Trader’s Narrative

So everyone is running around in a panic, dumping bonds and equities for fear that the Fed will increase rates to fight inflation. The 10 year bond yield, which everyone is watching like a hawk all of a sudden, has been blasting higher in anticipation.

Only thing is, I can’t seem to find any footprints of this inflation monster everyone is afraid of. But the markets are a forward discounting mechanism. Maybe they are sensing that inflation, although not here right now, is just around the corner.

True, markets do look forward and incorporate all sorts of scenarios but wouldn’t that same forward discounting mechanism be at work in markets like gold, silver, and the CRB (Commodity Research Bureau Index)?

Each of these markets is also a tell for upcoming inflation. And each of those tells is not confirming inflation fears. Gold, which I’ve already covered, is actually in what looks to be a topping pattern after a multi-year bull market.

The same can be said for silver (and perhaps with much more conviction). And last year, the CRB index broke its long term uptrend line. This trendline had been in effect since the double bottom of the CRB (in early 1999 and late 2001 at the 185 area) so it was very significant.

Getting back to the bond market, for the past 20 years, the 10 year bond yield has been in very orderly down trending channel. Everytime it has hit the top of this channel, bonds have rallied. This has happened about half a dozen times. Once again we are at the top of the channel.

Is it different this time?