Editor's Note: The insight below accompanied a new Real-Time Alert signal sent to subscribers yesterday.
To the newborn "inflation hawks" (the old ones from 2012 died),
So... you want to go Ex-GDP and go for another hike because “inflation is reaching the target” do you? Cool. In addition to commodity-linked inflation proxies getting deflated last week, the 5yr US Treasury Break-Even rate dropped 2 basis points on the week to 1.34%.
In other words, with:
A) GDP tracking towards 1.1% in Q3 (we’ll get that print right before the election)
B) Housing and Consumer Confidence rolling off their #LateCycle peaks
C) Inflation pressures deflating from their Down Dollar YTD highs
D) Yield Spread (UST 10yr minus 2yr) at its YTD low (down 5bps last week)
E) SP500 dead flat now vs. 1 month ago today
The Fed has “clearly seen improvements for the last 2 months?” Or were those the politically prepared remarks pre the SP500 (you-ge indicator!) going down for 5 of the last 6 trading days and US Equity Volatility (VIX) ramping +20.4% in a week?
The only thing that’s crystal clear to me at this point is that
A) the US GDP growth cycle peaked in mid-2015
B) inflation has had what the Fed should call “transitory” reflation
C) the labor cycle continues to slow from its 2015 rate of change cycle peak.
Short the Financials vs. your Long-term Bond core longs.