USTs yields continue to fall and the US curve to bull flatten, shouting "policy error!" at the Fed and those in bond markets expecting both the Fed and other central banks to be hiking ahead. Like the Fed's Bullard, with his stated threat of two hikes next year(!) Getting ahead of that curve, USTesla slumped 12% and is now down $199bn in just a few days. So much for asking for personal financial advice from Twitter in-between toilet humour. That dip may put back Musk's upcoming trip to Mars. More so if Michael Burry of "The Big Short" fame is right.

US PPI yesterday stayed at a record high, if in line with market expectations, at 8.6% y/y. "Transitory." Moreover, the NFIB survey's 'actual price changes' sub-index hit 53, the highest since March 1980: it was 15 a year ago. Although below the peak of 67 seen in October 1974 following the oil-price spike after the Yom Kippur war, it means higher prices loom, just as high energy prices imply pricier food via fertilizers. It's US CPI today, of course, where consensus is a 5.9% y/y print, the highest since December 1990. In response, the White House is again demanding OPEC+ pump more oil, which they refuse to do, and/or the US may release oil from its strategic reserve. Industry experts point out the issue is more of refining capacity, not physical supply constraints, which the strategic reserve is supposed to be for.

Fear not: Yellen says the Fed, which she doesn't run, will not allow 1970's style inflation to return. The same Yellen who told us there will never be another financial crisis in her lifetime, just as the Fed warns of the risks of one building even as it aims to raise rates. 'Helpfully', the CBO says it won't have finished looking at the deficit implications of the Build Back Better bill by 15 November, suggesting infrastructure may be the only Biden bill to pass. If so, Yellen will be right: high inflation well into 2022 will be followed by deflation as demand collapses. Indeed, the NFIB outlook was -37 in October, the joint lowest with November 2012. Equally, while global export values appear to be doing well, this is inflation: volumes are far weaker - which might solve the crisis at ports the hard way. Yet if the CBO nods and BBB passes, it's inflation and logjams.

A similar either/or plays out in China, where the "contained" Evergrande crisis --which even the Fed has noticed-- is seeing contagion. Junk bond yields are soaring and the trend is spreading to better quality credits and large banks, with investment grade yields up 8-10bp yesterday. As developers who have not crossed any debt redlines 'mysteriously' see their bonds plunge, Bloomberg reports the 10 largest developers carry debts of $1.7 trillion…on book. Off book and contingent liabilities are likely *far* higher. Worse, Chinese cities are now tightening the use of proceeds from presold properties, effectively forcing developers to use this cashflow to finish construction rather to repay debts. Can you guess what happens next?