Inflation Warning - Pay Attention

The price of commodities excluding crude oil is rising fast, now at their highest level in over 10 years - Chart 1. 

 

Chart 1 - S&P GSCI  ex-Crude Oil Capped Commodity Index

Even when excluding all energy commodities (ie natural gas, coal, etc) we still see that prices are rising very fast, now at 2013 highs - Chart 2.

Chart 2 - S&P GSCI Non Energy

There is no question in my mind that the driving force behind these price spikes is the flood of new dollars printed by the Fed and Treasury - Chart 3.  Unless the torrent is stopped right away the market will keep pricing in the lower value of each additional dollar created.

Chart 3 - M2 Money Stock

The hope from the Treasury and the Fed is that the economy will zoom back and thus absorb the extra dollars.  Hope, however, is a very, very bad policy tool.  And that is something the Bond Vigilantes know very, very well. Yesterday the current 10-2 Year Treasury spread reached 126 bp, the highest in over 4 years.  It's not disastrous yet, but the fast rise is a clear warning that bond investors are not happy.

I know that almost everyone these days takes their clue from the stock market.  That is a an amateur's mistake, however.  The bond market is far larger and far more important for the economy and is not subject to noisy nonsense like GameStop or Bitcoin. Pay attention...