A slow moving inflationary train wreck in the making would be the best description we can come up with that best describes the underlying theme of world financial markets right now.
With the exception of grains we have all the big commodity futures trading at, or within a pip or two of, multi-week highs. US treasuries are seemingly grasping in desperation to stay afloat especially relative to junk bonds. It is said that the tipping point for inflation is a break down in confidence in the government bond market. Well it sure looks to be what is happening. This is evidenced by a number of corporate bonds in the US trading with yields less than that of the US Government! Goodness if the rate at which the gap is closing between yields on emerging market debt and US treasuries continues then US treasuries will be classified as junk!
We believe that the whole PIGS thing has cleverly disguised the inner theme of currency markets. Yes the USD Index has been strong, but take away the impact of the euro and the USD Index is not looking so bucksome!
In fact it is looking rather dismal. We also believe that given the degree of short selling on the euro and the decision by the EU to unleash the furry of their capital ships on pesky "punters" waging war on Greece (rightly or wrongly), the USD Index is about to be dealt a crippling blow and perhaps with it US treasuries. Therein a chain or inflationary events will be set in motion, gold and silver at multi-year highs, crude above $100 a barrel, the CRB at multi-month highs and a rush into TIPs (relative to conventional treasuries at least).
Yes, the wheels are already in motion. Just look at how close the carry trade (DBV) is to a multi-week high.
This is not a dress rehearsal it is the real deal. Again, given the length of time the CRB Index (DBC), the carry trade (DBV), and US Treasuries (TLT) have moved in a sideway direction (6-10 months) the breakout is likely to be violent! As Tom Petty poetically put it: the waiting is the hardest part!