect so we create a factor called Wind Resistance (V) to explain why the correlation is not perfect. We therefore induce that the speed is directly proportional to the position of the accelerator times the Wind Resistance.
    Everything works great until the car gets to the Rockies. All of a sudden, the position of the accelerator is floored and the car is not going as fast as it should be! So most of the PHd’s in the room say relax, the wind Resistance is just increasing; thats why the car is slowing down. However, one of the PHds panics and calls Fat Tony who says: Your theory is all well and good but What About Hills?

    There is a likely a more complicated explanation to explain the interaction between the monetary base and prices than MV=PY. For example, nothing in MV=PY takes into account bank loan dynamics. If a bank has no loan demand at the Risk free rate (10 yr)+ risk premium, then a bank would always prefer to use their reserves to buy government bonds instead of loaning the money out.

  15. Michael Temple Says:


    In extremis, velocity can become a mindset.
    Weimar and the 30s Depression demonstrate the psychological tipping points…

    QE has yet to create real world inflation as opposed to financial markets’ inflation.

    As you correctly note, banks have to lend out money and corporations need to expand production rather than buy back stock most of the time.
    In response to the now daily stories of shortages, we are beginning to see some corporate responses…

    Suddenly, an explosion of semiconductor fab foundries.
    New vegetable oil refining capacity .
    Oil drilling going to have to pick up if global demand returns to Covid levels.

    So while I acknowledge that velocity is not a thing, nor is VIX an actual thing. But, it sure does pack a whallop on the psyche of market players when “it” gets rolling

    Perhaps a more articulate description of the situation is that, in extremis, inflation (and deflation) become embedded as PSYCHOLOGICAL CONSTRUCTS where higher prices begets more buying as purchasing managers prefer having inventory in store because tomorrow, it will likely be more expensive or temporarily unavailable.

    My main contention is that SIN was begun post Lehman. We have stoked the engine for 11-12 years before Covid struck. As Drunkenmiller said yesterday, the Fed has done more QE post Covid than in the previous 3-4 episodes of QE

    The money is there. I think the fuse is now alight and Inflation is deeply baked into the cake. It is now becoming obvious to see despite Powell and Clarida donning their make up and acting like Helen Keller and being blind to it.

    By the way, I saw a hilarious cartoon today. Picture of the dinosaurs looking up as the famous meteor approaches Earth and prepares to wipe out the Cambrian explosion.

    Caption reads

    “It’s Only A Transistory Event”

  16. Chicken Says:

    Everything is overproduced as a result of decades of cheap money chasing opportunity, dampens inflation?

  17. Mike Temple Says:

    That has been narrative since the passage of NAFTA and the inclusion of China into the WTO.

    For now, however, a lot of suppliers have gone out of business or cut back capacity in past year in reaction to Covid.

    • David Richards Says:

      In other words, things have changed. Who’s producing endless supplies of more & more of everything for lower & lower prices anymore? Nobody. And nobody can for the foreseeable future, at least this decade (with maybe a few exceptions like in cheap textiles).

      So that’s one of the pillars of the disinflationary triad that’s gone now.

  18. Recoba Bacci Says:

    I agree wholeheartedly that human psychology can become embedded to the point of influencing the fundamentals (Soros Reflexivity!). Your contention that Covid induced supply shortages->explosion in CapX->reversion to an inflationary mindset is Compelling and possible. I would think we would need at least 1-2 years of >=3% inflation numbers before the inflation mindset grabs ahold of people and realizes your thesis.

    However, I am also concerned that unless fiscal transfers which bypass the banks become permanent and ever increasing (UBI?) what we are witnessing is a Covid supply shock/stimulus check oneoff which slowly reverts back to the old normal (Higher Debt, disinflation, and flatlining real GDP). Tradable, but not investable.

    Coming infrastructure bill and higher taxes another wild card.

    As a Trader, I will primarily look to markets (CRB, Bond, Dollar/Gold) for the answers.
    For all the bruhaha, Bond yields still well below 2018 levels and bumping up against 2.5%R. To become an inflation believer, I need to see more than this (at least until YCC)
    Dollar/Gold holding up in spite of the yield backup. So sustained inflation might not be imminent (according to Bond market) but Gold is sniffing out the Fed is checkmated

  19. Michael Temple Says:

    Fed is TELLING us daily that it is going to tolerate all these “hot” Transitory numbers.

    Tenor of bond market is soon to go bonkers as Jerome decides to dare the bond vigilantes to do their best

    We have seen this movie before….back in late 2018.

    As Jerome was tightening, he reiterated (daily) that “we were a long way from neutral”. By December, he cried Uncle as the market continued to hunt down the wounded animal and pounded stocks lower even after a nearly 15% drop along the way

    Curiously, Drunkenmiller also very publicly warned Jerome to take heed.

    Bank stocks are trading great as NIMs are expanding.
    Foreigners no longer bellying up to the bar to take down our long bonds.

    Icons such as Buffett and Gundlach not touching bonds with a 10 foot pole. Expect the Drunkenmillers and other jackals to come along and simply test Jerome’s mettle.

    Bond Vigilantes are about to roam the Earth again as the Fed’s obstinacy has morphed into that old Richard Pryor line when he was caught in bed with another woman by his wife.

    He exclaimed, “Who are you going to believe? Me or your lyin’ eyes?”

    Bostic foolishly reiterated Powell party line tonight by saying he expects “hot” data for another few months but then we should wait to see what the trend looks like

    10 yr yields will easily have a 2% handle long before Bostic’s pleading.

  20. David Richards Says:

    Good morning. Interesting hypotheses. But I lean toward the other side against that “back to the old normal.. disinflation”.

    I expect the post-economic shock in the US to play out differently this time than in previous cycles. As the economic dynamics of an externally-financed country with huge twin deficits (much higher now than ever before) is very different after debt/GDP has soared to 140% like in the US (much higher than before). Much precedence for that combo exists in EM and banana republics, which the US has looked like for a year-plus, and the outcome has always been either high inflation or a crash (with or without n IMF “bailout”), not flat lining GDP with disinflation.

    What’s also different now is that the disinflationary effect of products from China is gone forever too, given the steadily rising yuan and their rising prices, except for a one-off effect if the US ends its 30% tariffs.

    In addition, I agree with Michael that the Fed is telling us what it intends to do (or not do). More importantly, Chair Yellen (LOL) is telling us what they gonna do. Paradigm shift.

    And I think policymakers can create price SIN, not just monetary inflation, if it’s really determined to SIN.

    We know that YCC is coming if needed to contain rising yields should Michael’s scenario play out. Maybe that’s just the “crisis” they need to justify YCC. Whether Powell is there for it or Brainard or the deep state’s mystery academic gal from Michigan is semantics. We probably gonna get YCC. Policymakers want very negative real interest rates, to inflate away the debt, to drive the dollar down, to reindustrialize USA, to resurrect the middle class and to fight the China boogeyman.

    The dollar is going down. It’s been in a downward channel ever since Goldman’s bogus “we removed our dollar shorts” in late March that I called out in here as either a bad call or most likely BS. No overdue dollar countertrend bounce here from oversold conditions will change the bearish dollar outlook, as bearish dollar invalidation is a long way up. Absent that breach, I expect the primary trend is dollar weakness and inflation.

    Regarding the inflation psychology, Americans are touchy about their gas prices, so I think maybe inflation expectations might harden more if oil and gasoline prices rocket? Which haven’t participated as much in the commodities rally. WTI is still below its 2018 levels and are far below ATH’s. But my charts foresee multi-year highs ahead in WTI after a correction first. Blame, at least in part, ESG… the West should feel pain in the form of some coming energy price inflation + energy insecurity partly caused by ESG. Then ESG should be renamed MUD and maybe TIME will revise its Person Of The Year Greta Thunberg (smh); replace her with a male gas station attendant LOL. Listening to a 16-yo girl for policy advise is smart? Man I miss Trump schooling Greta cuz nobody else will dare as they’d get cancelled too.

    So translating this energy and inflation macro backdrop into an investment, I like legacy energy (incl nuclear) especially based outside the US & EU, as I previously explained in more detail in an earlier comment above. BICBW

  21. Mike Temple Says:


    How is this for a sign.

    Fed quietly announced Operation Twist

    Prelude to actual YCC in the months to come?

    • David Richards Says:

      Yes! Anyone notice the terrible 30-yr treausury auction that day?

      US policymakers can’t stomach a 10yr yield above 1.7%, even with official CPI at 4.2% (and Shadowstats 1980-based CPI at 12.5%).

      The above issues plus the 4% equity market “crash” may well have accelerated Fed “twist”. YCC could arrive sooner than most think.

      After a two day countertrend, it’s already back to our regularly scheduled programming: higher commodities & equities and tanking POS dollar.

    • Yra Says:

      Mike–thanks for that post–I know it is reuters but I am trying to ascertain its veracity

  22. Recoba Bacci Says:

    Yra, the official link is here:

    Thanks for the link and I agree its an ominous sign.However, there is a logic to the move:
    QE purchases are “conducted across a range of maturities and security types in rough proportion to the universe of Treasury securities outstanding”.
    Due to re-intro of 20yr bond last yr and desire to increase the WAM of portfolio and reduce reliance on Bills.
    “Issuance patterns of Treasury securities have changed over the past year, resulting in modest shifts in the distribution of Treasury securities outstanding. As a result, the Desk will segment its purchase sectors for longer-dated securities into additional maturity ranges to reflect last year’s introduction of a new benchmark security. The Desk will also update associated sector weights. ”

    They are buying 17% of 80B in the long end ~15B/month. We’ve issued around 60B in bonds/month so far this year, so the Fed is currently absorbing ~25% of the issuance. This is roughly in step with current 1/3rd of outstanding bonds which Fed owns.

  23. Recoba Bacci Says:

    Temple- I think I finally digested your Thesis and its Brilliant
    Commodity supply destruction is the spark
    Bidens infrastructure and UBI (child tax credit) is the tinder.
    Once the fire is started it will remain lit due to commodity S/D imbalances amid global economy restart. Fed will choose to support full employment over anchoring inflation and stay behind the curve. The fire will burn 1-2 years, and once inflation expectations become unhinged the fire will start to rage with the heavy logs being all the excess reserves (already built into the system) which had previously been recycled into Bond market in a reflexive loop now will seek exit. Katy bar the door indeed!

    OK so if Bond market agrees with you first stop is to push Breakevens higher to 2.75-3.0 (threatening to unhinge inflation expectations) the Fed will have to respond. Note that this will happen with Fed taking down 25-30% of the flow, so imagine what it should be without the Fed.
    The timing of the bond market push and the strength of the recovery when it occurs are the most important factors. Bond market must push with employment still weak to force Fed’s hand into choosing full employment (via YCC) over anchoring inflation expectations.

    If bond market holds the line here I would assume the commodity S/D rights itself and Fiscal transfers are not enough to revert the prevailing Tide.

  24. MikecTemple Says:


    Yes, I think inflation breakevens will start to move.
    Keep an eye peeled on the 5yr5 yr forwards.

    Also of note to me is the strong price action in many leading gold miners to close out the week.

    NEM and FNV within shouting distance of their Aug 2020 highs when gold spiked to $2080.

    Gold only $1840 tonight but COTs reports showed some serious new longs finally jumping back aboard.

    Fed can sugarcoat its “technical adjustment” all it wants in announcing a slight shift towards purchasing more duration.

    It still amounts to $200 BN and USD did soften today..Coincidence?

    Drunkenmiller nailed it when he highlighted the Fed has done more QE post Covid than in the 11-12 years post Lehman.

    That bold move was the right call last spring. But, to continue to have the pedal to the metal now that the economy is springing back to life is bewildering. But, if we all put aside our desire to tell the Fed what it ought to be doing and simply listen, we can hear that they only care to address the social injustice of too much unemployment, particularly among minority communities,

    As David pointed out, the 30 yr auction was frightful.

    YCC could be here far sooner than we can imagine.

    I think Yellen cares not a whit if USD gets torched.

    And I don’t think Jerome is in any rush to pop bubbles with the finish line in sight when his term ends in 7 months.

    Let his successor and Janet deal with 2022 and beyond

  25. Mike Temple Says:


    Another inflationary sign. German 2/10 curve blowing out to new highs. Relentless widening since 2019.

    US curve similarly so. So, it ain’t just happening here in the US.

    I am not trying to be a gold bug. But, the stronger-than-horseradish weekly close for NEM FNV AEM WPM is barely receiving market commentary. After all, tech roared back this week and it is so much more fun to play the FANGs and Crypto.

    Why did NEM make an all time weekly high close when gold is still 14% below its Aug 2020 peak of $2080ish?

    COT report showed a very impressive expansion of longs by Managed Money accounts.

    Tech has clearly cracked here. Goldman index of “profit less” tech companies plummeted 40% from its Feb highs before Thur/Fri bounce.

    Crypto getting shaky as both BTC and Doge displayed extreme VOL to the downside.

    Such dual pice action speaks to the reality that Crypto is NOT negatively correlated to stocks. In fact, the overarching rationale for the entire 60/40 model of modern portfolio management (which governs tens of trillions of AUM) is that bonds provide NEG correlation to stocks.

    Yet, in the inflationary world in which we find ourselves in, bonds no longer can provide that protection.

    Suddenly, commodities are catching the attention of institutional investors as a possible inflation hedge. Yet, of all the commodities, none has been as big a laggard as gold.

    And, yet, the major miners look to be breaking out, as they almost all are reporting RECORD FCF despite gold still 14% below its ATH.


    In its simplest form, isn’t a major mining company with established multi million Oz reserves the equivalent of owning gold in a vault?

    And while you wait for higher prices, you are getting paid a dividend that equals/exceeds the risk free UST 10 yr yield and is HISTORICALLY proven to be NEG correlated to stocks, which have rarely been more exuberantly priced due to the monetary orgy of the past 11 years, topped off by the extraordinary overdrive post Covid.

    As I said at the top, German yield curve is steepening as dramatically as US.

  26. Mike Temple Says:

    A paradigm shift, courtesy of Germany.

    The author’s word, not mine.

    Since Jan 1st, global amount of NEG yielding sovereign debt has plunged from $18 trillion to $12T

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