Going down

It is what the Blackhawk pilots radioed over Mogadishu, Somalia, it is what the once again popular deflation proponents forecast for asset prices and it is what Ben Bernanke has now radioed to the financial world with regard to the direction of interest rates on the long term treasury bond.

This latest move in the inflation/deflation drama coming after several years of inflationary 'recovery' during which China and other macro vendor financiers did the heavy lifting (in buying treasuries with huge USD reserves) to keep the appearance of stability on the long bond.  The bond is seen by legions of herding and conventional investors as a benchmark for confidence in Uncle Sam.

Now, Uncle Sam himself is stepping up to the plate in order to maintain the illusory confidence so important to the tepid recovery domestically.

Let's get an updated big picture view of the monthly 30 year treasury yield along with the 100 month exponential moving average, which is of course our "line in the sand" or would-be gateway to overheating inflation expectations and a new era of hyper-inflationary fears.

Was it only this spring that the most recent assault on the EMA 100 by the long bond's yield was repelled?  I seem to recall that cries about inflation getting out of hand were pretty loud way back then.  As speculated here, what was needed was a deceleration of the inflation-fueled recovery indicators and associated asset markets.  Check.

With inflation under control – by the above picture if not in reality – Bernanke has apparently bullied the bond into a structure that allows him to re-load his inflation gun (by monetizing the US' own debt).  Remember, the Fed and the treasury need the implied confidence of a weak economy and asset markets to lure the herd back into the 'safety' of the bond (two appropriate definitions:  1) a certificate issued by a government or public company promising to repay borrowed money at a fixed rate of interest at a specified time.  2) Physical restraints used to hold someone or something prisoner, esp. ropes or chains.)

I'll take #2 Alex.  Prisoners of convention will do as they always do, buy treasuries in Mr. Bernanke's wake and sit out any coming turbulence of a deflation scare.  If you think a real and enduring deflation is on tap – with the mainstream media on that tout once again, no less – you will dutifully put the lock on your own chains.

Meanwhile, I expect the process to play out in wash, rinse, repeat fashion.  As the inflationists get too loud in an assault the EMA 100, you realize that the deflationists are likely to get the macro tout.  This blog and its associated newsletter were on that – in real time.

But Gary, what have you done for me lately?  What I am doing for you lately is showing you a simple chart and asking you to keep your head screwed on straight as the deflation story gets airplay, right on schedule.  I am asking you to protect yourself and manage risk as you see fit.  But I am also asking you to realize that the world is not ending, it is slowly shifting.  I am asking you to consider a global, as opposed to US or Europe-centric, view.

Aside from the current noise, there is a slow, lumbering change taking place and as the US and other maxed out entities struggle with indigestion of decades of excess (and associated debt).  The latest maneuver by the Chief academic at the Fed is, when you look into the details, merely a pathetic attempt to once again replace real productivity with the manipulation of paper.  There are many productive zones now in ascendancy and when you dial your thinking out to decades and even centuries, it is not so hard to see that the game is changing.

The field is not only evening out, I expect it to eventually begin to tilt the other way, as some macro entities come up, and others go down.  In the words of NFTRH's 'charter subscriber' (his gold thoughts for today are in the next post), a "global leveling of the playing field" is the long term play.

This long term process is part of the NFTRH 'big picture' stance.  In the near and intermediate term, the main focus is on gold and the gold stocks as a pivotal – and potentially dynamic – play during the transition to what comes next.  In the immediate term, we have of course been watching for Mr. Prechter and the deflationary argument to once again grab center stage.  I do not believe their short term play is yet done.

This is all about perspective, education and a sound contrary orientation backed by real indicators, or clues, which are there all the time, if one will just seek them out.