The Epic American Credit and Bond Bubble Laboratory Message Board

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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory

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To: John Vosilla who wrote (90298)	1/10/2008 11:35:43 AM
From: Rarebird	Read Replies (1) of 110194

<<If on the other hand a recession in the US is coupled to a surge in inflationary pressures in the US, then your investment strategy would be to move in exactly the opposite direction as you would in a deflation.>> At the moment, the market appears to be unconcerned about accelerating inflation. Certainly, higher price goods from China pose a problem, but the deflationary impact of rising production in emerging market economies coupled with the slowing U.S. economy are temporarily helping to temper inflationary expectations here in the long-term. With ten year Treasury bill rates around 3.8% - roughly 45 basis points (bps) below the Fed Funds rate of 4.25% - the financial markets are clearly more concerned with the pitfalls of the credit crisis that is now slowing growth the world over. However, if "inflationary pressures" continue to persist moving forward, then bond yields will eventually reflect that and rise as we move into 2008. I don't subscribe to the continuation of the consensus view of rising (falling) stock prices = rising (falling) bond yields. The bond market is ultimately no safe haven here. For the sake of a better return, money will come out of the bond market and go into Gold. Moreover, at some point this year, I forsee a major central bank or a group of central banks balking at continually having to buy the US Dollar. At that point, the international value of the USD will plummet! In the process, this will increase global doubts as the safety of the funds in US banks and financial institutions. Rising interest rates reflects an increased perception of risk. Not only has risk not even begun to be priced into the bond market, but yield levels reflect tremendous complacency that this crisis will be easily resolved in time.

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