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Will we finally get inflation and the rise of bond yields?

By anotheraccount following x   2014 Jun 19, 1:39pm 3,248 views   6 comments   watch   nsfw   quote     share    


I've been bullish on bonds since the crazy sell off in June of 2013. However, I've reduced my position substantially in the last month. I am starting to think that we might get real inflation scare in the next six months. Here are my reasons:

- 41% of CPI - housing: rents will probably not decline due to limited supply and year of year comparisons will contribute to higher cpi
- 15% of CPI - transportation: geopolitical situation is keeping oil high and unless economy crashes oil will stay high.
- 15% of CPI - food and beverages: beef, pork supplies are limited, drought is affecting produce prices, dairy prices are high.

There are other components: medical and education that are probably going up as well. I guess I don't see how inflation does not hit 2.5-3% yoy within six months if the economy keeps growing. That should scare people out of bonds and high dividend equities. What do you think?

If you want to look at what makes up CPI, check BLS website: http://www.bls.gov/cpi/cpiri_2013.pdf

#housing

1   Heraclitusstudent   ignore (2)   2014 Jun 19, 3:37pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

I was thinking all that printed money would end-up leaking into the economy.
I still think it will happen but not soon enough to prevent a second crisis probably milder than 2008.

Yes oil may spike up but that's temporary.
Rents: lots of new apartments coming up.

But mostly continuing large enough pool of unemployed people, low investment and competition of third world countries will keep a solid lid on wages for years.

So now I think low growth + asset bubble + temporary higher inflation followed by bust, probably milder than 2008 but keeping inflation down.

2   anotheraccount   ignore (1)   2014 Jun 21, 10:01am   ↑ like (0)   ↓ dislike (0)   quote   flag        

Heraclitusstudent says

+ temporary higher inflation followed by bust

If the bust does not come soon with it taming inflation, we could get a scare in a bond market. I would be a buyer again if the yields are 75 to 100 basis points above from where they are today.

3   Facebooksux   ignore (0)   2014 Jun 21, 1:01pm   ↑ like (1)   ↓ dislike (0)   quote   flag        

Rates cannot be allowed to rise. It would mathematically implode the government's finances.

The only way they have out is inflation.

It's already here.

4   Obio99   ignore (0)   2014 Jun 21, 1:24pm   ↑ like (1)   ↓ dislike (0)   quote   flag        

The notion that we will see rising rates is nothing short of silly. We cannot see rising rates, as the great debt-ponzi would implode.

At one time I firmly believed that inflation would be short-circuited by a lack of demand for bonds at low (or negative) rates. But I confess I deeply misunderstood the lengths to which central-planning mandarins would go to orchestrate false demand for government paper.

They can (and will) keep playing this game for decades as Americans by the millions slip into poverty and the cost of living soars.

(It should be said that all the inflation under the sun, will not save the housing market however -- as the great baby boomer die-off begins. Demographics trumps monetary policy every time.)

5   anotheraccount   ignore (1)   2014 Jun 21, 1:40pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

Obio99 says

They can (and will) keep playing this game for decades as Americans by the millions slip into poverty and the cost of living soars.

I don't think it can continue for that long. I don't think they can go back to increasing QE after the taper is done. Fed will probably not reduce the 5T that it holds though.

6   thomaswong.1986   ignore (5)   2014 Jun 21, 3:42pm   ↑ like (1)   ↓ dislike (1)   quote   flag        

tr6 says

I am starting to think that we might get real inflation scare in the next six months.

Dont hold your breath.. Japan has had deflation for how long ... it now 25 years later.


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