Gordon T Long

Gordon T Long

Global Macro Research | Macro-Technical Analysis 





Right on-time US Treasury Yields are spiking higher, as we have been warning of in prior newsletters. As we outlined, this Is a result of the correlation since 2008 with the Chinese Credit Impulse (Last Newsletter Link).

The Fed is signaling (whether intentionally or unintentionally) that:

  • Inflation is seen by the Fed as the only way out of debt excess,
  • The Fed will accept an Inflation overshoot,
  • Additionally, the Fed wants to take some of historic “exuberance” out of equity markets,
LONGWave - 02-10-21 - FEBRUARY - Beware of Cascading Fractals


As a direct result, If the higher long-term yields are a sign of rising inflation expectations and economic growth – rather than financial stress – they are welcome. And so they’re allowed to rise.

As Wolf Richter reports: “For the Fed, these increases in the long-term Treasury yields and the continued declines in junk bond yields and the near-record-low mortgage rates are a soothing combination, speaking of inflation and not financial stress.

If the spread of junk bonds and mortgage rates to Treasury securities were to blow out suddenly, that would be a sign of financial stress, and might be more worrisome for the Fed.

So the rat that the Treasury market is smelling is consumer price inflation. It’s gnawing its way through various layers of the economy. And the Fed has said that it will ignore inflation for a “while,” and that it will welcome an overshoot of inflation. Only when it becomes “unwanted” inflation, as Powell put it without specifying what that means, would the Fed crack down.

So maybe the Fed would crack down when inflation stays above 4% or 5% for a “while?”

However, once inflation has solidly set in, it’s hard to stop. That’s the rat the Treasury market is smelling, and if you’re sitting on a bond that yields 1.2% for the next 10 years, that’s not a mouthwatering item on the menu.”

This is the biggest 3-day spike in yields since the election rebound…

Real yields jumped to their highest since early January, led by gold as its 50- and 200-DMA crossed over in a ‘Death Cross’…



Stocks are now the most ‘expensive’ relative to bonds since 2018. This is yet another clear shot across the US Equity Market bow!

Investor “Exuberance“, “Greed” and “Confidence” at levels even higher than we have witnessed at any previous market peak. Is it different this time?

Gold will be hit in the short term while real rates rise. However both will reverse as when Fed feels the current market exuberance has been diminished slightly but not threatened.

Its like ‘tapping’ on the brakes without hitting them! This doesn’t work well on icy roads!

“I am not thinking that we have unwanted inflation around the corner. I don’t think that’s a risk we should think about right now. IT IS NOT TIME TO WORRY ABOUT INFLATION .. to do so would cost the economy jobs!”

San Francisco Federal Reserve President (‘Let it Rip’) Mary C. Daly


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