top of page

Is Inflation Dead or Simply Hibernating?

BentinPartner Weekly

Dear Reader,

Also dampening sentiment on tech last week was the US suing Google accusing it to illegally use its power to hobble rivals.

The odds of voting stimulus legislation ahead of the elections also dropped which was pure political jockeying as the odds of a very large stimulus coming just after the elections are closer to 100% and the stimulus numbers quite staggering. The next fiscal bridge could come as large as USD2.5trn (12% of GDP), with another infrastructure bill of USD2trn, to be decided shortly thereafter.

MMT is at our doorstep and it will be facilitated in a not distant future by the introduction of central bank digital currencies (China came first with the experimentation a couple of weeks ago) as central banks seek to bypass banks too reluctant to lend.

This avalanche of actual or expected supply pushed yields higher last week, with 10-year yields rising 9bps. Perhaps, it was some bond vigilantes, waking up to the idea that all this debt monetization will translate into excessive inflationary slippage.

Claudio Borio, the BIS Chief Economist voiced thinly veiled concerns, asking whether inflation is dead or simply hibernating. His answer to the question (starting on 13’30’’ of the linked video) proposed a short term and long-term picture.

Over the short term, Claudio Borio expects the forces of globalization, technological change (the latter being accelerated by Covid) and remaining excess capacity to keep inflation well contained but cautions over the long term (with no timestamp as the timing of what long term means will be “policy” dependent), that the environment could start resembling the 70’s if the same several inflation inducing mechanisms that were in place then became today’s reality.

Those risks include an accelerating de-globalization, a rapid increase of the role of government into the economy (which would lead to a lasting decline in productivity and erode monetary policy maneuver), a rapid increase in government debt (that would constitute an incentive to generate inflation to deflate debt away), financial repression (forcing rates well below their natural equilibrium level) and a political environment (Trump’ Fed bashing and interference was erected as policy of his 4 year Presidency so far and had a distinct impact on the direction and extent of the interest rate shift) that would be more unfavorable to Central Bank’s independence. With the cautionary attitude suitable to a central banker, this presentation was a friendly warning that inflation is indeed not dead and rather hibernating. It is only too obvious that all the pieces of the puzzle for a rekindling of inflation are setting themselves or are already in place.

Another interesting article debunking the hypothesis of central bank neutrality (with implications for what is suggested above) can be found here.

The optimistic view of the world last week came from an economic recovery that seemed to exceed expectations and still resilient financial markets.

On the (geo)political side, Lebanese did not know whether they should cry or laugh as the return of Saad Hariri as Prime Minister ended hopes of a new and less self-serving regime in Lebanon. At the same time, there was a sense that Mr. Hariri could be the only one able to get the job done, when ISIS is eying Lebanon as a promising territory for its terrorist activities.

Over the past week, the S&P500 dropped -0,8% (7,1% YTD) while the Nasdaq100 shed -2,0% (33,7% YTD), underperforming. The US small cap index dropped -0,4% (-2,1% YTD).

Cboe Volatility Index rose 4,2% (104,0% YTD) to 28,11.

The Eurostoxx50 dropped -0,7% (-13,3%), outperforming the S&P500 by 0,2%.

Diversified EM equities (VWO) gained 1,3% (1,5%), outperforming the S&P500 by 2,2%.

Dollar weakness returned as the Dollar DXY Index (UUP) measuring the USD performance vs. other G7 currencies dropped -0,9% (-3,4%) while the MSCI EM currency index (measuring the performance of EM currencies vs. the USD) gained 0,6% (-0,1%). As we suggested repeatedly already, an important implication of the Federal Reserve QE determination could translate into a much weaker USD down the road, all the more so because the US is unlikely to tolerate for much longer the structurally large current deficits held with Europe.

10Y US Treasuries underperformed with yields rising 11bps (-107bps) to 0,85%. 10Y Bunds climbed 4bps (-38bps) to -0,57%. 10Y Italian BTPs underperformed climbing 11bps (-61bps) to 0,80%.

US High Yield (HY) Average Spread over Treasuries dropped -6bps (133bps) to 4,69%. US Investment Grade Average OAS dropped -3bps (31bps) to 1,32%.

In European credit markets, EUR 5Y Senior Financial Spread climbed 2bps (22bps) to 0,74%.

Gold ended mostly unchanged, adding 0,2% (25,4%) while Silver rallied 2,0% (38,1%). Major Gold Mines (GDX) dropped by -2,8% (33,8%).

Goldman Sachs Commodity Index dropped -0,5% (-27,4%). WTI Crude dropped -0,7% (-33,5%). The OPC+ warned last week of a “precarious” outlook as a resurgent coronavirus hurts oil demand, hinting at a possible change of policy next month (to prevent an automatic 2mbd increase in production from January). In the meantime, wild weather continued to wreak havoc on crops around the world, sending their prices higher.

Over the week end…

Ø Overnight, futures dropped (S&P-19 points) as the odds of blue wave (whereby the Dems would also take control of the Senate) tumbled to 51% (from 60%). It delivered another warning that it is (way) too early for Democrats to declare victory and that we could also still get a contested election (considered as the worst case for financial assets). Dip buyers are still circling around but the speculative positioning of speculators (notably on the Nasdaq) is already more decisively long now.

Have a nice week ahead and stay safe.


For a Timely receipt of this report and daily updates and to access our intra-day Alert system, join the BentinPartner Daily Free Trial List. You won't regret it.


Marc Bentin, BentinPartner GmbH

Founder, Chief Investment Officer

BentinPartner GmbH is a Swiss registered independent financial adviser.

We deliver transparent, professional, tailor-made, and competitive portfolio management services. We help our clients build and manage their wealth, resting on the three pillars of our business values; integrity, competence, and responsibility.

For more information about our portfolio management services, check our Beliefs and FAQ’s.

Our premium research blends macro economic, political, monetary and technical analyses to produce an actionable 360 degrees daily review of Global Financial Markets on a daily basis.

If you like our Weekly, you will love our Daily. Take a free trial to the BentinPartner Daily or visit our web site

Bentinpartner GmbH is Advisor to the Phi Funds AIF, an umbrella Alternative Investment Fund registered and regulated in Lichtenstein, specialized in the management of Funds focused on physical precious metals.


Important Disclaimer

© Copyright by BentinPartner llc. This communication is provided for information purposes only and for the recipient's sole use. Please do not forward it without prior authorization. It is not intended as a recommendation, an offer or solicitation for the purchase or sale of any security or underlying asset referenced herein or investment advice. Investors should seek financial advice regarding the suitability of any investment strategy based on their objectives, financial situation, investment horizon and particular needs. This report does not include information tailored to any particular investor. It has been prepared without any regard to the specific investment objectives, financial situation or particular needs of any person who receives this report. Accordingly, the opinions discussed in this Report may not be suitable for all investors. You should not consider any of the content in this report as legal, tax or financial advice. The data and analysis contained herein are provided "as is" and without warranty of any kind. BentinPartner llc, its employees, or any third party shall not have any liability for any loss sustained by anyone who has relied on the information contained in any publication published by BentinPartner llc. The content and views expressed in this report represents the opinions of Marc Bentin and should not be construed as guarantee of performance with respect to any referenced sector. We remind you that past performance is not necessarily indicative of future results. Although BentinPartner llc believes the information and content included in this report have been obtained from sources considered reliable, no representation or warranty, express or implied, is provided in relation to the accuracy, completeness or reliability of such information. This Report is also not intended to be a complete statement or summary of the industries, markets or developments referred to in the Report.

22 views0 comments

Recent Posts

See All


bottom of page