We're here. Over these last few weeks, the fight between inflation and deflation forces has played out. Inflation was never a real concern, sure it was elevated, but it was only transitory in nature just as Chairman Bernnake always said it was. But, Bernanke's hot easy QE2 money is what created the new asset bubbles in emerging markets, copper and commodites that just popped. The food inflation was a result of added pressures from Mother Nature and the Arab Spring.
Keystone's Inflation Deflation Gauge:
CRB/10-Year Price = 295.19/102.25 = 2.89
Over 4 = Inflation
Between 3 and 4 = Neutral; inflation and deflation fight it out
Between 2.9 and 3.0 = Disinflation
Below 2.9 = Deflation
Markets will continue to ebb and flow but make no mistake, we are falling into the same deflationary funk like summer 2010. Now that we are in Deflation, Chairman Bernanke will be preparing the plans for a QE3 announcement in the near future.
Note Added 10/3/11 at 12:17 PM EST: The indicator moves back into Disinflation. Latest prints; 298.82/102.562 = 2.91 which signals Disinflation. The ebbs and flows will continue but the disinflation/deflation environment is here to stay. Bernanke will announce QE3 when the indicator is firmly in Deflation at 2.5-2.6 so keep monitoring the indicator as October and November play out. Enjoy the Autumn foliage along the way.
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