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This article in no way pretends to be
real, actionable analysis like that which appears in Notes From the Rabbit Hole (NFTRH) each
week. Rather, it is just a metaphorical riff on a big picture macro economic theme that is currently in play.
Setting the clock back to January of
2011, we find long term Treasury bond yields hitting a critical high along
the 'continuum' and finally beginning to signal an end to the inflation
hysteria - born of the previous Fed sponsored QE campaign - as illustrated on the blog
in May. At that time, it was noted that the Wizard (metaphor
temporarily switched to 'Vampire' for today's article) was powerless to work
his magic against an oncoming economic contraction in the face of inflamed
inflation expectations (long term yields at a 'do or die' breakout point
parameter) and a then rising 'austerity' movement in the US.
Well, you see in the picture above (source info)
that times are much different, a mere 6 months later. Indeed, austerity has
been cast to the scrap heap as the usual macro-managers come out of the
woodwork, one after another, and invite the Vampire back into
our homes. You know the legend is that the Vampire must be invited in, don't
you? There is nothing like decelerating global macro-economic fundamentals
and caving asset markets when it comes to inviting the Vampire to do his
work.
Why are we using the Vampire as the
metaphor for the US Fed (and I might add, its counterparts the developed
world over)? Because they are now being called upon... invited to
provide more policy - in the name of asset price inflation - that is
ultimately destructive to would-be normal, healthy economies that thrive on
productivity and investment of capital toward these things of
productivity and value.
In short, more inflationary policy
creates more macro debt burden, provides potential asset price inflation and
a growing overhang from which many economies will fail to recover (insert
here the macro subplot in Greece and the PIIGS in general, which are just a
tip of an awfully big iceberg) as inflationary policy sucks the life out of a
real economy over time and cycles.
So we have come full cycle. The
updated chart of the 'continuum' is in a picture, an invitation. The most
recent red arrow indicated a time when the Vampire was reviled and
politically scorned.
The 'continuum' AKA secular trend in
30 yr yields
Now we have a different atmosphere -
expected by this writer and indicated by the chart above so many months ago -
with deflation and systemic collapse at the forefront of the collective
financial and economic mindset. Austerity? Please, give me a break. The
Vampire has already received his invitation, but having been scorned so
soundly earlier this year, he sits back and lets the call become louder by
the week.
The balance of current NFTRH analysis holds that he may await a
final capitulation to be sure that the invitation is near unanimous.
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