I was caught between a rock and a hard place while writing today's column on the bond market. On the one hand, how can we not have inflation given the 25 hour per day printing of money by the government. But on the other had, the Fed buys billions of bucks worth of T-Bonds to reduce supply in an already over-demanded market.
The charts are not clear, either, as short- and long-term technicals still look pretty good - as long as you keep your time frame straight. Basically, that means the bond market can suffer a pretty hefty drop and still be considering in a long-term bull. Obviously, in a short-term frame of reference, prices would plummet and interest rates soar.
But on the third hand (don't worry, that's all the hands I'll borrow), inflation may be a relative term. If long rates go from under 4% today to 5% in a few months that would be a 25% increase in rates. Is that what everyone is talking about in terms of inflation? I see a 1% boost in rates and say - big deal. I paid 4 bucks for a gallon of gas last year and that was real inflation as far as my wallet was concerned.
What would make everything tie up in a neat - yet unfortunate - bundle would be a break below the 124 level on bond futures and then drop to the long-term trendline in the 115 area. Let it futz around a bit and then break down again. Then everyone gets their wish - economic recovery, soaring inflation as we print money like Zimbabwe and the charts would match the fundamentals.