What I Learned This Week

Deflationary forces appear to be gathering momentum.

This is yet more evidence that the coming Fed rate-cuts could be “pushing on a string.” After falling sharply below a lengthy topping pattern, the TIP-to-IEF ratio—a key bond market measure of inflation expectations—has plunged to new lows. This indicator (TIPS bond ETF vs. 7-10 year Treasury bond ETF) has been valuable in assessing investor fears regarding deflationary forces and inflation expectations. And it has traded closely—and has often led—price action in the economy-sensitive equity sectors, commodities and other deflation/inflation indicators. As shown in the following charts, the relative-strength (R/S) of several economy-sensitive equity sectors, commodity equities and commodity…

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