Whichever way you personally lean, the most consequential narrative that will determine the framework for major investment decisions is #inflation vs #deflation.
ICYMI: Dr. Lacy Hunt of Hoisington (April 2020) interview at @MacroVoices Podcast where he lays out his views on #inflation vs #deflation and the macro-economic forces at play, as well as what it would take for hyperinflation to arrive in US:
If you wish to get a better perspective, 'stand on the shoulder of giants'.
The most recent report from Hoisington (PDF) 1Q 2021
Chart of US bank loans relative to deposits & velocity of M2 stock. #Inflation?
A few more charts via BoA ML to illustrate the overwhelming domination of #inflation as the current narrative in financial markets.
The YoY increase of mentions of "inflation" during earnings calls is literally off the charts:
According to the April BoA ML GFMS, expectations of higher global CPI is at historic highs:
Only for the second time since this question has been asked in the GFMS, more respondents expect higher growth coupled with higher inflation (see 2011):
So it isn't surprising that the big Boogeyman of inflation/bond market tantrum is now the most feared 'tail risk':
A historical view of how tail risk concerns have shifted over the years:
Inflation is also the top concern from the latest Barron's "Big Money Poll":
Chart of velocity of M2 (with an 18 month lead) compared to CPI:
Short interest in $TLT bond ETF reaches 25%, similar to previous extreme in early 2017 (then 10 yr $TNX yield fell from high of 2.6% to low of 2.06% fall of 2017)
Notice the beautiful dovetailing between the $TLT short interest and the previous chart from Ben ☝️☝️
And another view of the same macro reality from a different lens: speculative position in copper futures & ISM, again suggesting a blow-off in the #inflation narrative
Honestly, am surprised to hear this from @EconguyRosie: Why the commodity supercycle narrative is overblown - Once the full picture of a divergent economic recovery becomes clear, commodities will likely fall from the stratosphere
"... higher prices from supply bottlenecks in the manufacturing sector are typically short-lived. High prices and an improving COVID situation will bring more capacity online by the end of 2021, in turn dampening inflation pressure next year."
People freaking out about #inflation: record quarterly fund flows into inflation protected bond funds. Q1 had +$19.2B inflows despite a negative avg return -0.62%, the historical quarterly net flows (back to 2003) are just +$1.7B
chart via Lipper
Beating out lumber & crypto! The Rolling 1 year Sharpe ratio for 5 year #inflation expectations (TIPS breakevens) over the past year reached a record 4.4
Investor Intelligence newsletter sentiment metric continues to recover with bulls 60.8% (+6.4%), bears 16.7% (-.8%) and the correction camp at 22.5% (-5.6%)
Retail investor #sentiment much more optimistic with those expecting the stock market to continue to rally at the highest levels since January 3rd 2018:
Checking in with the options market, the very LT trend remains clearly bullish (all major MAs in sustained synchronized downtrend):
While the market has accelerated higher, the short term standardized equity put/call ratio remains surprisingly neutral(ish):
The only recent bullish option signal I noticed was from ISEE's Call/Put ratio which opened up a significant gap between its 10d MA vs 50d MA (see below). This was similar to late October 2020:
"the forces of Supply and Demand suggest the market is consolidating its gains from the Dec 24 2018 and June 4 2019 lows through this sideways trading rather than forming a significant topping pattern."
"Thus, the probabilities are this period of consolidation will be resolved to the upside through a rally that carries to new all-time highs. (…) Historically, breadth tends to lead price in moving to new highs."
Lowry Research 3/7:
"Thus, if precedent holds, the new highs in the various Adv-Dec Lines reinforce the probabilities the market’s current sideways movement will be followed by a rally that carries the major price indexes to new highs in the months ahead.”