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BOTTOM LINE: The 10-year TIPS Spread, a good gauge of inflation expectations, is falling another 5 basis points today to 1.99%. This is down 63 basis points in about seven weeks and the lowest since October 2003 when deflation was the worry. The CRB Index had been the driving force behind inflation fears. The CRB Index is now down 21%, in bear market territory, in just two months. The secular trend of disinflation is likely resuming as the commodity bubble bursts. In my opinion, one of the primary factors behind the recent parabolic rise in commodity prices was institutional money chasing performance and hedging against the perception of higher inflation. Falling prices and diminishing inflation expectations should lead to less demand for commodities from institutions over the intermediate-term.
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