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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: russwinter who wrote (62401)6/1/2006 2:01:08 AM
From: bond_bubble  Read Replies (1) of 110194
 
Russ, I've been trying to find out what inflation expectation means and how it can be quantified. I would assume this is quantified based on what the futures contract are. For example, when our company moved to a new large building in 2000 bubbble peak, the rental agreement was signed for 7 years with a clause "The rent will increase with the CPI every year"!! Because the landlord thought that (at the bubble time), we had no other choice and he did not want to be caught signing a low offer for 7 years!!. It turned out to be a very bad deal for our company. This seems to be what is exactly happening now. In 2000 crash, USD actually appreciated and hence the foreign suppliers probably benefited and hence did not add any "increase in annual contract price" clause (for supplies to US companies). However, lot of them must have got burnt in 2004 and hence they all must be vigorously adding these dollar depreciation clauses (to protect the cost in their local currency). Do you think, this is what Fed refers to as USD depreciation increasing inflation expectation. Also, these kind of futures contract should also be written within the US economy (based on CPI or PPI). Do you think this is what is fueling the expectation?
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