Bond rally nearing an end?

Quote from gharghur2:

Hi John,

Not certain that I agree.
It appears that BB wants two days to cover all scenarios.

Also, I believe the objective of the FED, at this point, is to actually slow down the economy, so that the inflationary pressures will ease somewhat. Then, standby and let the economy recover on its own. They repeatedly refer to capacity utilization and employment as being historically higher than acceptable levels under the current environment.
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Or target real assets, like housing.

IMHO, I think that the fed wants less to slow down the economy than create inflation to combat deflationary tendencies, and avoid us falling into a japan-style deflationary scenario. I have written about that quite a few times, you can review some of my older posts if you wish.

With prices of Gold, silver, oil, and natural resources rising, it seems that we may have temporarily negotiated that risk. BSB may be somewhat proud of himself at the moment, although the commodity markets are beginning to start to show signs of frothiness. I don't think that the end of that is anywhere near, though. Bearish for bonds IMHO as alternative asset classes produce yields that erase buying pressure on bonds (except for foreign CB's trying to manipulate their currencies through competitive devaluation, and that game looks like it is about to end quickly).

While I think that BSB is willing to slow down the economy to achieve his goals, I don't think he cares whether it does or not as long as inflation targeting is achieved and the housing/debt bubble is contained.

Interesting article in recent Foreign Affairs magazine on "The Return to Saving" in the USA.
 
Quote from drsteph:

Or target real assets, like housing.

While I think that BSB is willing to slow down the economy to achieve his goals, I don't think he cares whether it does or not as long as inflation targeting is achieved and the housing/debt bubble is contained.
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Agree there! Of course inflation is the main target. The deflationary pressures at the turn of the millenium have been inflated, as witnessed by the housing/commodity boom. Housing is slowing noticeably now, so their happy we're their results. Now if the economy would ease back a bit, inflationary pressures should ease too.
 
There's a lot of "grammar' going on here...but the simple truth that my eyes see is that the world particulalry the US is flush with easy money/excess liquiduty. We have severe asset inflation and heavy personal, corporate and national debt plus the unsustainable huge twin defict.

This mess is UGLY and the end will be SUPER UGLY.

What should the Fed do... I honestly don't know. But I don't think halting their hikes is the right approach and I honestly do not think there is any way to avoid a major dislocation in the markets and economy.

Or am I just naive,misinformed and paranoid....???
 
'personal, corporate and national debt plus the unsustainable huge twin defict."

The fed can try all the want to make a "soft landing" but one of these items will eventually implode triggering a domino effect that will trip the rest and the markets will follow because there will not be enough Buyers for all of the Sellers.

What impact, if any, will all of this have on Trillion+ Derivatives market?
 
You both make excellent points.

The timing of these potential events is all that matters actually.
The Bond market, et al will probably tip us off, if and when, an unraveling is about to take place. So far biz as usual.
 
Quote from gharghur2:

You both make excellent points.

The timing of these potential events is all that matters actually.
The Bond market, et al will probably tip us off, if and when, an unraveling is about to take place. So far biz as usual.
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gharghur2... I actually don't think we will have a "Fire Alarm" warning...or maybe this bond decline is it. Bonds have collapsed over 8 points in 3 months or so. isn';t that enough of a warning?!!

Nowdays I look at my quote screen and ALL ASSETS ARE GREEN.

I think a time is coming - very soon - where everything will be RED except for foreign currecnies (i.e. collapsing dollar)...but then again maybe I am just paranoid and crazy!

P.S. I actually think the initial trigger may be a geo-politcal event that will create a sell-off in equity markets and the dollar and trigger a domino effect in other assest that just feeds on itself in a tumultous downard slide. Well ,enough of my gloom and doom theories.
 
Hi CP,

Bonds are just in a normal everyday bear market: 8 points is just the beginning. Probably will bottom here soon around 105 and then trade higher for a month or so, before turning down again.

I'm not into fundamentals, but understand your concern. So far everything looks quite normal, so far.
 
Quote from steveosborne:

If people borrow less there is less money for consuming commodities through personal consumption or production (with less demand for money comes less demand for commodities).
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I understand this from a single countries perspective but I don't believe that this will continue to hold in the same way with mass globalization.

i.e., China is apparently just fine with 10% annual growth but over 5% in the US the fed will be looking at raisng 50 basis points. Most other emerging economies have been experiencing strong growth also.

Money is still available in Japan at near 0% and they probably won't be raising rates by 25 basis points at a time. Swiss & Honk Kong rates are also very low.

So back to my original question, Is there a difference between rising prices due to supply/demand changes versus strictly inflation?

I think there is but I don't know if it could be quantified.
 
Quote from futures_shark:

I understand this from a single countries perspective but I don't believe that this will continue to hold in the same way with mass globalization.

i.e., China is apparently just fine with 10% annual growth but over 5% in the US the fed will be looking at raisng 50 basis points. Most other emerging economies have been experiencing strong growth also.

Money is still available in Japan at near 0% and they probably won't be raising rates by 25 basis points at a time. Swiss & Honk Kong rates are also very low.

So back to my original question, Is there a difference between rising prices due to supply/demand changes versus strictly inflation?

I think there is but I don't know if it could be quantified.
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I'd imagine if one did wanted to try to quantify this type of phenomenon. The 1940's would be a good place to start. There naturally, was a huge demand for commodities after the war as all the soldiers returned from WWII.
 
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