This is such a correct observation. We are almost certainly...

This is such a correct observation. We are almost certainly headed for stagflation. In the background of this analysis, we mustn't forget that the US is headed for 130% Debt to GDP in the 2030s. That's only 2-3 presidential terms away.


1. The Bond Market is really caught in a terrible position. It perfectly understands that we are likely headed into stagflation but its completely at odds with Trumps plans. So the Fed cuts rate by 1% in Q4 2024. The bond vigilantes know that its way too early and so reacts by increasing treasusries by 1%. From bond vigilantes perspective, there can be absolutely no rate relief just yet; the risk of inflation is still too high. The only thing that will bring down treasuries at this time would be a huge deflationary event. Enter Mr Trump...

So here we are with a ratio chart set against TNX. TNX is in pink.
It is not normal that this ratio remains out of lockstep with TNX for too long. This to me shows that there is a problem balancing rates against the prevailing economic conditions.

We can see to the left that the Bond market was slow to react to Inflation (at the time considered transitory). I've printed the Fed Fund rate over time as well). You can see that in spite of potentially deflationary signs to the right , treasuries remains high. In fact, any attempt to reduce TNX eventually leads to a spike in my ratio. So yep, signs of stagflation.






So here we are today, with what looks like a deflationary event, whereby the Fed will cut rates. The bond market will swallow the bitter pill and allow T-Notes to climb (TNX to fall).

Now here's the rub...Whetever transpired in TNX from the 1980s to the 2020s is over. If you look at an Elliott Wave count of TNX, there is no other interpretation - we will have a pull back in TNX (low interest environment) into a Primary Wave II, followed by a rampant increase in interest rates into the 2030s to fight the subsequent inflation (remember the 130% Debt to GDP ratio and what that debt might look like at 6-10% interest).