iBankCoin
18 years in Wall Street, left after finding out it was all horseshit. Founder/ Master and Commander: iBankCoin, finance news and commentary from the future.
Joined Nov 10, 2007
17,433 Blog Posts

If Rates Are a Threat — Why Aren’t Investors Pricing in Inflation?

Let’s exercise our brains a little here and use some logic while looking at US rates heading higher.

The fear of higher rates has nothing to do with inflation.
The fear of higher rates has nothing to do with inflation.
The fear of higher rates has nothing to do with inflation.
The fear of higher rates has nothing to do with inflation.
The fear of higher rates has nothing to do with inflation.

I know this because I can easily see the TIPs doing nothing but trade lower. If investors were afraid of inflation, they’d be bidding up TIPs.

Meanwhile, 10yr rates have been ‘normalizing’ because the Fed is menacing us with higher rates.

Since we have the benefit of seeing a true credit crisis, in addition to a sovereign one born in Europe in 2010-2012 — thanks to Greek, French, Portguese, Italian, and Irish bonds diverging from Germany — we know there is no real threat of a US default. Even if there were, we’d see other countries dislocate and break first. Since our hegemony is strong, backed by the full faith and credit of the US military, I think it’s fair to say, at this given time, there is zero reason for rates to head higher from an economic point of view.

Let’s recap.

Zero economic instability in the US and zero inflation equals STOP CHIMPING THE FUCK OUT OVER HIGHER RATES.

There might be a dozen different problems with this market, or even something to concern ourselves with in the economy. Maybe the Trump tax cuts fail and maybe his infrastructure plans underwhelm. But from my perspective, the only rational reason for US rates to head higher is due to manipulation by hedge funds — trying to foment panic in order to get the outcome they desire — lower equity prices.

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42 comments

  1. roundwego

    Rates go up cus trust degrades. When printing fails cus, moral hazard show up. Like fake coin.

    Japan looking crash again.

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  2. sarcrilege

    The old rules of flight to quality do not apply in rigged and manipulated markets. The confidence in USG is disappearing yet global capital will start hiding in US bonds and equities, the deepest and most liquid markets, as war in ME looms; thus driving interest rates down and creating the very last two bubbles – ATH in equities and negative yields in LT bonds. The bubble in bonds is bound to deflate first taking equities with it and leaving gold in permanent backwardation – no later than 2020. Crazy times on deck. Fun times for all you day traders – dodging imploding financial instruments in days ahead.

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    • ironturd

      I agree w this. The flight to quality is now a distorted equation in investors eyes so the new mkt equilibrium will take time to discern.

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  3. bob smith

    Since TIPS are based on a bogus CPI, they are artificially low. If TIPS were based on true inflation they would be double in price.

    You should know that good doctor…

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  4. Lyndon Keltner

    The hedge funds/Illuminati always do well regardless of how high/low equity prices are. Rates are up globally (i.e., not just the US) because of the so-called global economic recovery, which is inducing central banks to do what they think they should do (i.e., to raise rates). Kashkari and Kataoka are among the very few exceptions who openly disagree with the entrenched group-think.

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    • sarcrilege

      to do well, all one needs is some exposure to old-time corporations that have illuminati/masonic signs buried in their logos – that’s the give away

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  5. Cricket

    Trump and most of his team are about (1) constraining easy access to cheap imported labour, (2) using tariffs to stop unfair trade practices like dumping/government subsidy/closed markets, (3) pushing more of government spending into real infrastructure work and (4) cutting taxes. If successful this will create an environment of greater domestic labour demand and higher wages.

    This is a reversal of decades of national economic policy. Is it wage inflation that is the worry? Could be.

    Also ZIRP has run it’s course. Many would judge it a useless at best; destructive at worst. Hence the desire to unwind it. Will there also be an increase in the money supply by the Treasury? Looks probable.

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  6. Lyndon Keltner

    Short /ZB right here at 144’21 and every 4 ticks higher.

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  7. mgutie3

    You’re lack of understanding whats going on in the macro picture is actually disappointing. Tips are underperforming because growth is accelerating along side inflation. If it was purely an inflationary call and growth wasn’t improving wed see rates become suppressed in that environment and TIPS catching a bid. Youre not understanding the big picture as to why TIPS have been underperforming. Stronger GDP alongside accelerating inflation is not bullish TIPS… A slowing economy with rising inflation is when TIPS catch a bid. That is not the current back drop.

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    • ironturd

      He’s an XIV Shitcoin specialist. Hasn’t had a post on inflation or TIPS in a decade.

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    • Dr. Fly

      What are you a moonshine maker?

      Here, I’ll make your argument clear: it’s called net inflation after growth. Yes of course I am aware of what that means. And yes I know how it works — how could I understand it to be anything but that — net inflation?

      Ironturd: you catch a lifetime ban for being an insufferable troll. It was nice knowing you.

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  8. mgutie3

    FYI my point cant be argued against unless you ignore the crb index and rates since Sept. The market has it right you just don’t understand why that is.

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    • Dr. Fly

      You don’t actually make a point. You need to brush up on English first paisan.

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      • Dr. Fly

        By the way, I didn’t say rates ‘could not’ go up. I said, there isn’t a crisis of inflation or economics. Before you comment, glibly, perhaps you should understand what is written — you GIGANTIC FAGGOT.

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        • mgutie3

          A good measurement to know whether you’ve won a debate is when the other moron loses his cool. Whenever you want to compare ROI call me you toothless prick

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          • Dr. Fly

            Don’t get so offended, I call everyone a gigantic faggot. There’s no argument here. You simply were unable to read.

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    • sarcrilege

      when you say “market has it right” you really meant the FED/Citadel/etc has it right, right? TIPS is one of the metrics rigged by the usual suspects to support their stoopid and self-serving monetary policies. EVERYTHING IS RIGGED by them. You wasted your time going to university and listening to that Utopian marxist bullshit.

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  9. juice

    get in the ark for a trade … rates headed lower for a time now that everyone has noticed higher rates and is on board for even higher rates

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  10. masteroneass

    Theyve made it all to confusing. might as well throw darts. current model makes no sense with anything historic. everything is btfo.

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  11. ironturd

    Full blown conspiracy mode – hedge funds manipulating trillion dollar bond markets? For lower equity prices? What the shit?

    Rates rising after 10 years of zirp is not only sane, it was the whole plan. Can’t do zirp unto eternity just so Exodus can pick a market segment once a week to overweight in an eternal bull market.

    Fucking new low for you. Obviously inflation is not going fast enough for rate normalization to speed up. Point is, any up ticks in cost of capital can have a potentially severe impact on debt-driven economies and industries. Startup Nation can go from hero to zero if the funding drops out.

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  12. mgutie3

    Yes the WHOLE rate move was purely hedge fund manipulation, zero to do with fundamentals improving. Keep being mediocre loser… sit back and enjoy another dick sandwich homo and watch how a real players banks coin… FYI I’m long Bonds 3x sit back and watch me run you over. Better yet ship me your money so a real pro can show you how to outperform low life… Please ban me your shitty site offers very little value anyways, mush.

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  13. fxtradepro

    A lot of this likely has to do with Powell and his position that it is time to start normalizing rates (2.75% Fed Funds). It’s been written that he takes offense to the notion that the Fed is a “serial bubble blower”. We’re still 4 rate hikes away from 2.75%, and to see the funds front running this makes complete sense. With that said, he’ll likely proceed over the next US recession. We all know its true – Rates needs to rise therefore the Fed has bullets to combat the next crisis. From what we can see, at the moment he is effectively the polar opposite of Bernanke and Yellen.

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    • sarcrilege

      Powell’s policy of hiking rates will accelerate the stroll of global capital into USG debt to a maddening stampede which will crush LT yields.

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  14. stripper

    Wow, not a single mention of the FED unwinding the balance sheet. $50 bill per month by 4th quarter. So no one here thinks this will affect rates. hmmm. Just an FYI, in 2015, the FED made it very clear, once they start the unwind, they will not deviate from the plan. This means they will hold off on rate increases B4 they stop the unwinding. Also, that 2.9% jump in payrolls for January was a temp anomaly due to a jump in minimum wages. We are a service economy with lots of poor suckers only making minimum. Also, min. wages jumped .70 for NY state, but $2.05 for fast food workers.

    “I make the real money at night”

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