It´s “home bread”

From the WSJ:

U.S. stocks snapped a three-day winning streak, sinking as a drop in commodities prices added to concerns about policymakers’ ability to contain Europe’s debt crisis.

The Dow Jones Industrial Average fell 179.79 points, or 1.61%, to 11010.90. The Standard & Poor’s 500-stock index lost 24.32 points, or 2.07%, at 1151.06, while the Nasdaq Composite shed 55.25 points, or 2.17%, to 2491.58.

Maybe the real reason is much closer to home. The figures show how after the start of the crisis stocks have become strongly correlated with TIPS spread.

The intuition behind the observation is that at this juncture an increase in inflation expectations is a sign of rising aggregate demand (nominal spending) expectations. And the market feels that´s a “no go”.

David Glasner today had a post that shows how inflation expectations are coming down fast, even for the very long term (30 years).


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