Business

The Fed is rapidly losing control.

Core inflation has already broken above 2%.

This happened when OIL was imploding.

As well as commodities in general.

Why does this matter?

Because core inflation is ABOVE 2% at a time when commodity prices were FALLING. The Government HAS TO adjust its models to account for this so that ANY RISE in commodity prices will PUSH inflation to the upside.

Speaking of which, since bottoming in February, Oil is up over 22%. Industrial metals are up 8%.

Authored by Michael Shuman, originally posted at BloombergView.com,

Call me old fashioned, but I still think prices matter. I vividly recall the first time I studied those simple supply-and-demand graphs as a college freshman, and today, far too many years later, their basic logic remains undeniable. When prices are right, money flows to the most productive endeavors and economies work efficiently. When prices are wrong, crazy things eventually happen, with potentially dire consequences.

The trend is still your friend (for now)...

S&P futures bounced perfectly off the short-squeeze ramp trendline today...at 1980

The question is, can it hold for the rest of the day, as bond yields collapse to the day's lows, credit decouples and oil is weak?

Via EvergreenGavekal.com,

“The areas of consensus shift unbelievably fast; the bubbles of certainty are constantly exploding.”

– REM KOOLHAS, RENOWNED DUTCH ARCHITECT AND HARVARD UNIVERSITY PROFESSOR

SUMMARY

Last week, during the peak of the commodity short squeeze, we pointed out how this default cycle is shaping up to be vastly different from previous one: recovery rates for both secured and unsecured debts are at record low levels.