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Tim Knight has been charting and trading since 1987. His first stock trade was, in fact, on October 19, 1987 – the day of the crash – which perhaps goes a long way explaining his disposition ... more

You Have to Invite the Vampire Into Your House

Date: Sunday, June 2, 2019 3:06 AM EST

Guest post by TalkMarkets contributor Gary Tanashian. Original post is here.
 

A vampire needs to be invited in order to enter your house. So the story goes. But in this case, we are talking about the Macro house, with its nexus in the USA and its Central Bank.

You see, the Federal Reserve inflates money supplies as a matter of doing business, which is why I noted so strenuously in Q4 2018 that Jerome Powell’s then-hawkish stance in the face of a declining stock market made perfect sense… because the 30 year Treasury bond was not bullish; it was bearish and getting more so under the pressure of rising inflation expectations.

But now as we noted the other day the inflated Sub is losing pressure. As we noted before that Goldilocks is being threatened. Here are the updated ‘inflation gauges’ from that post, continuing to lose pressure.

 

But in Q4 the Fed had a threat if its own to deal with as the repercussions of its previous inflationary operations could be exposed to the light of day by the breakout through the Continuum’s limiter if it were not arrested promptly. The orange arrow on the chart below shows the point of concern for the Fed.

Our thesis of the time was that an impulsive breakout in long-term bond yields would end the Fed’s inflationary racket and thus, end the Fed itself (as we know it). Our view was that given the choice between an imploding stock market and a fatal breakdown in the long bond (break up in the yield) the choice for the Fed would be a no-brainer. And what do you know… the Continuum’s limiter held yet again.

tyx

Here is an excerpt from the December 19th edition of Notes from the Rabbit Hole

NFTRH 530 (FOMC at Center Stage)

And here is an excerpt from that excerpt…

And as to the last sentence above, the herd buys the bond and invites the damn vampire into the house!

You see, the current Continuum looks a lot different now than it did in Q4 2018, doesn’t it? Inflation is absolutely not an issue right now and if it is an issue, that issue is that it is not high enough to sustain bloated bubble markets that depend on more inflation to come.

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