Today's BONDS!

Quote from waggie945:

So much for inflation, eh???
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Prices for productive inputs are going the roof, all of them. It's only a matter of time before they show up in the inflation aggregates. That is assuming of course they still plan on releasing them in the future (as in where the f*** is the PPI?)

A lot of this crazy bond move is due to the Mortgage Finance company's having to continuously buy the curve in order to hedge themselves. The higher the prices go the more they have to buy, it's self-fulfilling.

We could be, should be, setting up for the mother of all short plays. At the first hint of real job growth and/or the inflation aggregates really start to show signs of gett'n jiggy wit it, we should see a sell of similar to last July.

Let's get it on already.


Dr. Z
 
I would actually argue that the Bonds have been telling us for quite sometime that there is something much bigger out there on the Horizon . . . especially since they have basically "thumbed" their noses at huge rally's in industrial metals, grains, the energy complex, you name it!

Deflation
 
Quote from Dr. Zhivodka:

Prices for productive inputs are going the roof, all of them. It's only a matter of time before they show up in the inflation aggregates. That is assuming of course they still plan on releasing them in the future (as in where the f*** is the PPI?)

A lot of this crazy bond move is due to the Mortgage Finance company's having to continuously buy the curve in order to hedge themselves. The higher the prices go the more they have to buy, it's self-fulfilling.

We could be, should be, setting up for the mother of all short plays. At the first hint of real job growth and/or the inflation aggregates really start to show signs of gett'n jiggy wit it, we should see a sell of similar to last July.

Let's get it on already.


Dr. Z
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Dr. Z - has some "urban soul" waxing about "gett'n jiggy wit it" and "let's get it on".

Who would know, we have a "cool Doc" in "da house"!!
 
"Deflation"


Possibly.

There's no question the Bond market has discounted much of the conventional wisdom (and I use that term loosely)

However, you can't continue to have everything from steel to soybeans to plastics to shipping rates to base metals to energy to lumber and health care costs and everything in between making new highs and have deflation at the same time, at least not for long. Something has to give somewhere.

The only thing lacking is labor costs, if that gains some traction we're going to see a serious inflation shock to the economy.

we'll shall see.

Dr. Z


BTW: To me that's one of inconsistencies of the Bullish argument for shares. Either we are going to have an inflation shock or the economy rolls over here due to a pick up in deflation expectations. Both scenarios ultimately suck for share prices.
 
Well I for one have been fighting the tape and paying for it. Now I'm flat. :(

Let's talk about stagflation for a second. What about a scenario where that occurs? My guess is that Fed induced liquidity on the short end of the curve would drive commodity prices higher -- in turn raising the price of inputs and hurting corporate profits (b/c if the economy remains poor companies won't have increased pricing power) -- the end result will be a sluggish equity market, a very low yield on the short end of the curve, and a potential steepening on the long end driven by inflation fears.

Commodities will continue to do well, Bonds will sell off a bit on the long end, and stocks will languish.

Those that might be excluded include service related companies whose primary costs are labor costs (which they will continue to drive down through the ever-ubiquitous buzzword these days - outsourcing - excepting transaction cost imposing legislation).

Thoughts?
 
Quote from Dr. Zhivodka:

"Deflation"


Possibly.

There's no question the Bond market has discounted much of the conventional wisdom (and I use that term loosely)

However, you can't continue to have everything from steel to soybeans to plastics to shipping rates to base metals to energy to lumber and health care costs and everything in between making new highs and have deflation at the same time, at least not for long. Something has to give somewhere.

The only thing lacking is labor costs, if that gains some traction we're going to see a serious inflation shock to the economy.

we'll shall see.

Dr. Z


BTW: To me that's one of inconsistencies of the Bullish argument for shares. Either we are going to have an inflation shock or the economy rolls over here due to a pick up in deflation expectations. Both scenarios ultimately suck for share prices.
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I'm no economist but my Joe Public measure of inflation shows that we are in an inflationary environment. So it just may be the government deceives us with its flawed CPI/PPI?

What do you say Doc?

Thanks for the insights on stock prices vis-a-vis deflation/inflation, quite wise.
 
The problem with this recovery is that people have not paid down their debt . . . Instead, they have gone out and taken on more debt, cashed out some equity, etc. which has allowed them to purchase new cars, remodel their homes, etc. Our Country as a whole has a "zero" savings rate.

Peter Thiel, founder of Clarium Capital ( and Pay/Pal ) of San Francisco presents this "deflationary" scenario in Barron's two weeks ago and I must admit, it makes a lot of sense.

www.clariumcapital.com
 
Waggie -- I read that article and it was very interesting. I guess we could have deflation -- the one thing I struggle to reconcile is the creation of all this money by the Fed. It has to find its way somewhere. If it goes into commodities or real estate prices that would signal inflation. I know Japan had zero rates for a long time and no inflation -- but I don't we have their structural issues.

Also, I know someone here said that M4 was shrinking and was a deflationary sign -- but that just represents money market accounts and, in my estimation reflects the flows into equities over the past year. Thiel sounds very intelligent -- but at this point where does the Fed money creation go?

Oh, one other thing -- it appears that we're in a vicious cycle of reflexivity (as Soros would say) -- The fed has pushed down rates, which in turn has weakened the dollar -- which in turn is causing JPY to buy dollars and in turn buy bonds which is keeping rates low ....crazy! :confused:
 
Yes, it is certainly a "reflexive" time isn't it!

I have a feeling that Greenspan is trying not to show that he "knows that something is indeed different" this time around. How else can you explain an Economy that has only produced about 330,000 jobs in the past 6 months??? Hence, he will likely continue to err on the "accomodative" side. Until then, the market will have to decide if the Economy is accelerating in its expansion, or decellerating. My hunch is that some large institutions have recently decided to sell stocks and add back to their bond positions, sensing that the Economy might just be slowing down again.

Stay tuned.

:)
 
Waggie --- have you looked at what time of the cycle jobs tend to get added? Any sense that massive hiring is more a sign of an economic peak (i.e., job creation is a lagging indicator)?

Just curious, thanks...
 
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