MacroVoices #267 Jeff Snider: Why Deflation Is The Story, Not Inflation

Episode Summary

Executive Summary: Macro Voices episode 267 centered on the inflation vs. deflation debate, with Jeffrey Snyder arguing that markets still price disinflation/deflation despite huge fiscal and monetary expansion. Eric Townsend and Patrick Ceresna reviewed sharp moves in equities, the dollar, crude, gold, and yields, while Patrick’s chart deck emphasized stretched but still-trending risk assets, with commodities and gold attempting breakouts and Treasury yields easing back.

Main Topics: Inflation vs. deflation debate: Jeff Snyder argued that the market consensus for imminent inflation is overstated; despite massive QE, deficits, and stimulus, the global bond market still implies low long-run inflation and weak growth. Eurodollar futures as a policy signal: Snyder explained Eurodollar futures as probability distributions for future LIBOR/rates, arguing the curve has repeatedly anticipated outcomes better than policymakers and still implies low odds of sustained higher rates. Treasury yields, TIPS, and bond-market reflation: The conversation linked the recent rise and then pullback in yields to reflationary impulses, but Snyder stressed the move remains modest versus prior cycles and does not confirm a durable inflation regime. Commodity and equity technicals: Eric and Patrick discussed the S&P 500’s parabolic rise, crude oil’s breakout, gold’s technical reversal, and copper/lumber strength, framing them as potentially important but still needing confirmation. Quantitative easing vs. real-economy transfers: A key dispute was whether current policy differs from past QE because it may send money directly to households via fiscal transfers, UBI, and infrastructure, versus merely inflating financial assets. Patrick’s 50-day moving average framework: The post-game chart deck used the 50-day moving average to judge extension and risk in the S&P, Bitcoin, crude, copper, gold, lumber, and Treasury yields, emphasizing trend strength but warning on chase risk.

Key Arguments: Snyder argued the bond market, not the media, is the best judge of inflation expectations, and it still shows low probability of a lasting inflation breakout. He said recent reflation has been real but underwhelming relative to the size of fiscal/monetary interventions, suggesting markets remain skeptical. He emphasized that Eurodollar futures embed probability distributions, not simple point forecasts, and they continue to imply low odds of materially higher short-term rates. He argued QE historically created bank reserves, not broad money, and therefore did not transmit inflation the way many expected. He claimed direct fiscal-monetary operations resembling Japan’s 1990s policy also failed to create inflation, supporting his deflationary view. Eric countered that today’s policy mix may differ because it could inject money directly into the real economy through transfer payments and other fiscal mechanisms. Patrick argued technical setups in equities and commodities remain constructive, but many markets are extended and may need mean reversion before further upside. Both hosts agreed the dollar’s move above 92 likely reflected a short squeeze, but its next move would be important for the broader commodity complex.

Data Points: Episode number: 267 - Macro Voices episode identifier Recording date: April 15, 2021 - Episode recording date S&P 500 futures: 41.58 - Approximate futures level at time of recording S&P 500 resistance target: 4,200 - Key upside level discussed early in the episode US dollar index level: Above 92, then back below 92 - Breakout and reversal area discussed by Eric and Patrick Crude oil inventory draw: 5.9 million barrels - Weekly crude inventory decline cited as a catalyst for the oil breakout Distillates draw: 2.1 million barrels - Inventory factor supporting crude strength Gasoline build: 309,000 barrels - Gasoline inventory data discussed alongside crude draws Cushing draw: 346,000 barrels - Cushing, Oklahoma inventory decline US production change: Up 11,000 barrels - Weekly production tick higher noted in crude discussion Projected crude oil target: $90-$91 per barrel - Measured-move style target discussed for late 2021 Gold breakout level: Above 1,765 - Eric said staying above this level for several days would confirm reversal 10-year Treasury yield: 1.53% - Yield level cited during the discussion of the sharp move lower in yields Yield support/resistance level: 1.75% - Key level the market viewed as a line in the sand for yields M2 growth: ~25% annualized - Jeff cited historic money supply growth over about a year Fed bank reserves: ~$4 trillion - Record-high reserve level referenced by Snyder TGA/fiscal transfer impact: Nearly $0.75 trillion in bank reserves over 9 weeks - Combined effect of QE and Treasury payments described by Snyder December 2022 Eurodollar contract: ~99.50 - Used to illustrate market-implied probability of rate hikes

Pivotal Quotes: "If you ever wondered what that word parabolic means, take a look at this chart." — Eric Townsend: On the S&P 500’s relentless rally and overextension "I cannot overstate how important today's technical action was." — Eric Townsend: On gold’s decisive breakout above resistance and moving averages "The market is saying never being able to escape." — Jeffrey Snyder: On the Eurodollar curve and the persistence of the deflationary regime

Implications: Listeners are urged to separate short-term reflation trades from a durable inflation regime. The episode suggests markets still doubt long-run inflation, even as commodities, equities, and some yields react to reopening and stimulus.