Inflation, Deflation and Bonds/Yields

Well, Biiwii certainly is busy this morning with burning questions about inflation, deflation and especially the bond market. Charlie Bilello checks in from a practical standpoint (and later will have a post about something I’ve been harping on as well, dividend paying cash is no longer trash)…

Inflation, Deflation and Bond Market Returns

Heisenberg checks in with the detailed thoughts of none other than Jim Grant, who unlike Gross and Dalio I do not take as a contrary indicator. Grant is a clear thinker who obviously knows how to filter hype, whether he is right or wrong.

Jim Grant On The Bond Bear Market, Jerome Powell And Much More

Jim: I’m a little bit more fatalistic. You know, we have come to accept that financial markets are driven by people and by policies and by personalities. And, what is Chairman Powell going to do? What will President Trump tweet next? As if they were in charge.

Well perhaps sometimes they are not in charge. I have observed over the years that the bond markets have tended to move in generation-length cycles. Anywhere from 20 years to 35 years. This is not an ironclad law of physics, but it is an observation from the middle of the 19th century forward.

So we have concluded (perhaps) the bull market in bonds that began in 1981 and that maybe ended in the early days of July 2016 (I think). So it might just be that interest rates are going up because they are going up. It sounds a little bit mysterious and indeed fatalistic, but I’m a little bit less inclined than others to assign causation to people and policies.

Though I’ve been harping about the 10yr and 30yr yield limiters (2.9% and 3.3%) for some time now, I also think that the chances a bond bear began amid the NIRP blow off hysterics are pretty good. It was not even 2 years ago that everyone was piling into bonds of all kinds because global authorities had announced that rising interest rates were virtually illegal. Talk about a topping signal. I just don’t like that everyone is now on the rising yields/bond bear side of the boat.

Anyway, Charlie is worth a read, but the Jim Grant podcast that Heisenberg includes in his post is definitely worth a listen. I may reproduce NFTRH 490’s Bond market segment later on as well, just to throw some more input into the ring.

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