It was late on a Tuesday night, in the middle of last week, Christmas week of all weeks, with most people already checked out. Having finally obtained Congressional support and approval, the $900 billion plus “stimulus” (read: stipend) was on its way to becoming reality after months of politically-motivated uncertainty. Not one to sit idly by while everyone else had their say, President Trump on that particular evening tweeted a shocking video where he declared the key (for the public) provision in it “a disgrace.”

I’m asking Congress to amend this bill and increase the ridiculously low $600 to $2000 or $4000 per couple.

Threatening veto, the entire bill – including the larger omnibus budget – was thrown into doubt leaving the Treasury days from perhaps shutting down. From a done-deal to complete chaos instantly, what would this have meant for the inflation-is-coming-because-of-fiscal-spending story? The big bond shorts, among others, have been betting heavily on just this very outcome, then, all of a sudden, gamesmanship at the last hour, practically the last minute, throwing a huge and unwelcome wrench into the whole thing.

Treasury bonds and notes sold off anyway first in futures and then heavily into the next morning’s trading session. It’s impossible to tell what moves a market in its daily maneuvering, but this wasn’t exactly the result maybe you’d expect given the setup. More political infighting leading to a possible serious delay wouldn’t seem to be helpful on the inflation side.

Of course, perhaps shorts are just shorting any news no matter what it is. Interestingly enough, yet another (minor) sell off hit the UST market’s longer ends just this morning – on information that President Trump won’t veto the bill after all. He’s going to sign the thing regardless of his former complaints about it.

Two intraday bouts of selling pressure (above), both on opposite news.

This has been the pattern for some weeks now. Vaccine, elections, whatever; any kind of substantial report has become the catalyst for negative Treasury market action. Interpretation appears to have mattered little or nothing, it’s just straight sell-button activity once anything hits the tape.

But it doesn’t last, at least it hasn’t to this point. These fits have been limited to single sessions and most of the time only discrete parts of them. At most a two-day move before the buyers (sorry Mr. Dimon) reappear and take up whatever’s on offer.

Going back to early November, long end yields in the Treasury market have moved very little overall. Conspicuously little. It had been building up to vaccines (which were always expected) and then dispelling severe election fears before this other round of massive fiscal aid (which was always expected), leaving the yield curve to move steeper drawing mainstream attention to it.

During that period dating back to early August, an historically massive bond short position had been gathered by leveraged money speculators in long bond (30s) futures. With the 30s thus setting the entire bond market narrative, clearly betting on Jay and his “money printing” machine combined with everything, it seemed, going in the right direction, including the US government’s rediscovered penchant for huge numbers, interest rates had nowhere to go but up.

While they did, they only went up a tiny amount despite such huge action all on that side. In fact, it’s more noteworthy how little the move really had been.

Nearly two months later, they’ve stopped going up at all in large part, it would seem, because the bond shorts aren’t nearly so historically sure about where interest rates might be going. Going back to the second week in November, the top in yields amidst vaccine-phoria, the leveraged money shorts have been covering.

It’s still a huge net short position, but not nearly so historical as it had been up to that crucial point. That’s why there are still these intraday selloffs that go nowhere; the impulse to interpret every news event as UST-negative remains considerable. But with so little to show for all the effort, it doesn’t take an Economist to figure out the risks might not be what the media (taking its opinions from Economists) always says about these things.

You have to wonder, as some of these speculators must be doing now, just why there’d be such an insatiable appetite for the safest, most liquid financial instruments given what has transpired over the past few months. It’s been a constant drumbeat of only positive developments.

March was eight and now nine months in the past and nothing’s gone legitimately, obviously haywire over that interim. No new Lehmans (at least as commonly understood). The world, finally, had everything going for it right down to what sure seems like an answer to the pandemic itself. The shorts should be winning huge.


There are ebbs and flows, nothing ever goes in a straight line. But like the Treasury market in mid-2019 this one’s been limited to an atypically narrow range. Even this year’s August-November BOND ROUT!!!!! barely qualified as a market fluctuation. In the media, inflation’s guaranteed; done deal. I mean, Jay Powell and “digital money printing.”

Then again, we’ve heard this story before and not all that long ago. Inflation Hysteria #1 is near enough in the past to be easily recalled even by the shortest financial attention spans (Economists, including bank CEO’s, and those who uncritically parrot them). And that previous one had categorically more going for it than this. Even the Treasury futures market, the whole market, has at best been neutral this year; never once flipping reflationary like it had a few years back (above).

More than such reasonable doubt, however, if the shorts are doubting their own shorts, and it does seem that they are now, it might have quite a lot more to do with where things actually stand – and what that really portends for the near and intermediate terms. It was nice even fun to pretend for awhile that 2020’s gaping economic and monetary hole could be so easily covered by government-funded thirteen-digit numbers.

No. The reason the shorts never pushed things very far is that a very different scenario continues to beckon. And this one has not only stuck around while the temporary euphoria over vaccines and stipend-mania fades, it’s gotten stronger as the sense of long run (deflationary) damage relentlessly pounds the entire global scene.

And it has little or nothing to do with more lockdowns and new variants to COVID.

Inflation Hysteria #2 has somehow been even more hysterical.