Inflation Watch – Quick Take

OK, a quick note on yesterday’s (Oct. 5 2010) action. More later, with charts, when I have time. As anyone who was paying attention knows by now, we had a pretty robust day in the markets, with data driven positive news (so we’re told) goosing stocks. Let’s step away from the headline grabbing stock market for a moment.

Gold and silver now looking like they are going parabolic and headed for a blow-off top. The long bond is looking a bit like it’s rolling over and possibly starting on a new downtrend, though the benchmark 10 year note is holding up. TIPs are continuing to rally strongly even as they approach zero yield.

The common element? The Dollar is continuing to be destroyed, the index closing at 77.75 yesterday, and sure looks to me like it’s heading to the 76 area post haste. The Fed’s determination to produce inflation is gaining traction in the financial markets. Short term this is looking good for stocks and commodities, bad for bonds. Longer term, who knows?

Deflation is bad, period – here I agree with the Fed – but it’s always a case of “be careful what you wish for” and inflation falls into this category. Once that genie escapes his bottle, he can be hard to control, and certainly isn’t the wish granting type.

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