By: Tyler Durden
July 29, 2012
There are only three words that send a chill down the spine of Ben Bernanke – Ron, Paul, and Deflation. His life’s work is devoted to the avoidance-at-all-costs of the latter (and probably the former in reality). As we discussed here two weeks ago, his actions in extreme monetary policy have all occurred at periods when the market’s expectations of future rapid de- or dis-inflation have increased rapidly. As we noted then: without inflation break-evens dropping, the Bernanke put will not arrive; but the market in its infinitely efficient wisdom has created aself-defeating spiral of BTFD reflexive front-running on any rapid spike down in future inflation expectations – which implicitly sparks a non-dis-inflationary reaction and removes Bernanke’s punchbowl for another day. This has occurred 4 times this year – with this week’s early plunge being caught by Draghi and Hilsenrath – and with inflation break-evens almost at their highest in 10 months, it would appear the ‘desperate-not-to-miss-the-life-giving-rally’ market just removed its own blood supply.