Keystone's Inflation-Deflation Indicator Continues to Signal DEFLATION

In May, Keystone's indicator dropped into Deflation. Things have not changed; the economy remains mired in Deflation. The CRB (Commodities Index) languished at 270 on the cliff edge but over the last two weeks has exploded upwards to 293. This is a very critical juncture. Taking a look at the numbers;

CRB/10-Year Price = 292.64/101.422 = 2.89

Over 4 = Inflation
Between 3 and 4 = Neutral; inflationists and deflationists fight it out
Between 2.90 and 3.00 = Disinflation
Under 2.90 = Deflation

The U.S. 10-year Treasury yield is at 1.59%. Chairman Bernanke announced QE 1 and QE2 as the country became mired in deflation with Keystone's indicator in the 2.5-2.6 range. The indicator dipped into this area a couple weeks ago, albeit briefly, but then recovered. Therefore, the QE3 watch continues but for Bernanke to act, the 10-year yield will need to drop lower (price higher) as well as the CRB dropping back down thru 270 and heading lower again.  The FOMC rate decision and meeting is the last day of July and first day of August which may provide Bernanke the opportunity to announce a new money pumping move. The tricky part is that global intevention is very much in play currently and the BOE and ECB rate decisions occurring this morning will impact markets. In general, focus on the CRB; once it loses 270 the Fed will stand ready with QE3.