I'm worried about stagflation and am selling all my bonds tomorrow.

[Tortoise]

There was a recent thread here (can't remember which one) in which it was pointed out that the Fed could potentially end up being be the largest single holder of Treasuries.

Not sure how realistic that potential outcome is, but we do know that the Fed has both the means and the motive to keep Treasury rates low across the entire yield curve.

Means: In recent years we've seen that the Fed is entirely willing and able to keep expanding its powers to bend the financial markets to its will. It can now buy and sell just about any type of financial instrument it wants, in unlimited quantities.

Motive: As discussed already in this thread, the Fed is largely controlled by the government, and the government's motive is to borrow as cheaply as possible (low Treasury rates) while also getting rid of as much existing national debt as possible through inflation.

[shekels]

There was a recent thread here (can't remember which one) in which it was pointed out that the Fed could potentially end up being be the largest single holder of Treasuries.

Not sure how realistic that potential outcome is, but we do know that the Fed has both the means and the motive to keep Treasury rates low across the entire yield curve.

Means: In recent years we've seen that the Fed is entirely willing and able to keep expanding its powers to bend the financial markets to its will. It can now buy and sell just about any type of financial instrument it wants, in unlimited quantities.

Motive: As discussed already in this thread, the Fed is largely controlled by the government, and the government's motive is to borrow as cheaply as possible (low Treasury rates) while also getting rid of as much existing national debt as possible through inflation.

That is the way I see it also.
I would like to add that The FED is a Central BANK. So if a Banking Issue arises they will take care of their OWN first..
If the issues coincides with the FED's agenda great. But don't look for much action, if it is not beneficial to the FED in some manner.
The Party must go on.

[dualstow]

Glad to be holding bonds today.

[mathjak107]

it is funny how gold and treasuries were joined at the hip and now they are each doing their own thing again . last week or so they were moving differently

[pp4me]

I have a strong hunch that the next few weeks will be really bad for bonds.

Have you ever done a statistical analysis to put your "strong hunches" to the test to evaluate how true they are?

I have no problem with "hunches" as I have my own. Based on my own life experiences however, I would never "sell all my bonds" or any other asset "tomorrow" based on them.

Actually that is not true. I did that once after reading an article about how everything is going to hell and after it didn't turn out the way the article predicted I resolved never to do it again. Generally speaking, my "hunch" is that making any investing decisions during times of chaos is probably not a good idea.

[StinkyToes]

I have a strong hunch that the next few weeks will be really bad for bonds.

Have you ever done a statistical analysis to put your "strong hunches" to the test to evaluate how true they are?

I have no problem with "hunches" as I have my own. Based on my own life experiences however, I would never "sell all my bonds" or any other asset "tomorrow" based on them.

Actually that is not true. I did that once after reading an article about how everything is going to hell and after it didn't turn out the way the article predicted I resolved never to do it again. Generally speaking, my "hunch" is that making any investing decisions during times of chaos is probably not a good idea.

I have not done a statistical analysis. If I am wrong, I doubt I'll lose much. My plan is to buy back my LTTs by the end of June after this month's PPI and CPI reports are released.

[StinkyToes]

https://www.zerohedge.com/markets/beef- ... -purchases

Don't say I didn't warn you.

[StinkyToes]

Poultry too?

"Hundreds of Tyson Foods employees screened for COVID-19 after Wilkes County outbreak"
https://myfox8.com/news/hundreds-of-tys ... -outbreak/

[StinkyToes]

Wow, Nielsen says fresh meat prices are up 8.1% from one year ago. Processed meat prices up 12.2%, chicken egg prices up 30.9%, milk prices up 10.3%, and cheese prices up 11.2%. This was based on data for the week ending April 25, 2020.

https://twitter.com/nielsen/status/1256 ... 10/photo/1

This is called stagflation, folks. Very dangerous to own long-term bonds in this situation. CPI data will be released May 12. PPI data will be released May 13. Should be interesting.

[mathjak107]

Wow, Nielsen says fresh meat prices are up 8.1% from one year ago. Processed meat prices up 12.2%, chicken egg prices up 30.9%, milk prices up 10.3%, and cheese prices up 11.2%. This was based on data for the week ending April 25, 2020.

https://twitter.com/nielsen/status/1256 ... 10/photo/1

This is called stagflation, folks. Very dangerous to own long-term bonds in this situation. CPI data will be released May 12. PPI data will be released May 13. Should be interesting.

demand inflation can fall on a dime ... it is very different than monetary inflation , which surprisingly we have little of ....when demand falls or supply picks up prices fall. all inflation is not the same and has to be looked at differently .

[pmward]

Wow, Nielsen says fresh meat prices are up 8.1% from one year ago. Processed meat prices up 12.2%, chicken egg prices up 30.9%, milk prices up 10.3%, and cheese prices up 11.2%. This was based on data for the week ending April 25, 2020.

https://twitter.com/nielsen/status/1256 ... 10/photo/1

This is called stagflation, folks. Very dangerous to own long-term bonds in this situation. CPI data will be released May 12. PPI data will be released May 13. Should be interesting.

To add to what everyone else is saying... oil is by far the biggest weight in the CPI data and that has cratered. You're not going to see any "inflation" in the official data until oil starts to go up.

[dualstow]

It was almost exactly two months ago that tomfoolery was “sounding the alarm” in a thread called ‘The (PP) May Be About to Break’. The main culprit: long-term treasuries. But someone, somewhere has been sounding the alarm since the beginning. If it does eventually “break”, the person with the right call will have been right by accident.

[AdamA]

To add to what everyone else is saying... oil is by far the biggest weight You're not going to see any "inflation" in the official data until oil starts to go up.

Very good point.

These types of predications have a way of tricking everyone.

Even though it seems like a no-brainer that we'd have inflation with all of the "money printing" going on, it's a good idea to remain a bit skeptical when something seems a little too neatly logical, especially in the world of investing.

[AdamA]

It was almost exactly two months ago that tomfoolery was “sounding the alarm” in a thread called ‘The (PP) May Be About to Break’. The main culprit: long-term treasuries. But someone, somewhere has been sounding the alarm since the beginning. If it does eventually “break”, the person with the right call will have been right by accident.

LTTs have buoyed the PP on multiple occasions over the past ten years (the time in which I've held the PP).

Every time I've purchased them, there has been buzz about low or even negative rates.

I don't think anyone knows for sure how negative rates will effect the PP, but the firewalls always surprise me for the better.

[pmward]

To add to what everyone else is saying... oil is by far the biggest weight You're not going to see any "inflation" in the official data until oil starts to go up.

Very good point.

These types of predications have a way of tricking everyone.

Even though it seems like a no-brainer that we'd have inflation with all of the "money printing" going on, it's a good idea to remain a bit skeptical when something seems a little too neatly logical, especially in the world of investing.

Yes, exactly. The aggregate opinion on this forum has never once gotten a market timing call right. Seeing all the hate on LTT's here is a bullish clue, imo. The markets never do the thing the majority of people think they have to do. Case in point, the current stock market rally. When we were down at 2350 everyone though the market just *had* to go lower with the virus and the economy shut down. People here were putting off their rebalancing because they thought the market had to go lower, and they in turn missed the entire opportunity to rebalance. The market never does the obvious thing. It's job is to confound as many people as possible. There's a good chance that those that sell their LTT's right now will live to regret it down the road.

[dualstow]

..
Case in point, the current stock market rally. When we were down at 2350 everyone though the market just *had* to go lower with the virus and the economy shut down.
... The market never does the obvious thing. It's job is to confound as many people as possible. There's a good chance that those that sell their LTT's right now will live to regret it down the road.

Yup, and before the incredible stock bull run, many people thought the stock market had had it. Even Med.Tex referred to it as “broken.”

[pmward]

..
Case in point, the current stock market rally. When we were down at 2350 everyone though the market just *had* to go lower with the virus and the economy shut down.
... The market never does the obvious thing. It's job is to confound as many people as possible. There's a good chance that those that sell their LTT's right now will live to regret it down the road.

Yup, and before the incredible stock bull run, many people thought the stock market had had it. Even Med.Tex referred to it as “broken.”

Exactly. These things are extremely difficult to time, even more so if the only thing people are using to try to time is emotion. In March 2009, just like in March 2020, the market bottomed and started to go up at the very point of peak fear and pessimism.

[StinkyToes]

Wow, Nielsen says fresh meat prices are up 8.1% from one year ago. Processed meat prices up 12.2%, chicken egg prices up 30.9%, milk prices up 10.3%, and cheese prices up 11.2%. This was based on data for the week ending April 25, 2020.

https://twitter.com/nielsen/status/1256 ... 10/photo/1

This is called stagflation, folks. Very dangerous to own long-term bonds in this situation. CPI data will be released May 12. PPI data will be released May 13. Should be interesting.

To add to what everyone else is saying... oil is by far the biggest weight in the CPI data and that has cratered. You're not going to see any "inflation" in the official data until oil starts to go up.

Most people are not driving or flying much these days, or using heating oil this time of year. The official data don't matter. What matters is the price of goods that people actually buy--things like food, shelter, and health care services. The prices of such goods are significantly higher today than they were a year ago, and food prices are rising a lot at the moment.

[pmward]

Wow, Nielsen says fresh meat prices are up 8.1% from one year ago. Processed meat prices up 12.2%, chicken egg prices up 30.9%, milk prices up 10.3%, and cheese prices up 11.2%. This was based on data for the week ending April 25, 2020.

https://twitter.com/nielsen/status/1256 ... 10/photo/1

This is called stagflation, folks. Very dangerous to own long-term bonds in this situation. CPI data will be released May 12. PPI data will be released May 13. Should be interesting.

To add to what everyone else is saying... oil is by far the biggest weight in the CPI data and that has cratered. You're not going to see any "inflation" in the official data until oil starts to go up.

Most people are not driving or flying much these days, or using heating oil this time of year. The official data don't matter. What matters is the price of goods that people actually buy--things like food, shelter, and health care services. The prices of such goods are significantly higher today than they were a year ago, and food prices are rising a lot at the moment.

No, what matters for bond prices is the official data. You're trying to time bond prices based on temporary data that has no effect on bonds. "Deflation" or "inflation" never happen across the board. There are always pockets that lead the trend, and pockets that buck the trend. But these pockets are not equally weighted. Oil is the highest weighting, therefore on the whole we are in a deflation.

[StinkyToes]

Wow, Nielsen says fresh meat prices are up 8.1% from one year ago. Processed meat prices up 12.2%, chicken egg prices up 30.9%, milk prices up 10.3%, and cheese prices up 11.2%. This was based on data for the week ending April 25, 2020.

https://twitter.com/nielsen/status/1256 ... 10/photo/1

This is called stagflation, folks. Very dangerous to own long-term bonds in this situation. CPI data will be released May 12. PPI data will be released May 13. Should be interesting.

All of these are temporary price increases due to supply chain issues (production). Just like toilet paper, this will resolve itself in a few weeks when the plants are up and running again. Oil is way down. This is not the 1970s.

This is a very good point. It's probably going to resolve itself shortly. Might be a problem again in the fall if coronavirus picks up steam. And who knows about 2021. Might we see supply chain problems creep into other areas of the economy, such as manufacturing? If so, is it possible we will see price increases across the board? Even if such effects are temporary, bonds are priced for perfection. I think even temporary inflation will cause bond prices to fall.

[pmward]

bonds are priced for perfection. I think even temporary inflation will cause bond prices to fall.

In your opinion. The market however seems to disagree with you quite strongly. It's folly to ignore what the aggregate opinion of the market is telling you. What makes your valuation right, yet the entire aggregate markets valuation wrong?

[StinkyToes]

Wow, Nielsen says fresh meat prices are up 8.1% from one year ago. Processed meat prices up 12.2%, chicken egg prices up 30.9%, milk prices up 10.3%, and cheese prices up 11.2%. This was based on data for the week ending April 25, 2020.

https://twitter.com/nielsen/status/1256 ... 10/photo/1

This is called stagflation, folks. Very dangerous to own long-term bonds in this situation. CPI data will be released May 12. PPI data will be released May 13. Should be interesting.

To add to what everyone else is saying... oil is by far the biggest weight in the CPI data and that has cratered. You're not going to see any "inflation" in the official data until oil starts to go up.

Most people are not driving or flying much these days, or using heating oil this time of year. The official data don't matter. What matters is the price of goods that people actually buy--things like food, shelter, and health care services. The prices of such goods are significantly higher today than they were a year ago, and food prices are rising a lot at the moment.

No, what matters for bond prices is the official data. You're trying to time bond prices based on temporary data that has no effect on bonds. "Deflation" or "inflation" never happen across the board. There are always pockets that lead the trend, and pockets that buck the trend. But these pockets are not equally weighted. Oil is the highest weighting, therefore on the whole we are in a deflation.

Yes, officially we are in deflation. I understand that. I think we have an honest difference of opinion about the importance of oil prices on bond prices. Let me give you an admitttedly extreme example just to illustrate the logic of my argument. Suppose BLS decided tomorrow to include buggy whips in the CPI. And suppose they said that the price of buggy whips is increasing. And suppose that buggy whips are now a big part of the CPI basket of goods, so the CPI goes up substantially. According to your argument, bond traders would panic. They would say "OMG CPI is soaring! We need to dump our bonds!" I am saying that bond traders would look past the buggy whip thing. They would calmly say "Nobody buys buggy whips, so regardless of what official CPI says I know that the price situation has not changed." And there would be no change in the price of bonds. Granted, this is a ridiculous example, but I think the point I am making is valid. What matters to the bond market is the real economy not some contrived basket of goods that bears no relation to what real consumers are buying. Because of this, I think bond traders will be much more interested in the price of food (a product everyone buys) than the price of oil or headline CPI.

[StinkyToes]

bonds are priced for perfection. I think even temporary inflation will cause bond prices to fall.

In your opinion. The market however seems to disagree with you quite strongly. It's folly to ignore what the aggregate opinion of the market is telling you. What makes your valuation right, yet the entire aggregate markets valuation wrong?

I think I am right and, yes, I think the entire aggregate market is wrong.

[pmward]

Yes, officially we are in deflation. I understand that. I think we have an honest difference of opinion about the importance of oil prices on bond prices. Let me give you an admitttedly extreme example just to illustrate the logic of my argument. Suppose BLS decided tomorrow to include buggy whips in the CPI. And suppose they said that the price of buggy whips is increasing. And suppose that buggy whips are now a big part of the CPI basket of goods, so the CPI goes up substantially. According to your argument, bond traders would panic. They would say "OMG CPI is soaring! We need to dump our bonds!" I am saying that bond traders would look past the buggy whip thing. They would calmly say "Nobody buys buggy whips, so regardless of what official CPI says I know that the price situation has not changed." And there would be no change in the price of bonds. Granted, this is a ridiculous example, but I think the point I am making is valid. What matters to the bond market is the real economy not some contrived basket of goods that bears no relation to what real consumers are buying. Because of this, I think bond traders will be much more interested in the price of food (a product everyone buys) than the price of oil or headline CPI.

You are trying to argue from an efficient valuation standpoint that the market should price it accurately... but you're ignoring the fact that the market is already pricing it accurately. Oil is not the top weighting in the CPI for arbitrary reasons.

[pmward]

bonds are priced for perfection. I think even temporary inflation will cause bond prices to fall.

In your opinion. The market however seems to disagree with you quite strongly. It's folly to ignore what the aggregate opinion of the market is telling you. What makes your valuation right, yet the entire aggregate markets valuation wrong?

I think I am right and, yes, I think the entire aggregate market is wrong.

Good luck. Just beware that almost everyone who ever said that throughout history was proven wrong... Also, do keep in mind that being early is the same thing as being wrong...