Below shows the current ratio is where it was in 2011, at the peak of inflation hysteria in August. People were pushing the absurd notion that the U.S. would default on its debt (a precursor to Russiagate now that I think of it), gold would peak above $1900 soon after.
I like this indicator for two reasons. One, it shows what the Fedeal Reserve and central banks are doing. Each wave is more extreme because the credit bubble is larger and requires more extreme intervention. As for being a signal, Markets peaked inside of year at the prior three lows. The peak in 2003 marked a bottom for stocks, the peak in 2011 a secondary peak for inflation/commodities after 2008. The second reason is that right now, it's at a critical juncture. Could this be a secondary top for stocks or another commodities fakeout? Conversely, could we be in October 2008 when the ratio last blew past its old high? Perhaps "something is different" and this ratio will go skyward as inflation and the 10-year explode higher with the Federal Reserve holding the short end near zero. One argument for it going higher is that the 2s10s spread hasn't peaked yet. Were it to peak again around 2.5 percentage points, that would require the 10-year hitting around 2.7 percent if the 2-year didn't budge, but probably more like around 3 percent assuming the 2-yearr started moving up as well. What is different this time is that if March 2020 was the bottom of the recession, the Fed implemented expansionary monetary policy at the end of the recession instead of the start. The yield curve is reflating because the 10-year is moving up instead of the 2-year collapsing in a recession. That is the inflationary argument and it would argue for the 2s10s spead to go well beyond the former peak like the ratio chart did into 2003 and again into 2011. If I look at the chart behavior and escalated Fed response, it would argue for this chart heading for a new higher peak. In any event, the ratio is at the 2011 peak now. There's no need to speculate on which way it will go because the trend will soon reveal itself.Part II is here: August 2011 inverted: Here Comes the Rate Shock and YCC
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