Almost everyone that I talk to in the industry ( bankers, traders, PM’s) sees little chance of inflation in the coming year with a high probability of a recession. Can anyone make a case for inflation happening? With many natural resources at all time highs, do you all see this as a bubble or as reality going forward? Given that the 10 year has fallen so far (from over 5% to ~3.75%), it doesnt seem that most people are expecting inflation. If they did, it would seem that treasuries would be less appealing.
Check out food prices, enough said
Its more of a forward looking question, just looking at past events isn’t going to tell me a lot about the future. If the consumer gets crushed, and has less disposable income etc, then I would think it would affect the demand for these type of goods.
They really need to change the ‘basket of goods’ that they use to monitor inflation.
Usually people think inflation doesn’t happen with recession… but in the 1970s, one had both, which is called stagflation. Stagflation is often a result of supply prices increasing rather than demand heating up. Look at energy prices and raw materials prices, and it looks like the formula for stagflation going forward. There is also hyperinflation, which we may not see in the US, but once a country has gone to a hyperinflationary mode, the choices become whether one has growth with hyperinflation or recession with less hyperinflation. Countries that experience this usually do things like overspending (wars + tax cuts), or print money, etc. I suspect we are set for stagflation in the US, but the Fed, if it has to choose between making inflation go down and trying to stimulate the economy, may opt for inflation because it has a more direct tool for managing that.
The arguement connecting yields of bonds to inflation is as academic as CAPM. The bond market no longer gives a rats arse about inflation. Did the bond market predict inflation in the 70’s or did it just react to it?!!? The fools setting bond prices are either (1) foreign governments manipulating currency and (2) statisticians at insurance companies & pension funds with liabilities that are not inflation sensitive. Only a fool would buy a 10 year treasury yielding 3.8%. That’s insanity.
bchadwick Wrote: ------------------------------------------------------- > Usually people think inflation doesn’t happen with > recession… but in the 1970s, one had both, which > is called stagflation. Stagflation is often a > result of supply prices increasing rather than > demand heating up. Look at energy prices and raw > materials prices, and it looks like the formula > for stagflation going forward. > > There is also hyperinflation, which we may not see > in the US, but once a country has gone to a > hyperinflationary mode, the choices become whether > one has growth with hyperinflation or recession > with less hyperinflation. Countries that > experience this usually do things like > overspending (wars + tax cuts), or print money, > etc. > > I suspect we are set for stagflation in the US, > but the Fed, if it has to choose between making > inflation go down and trying to stimulate the > economy, may opt for inflation because it has a > more direct tool for managing that. Bingo, the Fed will throw prices and the dollar to the wolves if they cut to 2.5% or less as firm like Goldman have predicted. Sometimes I really think Ron Paul is right…
CFA_Halifax, here’s why Ron Paul is wrong–the gold standard saw many many deep recessions and some depressions because there isn’t an effective way to increase or decrease the money supply. Since getting off the gold standard, we’ve seen considerably less damaging recessions and more predictable cycles. Ron Paul is fundamentally right on spending, but he’s just so fundamentally wrong on economics that he can’t be taken seriously.
Food prices and the increases they have seen is attributable, at least a great deal, to cleaner fuel pushes.
Food price inflation is attributable to the printing press. Consumers spend 20% of their income on food - and food has gone up 10% in the last year. This is the next crisis to hit. Hate to say it, but the financial sector will not be strong in the coming years. prepare yourselves accordingly