Some tools are used to measure inflation or lack thereof. Some look at the price of crude oil, copper or the Commodities Index to determine whether or not inflation or deflation is in play. Since 2011, most commodities have created a series of lower highs and lower lows and, for many, it has been easier to make the case that deflation -- not inflation -- is in play.
Below looks at another tool, which is often used to determine if inflation or deflation is in play. This tool is the TIP/TLT ratio.
Since 2011, the TIP/TLT ratio has continued to create a series of lower highs and lower lows. The ratio in July 2016 hit the same level as the lows during the 2009 financial crisis. Double bottom?
Since July, the TIP/TLT ratio has moved sharply higher. This 4-month rally has not taken the ratio up to test a cluster of resistance at (1).
Whatever happens at (1) -- breakout or resistance -- will tell us a ton about inflation going forward, which will have a large impact on portfolio construction in the near future.