Can The Fed Save Us From Inflation? Or Can Inflation Can Save Us From The Fed?

October 3, 2021

Schedule A FREE Consultation

1. Persistently declining long term growth and an exploding debt burden has set Treasury yields on an ever lower crash point yield level.

The chart above shows persistently lower highs on the Ten Year Treasury bond yield since 1981. Simply, the economy has ever more limited capability to operate above a declining  yield ceiling. That yield level is now below 3% and falling.

https://www.getrevue.co/profile/TheNorthCast/issues/thenorthcast-issue-2-782483

 

 

2. In what kind of economy will 10 year Treasury yields stay well below 3%?

https://realeconomy.rsmus.com/chart-of-the-day-pandemic-economics-in-14-charts/

The chart above shows the close relationship between the 10 year Treasury yield less inflation and real GDP growth. Adding back inflation to both, that is the same as saying nominal GDP growth correlates closely with 10 year Treasury yields.

This means that for Treasuries to remain naturally below the crash point yield level,  nominal GDP needs to also stay low. With the Fed’s average inflation objective at 2%, and much higher currently, that does not leave much room for growth. Alternatively, the Fed could continue to intervene to ensure Treasury yields stay well below 3%.

Try to add real growth to inflation and get less than 3%!   That’s why the talk about tapering is just that. Any tapering will be minor and most likely the Fed will have to keep, or even accelerate, QE to keep Treasury yields distorted on the low side. As shown in previous notes, excessive Treasury bond support already seems to be in place.

Make no mistake the Fed has very limited capability to contain inflation. The Fed will likely have to choose between inflation and growth at some stage. History tells us that inflation is by far the easiest choice.

Don’t bet on the Fed fighting inflation too hard.

 

 

3. Consumer confidence has already failed to keep up with stocks.

The chart below shows that confidence remains fragile outside new intervention dynamics. Covid broke this tight relationship, amongst many others. Is this a break in policy or will they reconnect?

https://www.isabelnet.com/consumer-confidence-index-vs-sp-500/

 

 

4. Foreign Investor confidence contines to fall, as the US dollar ‘s reserve currency status continues to slide.

The chart below shows that, not surprisingly, the US dollar is losing support for its reserve currency status. This means that the US will need more domestic support for its ever increasing debt financing demands.

QE may become an increasingly important source of financing. How would that fit in with inflation containment?

https://wolfstreet.com/2021/09/30/us-dollar-as-global-reserve-currency-in-a-world-of-reckless-qe-government-deficits/

 

 

5. Now the third Fed Board member, this time the vice chairman, has indulged in questionable transactions. How far does this go?

Federal Reserve Vice Chair Richard Clarida traded between $1 million and $5 million out of a bond fund into stock funds one day before Chair Jerome Powell issued a statement flagging possible policy action as the pandemic worsened, his 2020 financial disclosures show.”

https://www.bloomberg.com/news/articles/2021-10-01/clarida-traded-into-stocks-on-eve-of-powell-pandemic-statement

“From Kaplan to Rosengren to Clarida to Powell on trading & allocations and Bernanke & Yellen with millions in bank paid speaking fees all have shown to be profit motivated cashing in on their positions.”

https://twitter.com/northmantrader/status/1444641906236010496?s=27

 

 

Please note these important disclaimers:
Educational use Only. The market update published by CB Investment Management, LLC (“CB Investment”)  is intended to be educational in nature and is not intended to be a recommendation for any specific investment product, strategy, plan feature or other purposes. Accordingly, it should not be construed by any consumer and/or prospective client as solicitation to effect, or attempt to effect transactions in securities, or the rendering of personalized investment advice for compensation.
Advertising and Marketing. Communications such as this are not impartial and are provided in connection with advertising and marketing. This material is not suggesting a specific course of action or any action at all. Prior to making any investment or financial decisions, an investor should seek individualized advice from a personal financial, insurance, legal or tax professional that takes into account all of the particular facts and circumstances of an investor’s own situation. No person associated with CB Investment is a licensed attorney or tax professional and the information contained herein should not be considered tax  or  legal advice.
Links to Third Party Content. This Market Update contains links to articles or other information maintained by unrelated third parties. You acknowledge and agree to the following: All such information is provided solely for convenience purposes only because we believe that it may provide useful content and all users thereof should be guided accordingly. We disclaim any responsibility for the link’s performance or interaction with your computer, its security and privacy policies and practices, and any consequences that may result from visiting it.  We do not control the content published by the third-party; we do not guarantee any claims made on it, nor do we endorse its sponsor or any of the content, policies, activities, products or services offered by any advertiser on the site. CB Investment assumes no liability for any inaccuracies, errors or omissions in or from any data or other information provided by the third party and inclusion or reference by CB Investment to any third party link should not be construed by any consumer and/or prospective client as a solicitation to effect, or attempt to effect transactions in securities, or the rendering of personalized investment advice for compensation, over the Internet.
Important Information regarding Registration Investment advice is offered through CB Investment Management, LLC (“CB Investment”), 8231 Crestwood Heights Drive, Mclean VA 22102 an investment adviser registered with the states of Virginia and Maryland. Registration with the states of Virginia and Maryland should not be construed to imply that the SEC has approved or endorsed qualifications or the services offered, or that its personnel possess a particular level of skill, expertise or training. Important information and disclosures related to CB Investment are available at https://old.chrisbelchamber.com.

Start Today

Investing like the best can lower your stress and risk levels while bringing you higher, long-term returns. It can provide a stable platform for planning and give you more financial security now and for the rest of your life. Let’s get started.