TSLA Takes A Page Out Of The Fed’s Inflation Playbook

The good news is that this should alleviate some serious concerns about deflationary pressures.

The cautionary news is in its strength in the context of the potential turn up in some of the year over year measures illustrated by the charts below.

Was that the low in CPI?

While the year over year trend in the chart above may look like it’s too early to pick a bottom in the inflation trend, the bond market isn’t waiting for more.

As you can see from the TLT chart below the bonds took the news seriously. (TLT)

While the Fed is indicating that it’s not concerned about inflation challenging their efforts to keep rates lower for longer, the bond market may not cooperate as you can see by the 10-year break even inflation rate chart below.

Having seen what the ‘bond vigilante’s’ can do, I’m concerned because…

The 10-year breakeven rate measures the spread between 10-year Treasury Bond and Treasury Inflation Protected Securities (TIPS). As a result, it serves as an indication of the markets' inflation expectations over the 10-year horizon.

More interestingly, as you can see by the red lines on the chart, this measure has a history of indicating major turning points in the bond market when the two diverge.

I didn’t draw the current lines. I’ll let you do that.

It’s true that inflation of measured by CPI is historically low, but the bonds don’t care about levels as much as they care about direction, real rates and expectations.

This week’s news and price action in the bonds suggests that the only interest rates that may stay lower for longer may be the “real” ones, and they’re currently NEGATIVE (which is a place the Fed said they wouldn’t want to go) and a place that won’t keep the bonds market or (soon thereafter) the stock market happy.

Keep your eye on the bonds.

Other important developments in BigView include:

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Disclosure: None.

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