Gordon T Long

Gordon T Long

Global Macro Research | Macro-Technical Analysis 





We clearly have mounting inflation pressures yet we are also seeing rising real rates. How exactly does that work?? To understand how this could happen is to understand what lies ahead!

  1. First, Real Rates are beginning to rise as a consequence of the Chinese Credit Impulse correlation. We have addressed this in prior newsletters and videos.
  2. Secondly, Inflation is rising due to:
  • A historic increase in Global Money Supply,
  • Marginally increasing Money Velocity because of both a liquidity driven economic recovery and consumer spending due to stimulus and the forbearance of consumer shelter costs.

The ramifications of this are highly likely to be:

  1. Rising US 10Y Treasury Yields in the short term before the Fed steps in with YCC (Yield Curve Control),
  2. A strengthening US Dollar because of the increasing attractiveness of US Real Rates. Money always follows real rates.
  3. A near term consolidation in Equity and Commodity markets because of a rising US$ and increasing costs of margin debt.


The Chinese Credit Impulse since the 2008 Financial Crisis has led US 10 Year Treasury Real Rates by approximately 12 months. The big surge in the Chinese Credit Impulse began last March 2020 (see chart to the right).

Additionally, the Industrial Metal Commodity Index closely follows the Chinese Credit Impulse by 15 months. A temporary consolidation in the recent commodity breakout is most likely to soon occur if the historic correlations continues (see chart to the lower right).


On Friday the 10Y UST note closed at a yield 1.20%. The yield is now up 300% from one year when it put in a 0.40% low!

This is a serious loss in capital for those who accepted the risk of low yields for the protection of US Treasury assets. Meanwhile Real Rates in US Treasuries were the highest in the world one year ago and recently were one of the lowest. Money follows real rates just like water flows downhill. This has hurt the US dollar but this is changing and the Fed has yet to act to stop the rise in US Treasury rates?

Without Fed intervention the dollar is likely to soon react positively. A strengthening dollar has traditionally been a ‘damper’ on Commodities and could weaken over-valued US asset pricing. The Fed appears to want to take some exuberance out of an overheated US equity market!



Periods like this are attractive for Precious Metals and value in select Commodities.This is very similar to what we witnessed in the 1970’s prior to the US beginning in 1980 took rates from ~19% to today’s goal of ‘Zero Bound’. This reduction in rates has hidden the real decline in the US economy.

With interest rates being manipulated by the Federal Reserve to maintain a “Zero Bound” we can expect asset investment to begin a secular rotation.


  • Growth to Value,
  • Hard Assets (Gold, Silver, Precious Metals),
  • Commodities (Hard and Soft),

Though we expect a consolidation near term in the recent rise in Commodities (with a strengthening dollar), We feel Commodities has begun a new long term super-cycle (see video Addendum below).

“It is generally agreed that over the past 100 years, there were 4 Commodity super-cycles and that the last one started in 1996 . We believe that the last super-cycle peaked in 2008 (after 12 years of expansion), bottomed in 2020 (after a 12-year contraction) and that we likely entered an upswing phase of a new commodity super-cycle.”

JPM Quant Marko Kolanovic


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