Stocks and Inflation: What the Market Is Really Telling Us

Carlos X. Alexandre submits:c

Uncommon as it has been, the Federal Reserve?s dual quantitative easing exercises have elicited numerous forecasts, and most of them have centered around upcoming inflationary pressures. In part, the Treasury markets have supported that perception for periods of time. And while the Fed?s attempt to inject liquidity into the economic landscape was designed to counter deflationary forces, the end result has been disappointing thus far.

Regardless of everyone?s take on the subject, the best story teller is the flow of capital. Thus, I include the chart below, which depicts the trajectory of ten year Treasury yields and the timeline of quantitative easing. Because a picture is worth a thousand opinions.

Click to enlarge:

Whether one views CPI and PPI data as reliable or not is completely irrelevant. We can debate the issue until we turn blue in the face. But the multi-billion dollar Treasury market is stating that inflation doesn't

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