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

[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...

[Xan]

Oil is not the top weighting in the CPI for arbitrary reasons.

This is an important point. The price of oil has a lot to do with the price of many other things. Anything that requires transportation, or whose inputs require transportation, for example.

[pmward]

Oil is not the top weighting in the CPI for arbitrary reasons.

This is an important point. The price of oil has a lot to do with the price of many other things. Anything that requires transportation, or whose inputs require transportation, for example.

Exactly. Oil, like it or not, better or worse, is really at the heart and center of our entire economy. Oil prices are down because economic activity is down. It's impossible to have true inflation without any economic activity. The velocity of money is a key aspect in true inflation. Any price increases we get in a period of anemic money velocity are an unsustainable blip.

Institutional bond traders are astute enough to know this. The increasing cost of food is both common knowledge and old news. It's already priced into the cake. I mean, we had the Treasury come out and announce 3T in debt offerings in the next 3 months... yet TLT is only down ~60bps today? The fact that TLT can be that resilient to news of massive incoming treasury supply is a bullish signal in my book.

[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.

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...

You make a lot of good arguments. I still think I'm right. I'll hold out until the CPI and PPI reports come out and then I'll likely buy back all the bonds I had sold previously.

[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...

You make a lot of good arguments. I still think I'm right. I'll hold out until the CPI and PPI reports come out and then I'll likely buy back all the bonds I had sold previously.

I also want to mention that I don't think it is impossible for inflation to kick in in the coming years (I mean my active VP is heavy on metals and miners after all). But we are in a deflation right now, and the switch doesn't just flip from deflation to inflation overnight. It takes time. Who knows what treasuries will do? The chart is very difficult to read at the moment. But for now, bonds are holding up strong... even while food prices increase, treasury supply increases, and the stock market rallies. All that stuff considered, and all TLT has done so far is simply take a pause. In the meantime, what happens if something causes another stock market temper tantrum? What happens if a big company or two file for bankruptcy (I mean, every day it seems there's a handful of companies filing)? What happens if the virus does turn out down the road to be the catalyst for a bigger debt crisis, likely in corporate bonds? TLT skyrockets again. If nothing else, TLT is a great equity and uncertainty hedge. There is a lot of uncertainty at this time. It's really hard to make any all in bets in any direction really. It's become very popular to hate on bonds here lately... yet bonds have been the saving grace for everyone here, and in the event of further economic trauma, they are likely to be the saving grace once again.

[vnatale]

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.

pmward!

A belated "Glad you came back"! I was reading a lot of you when I was going through the archives but you were absent, preventing me from experiencing the live you. Now I get to regularly experience in live time gems like the above!

Vinny

[StinkyToes]

WSJ article (behind a pay wall) says home prices are still rising: https://www.wsj.com/articles/why-home-p ... lead_pos12

This rings true to me. I've noticed no price decline so far in my city. This is another reason why bonds may be overpriced. The market is likely assuming deflation in housing prices, but sellers just aren't lowering their prices.

[StinkyToes]

Has anyone noticed that oil prices are rebounding? "U.S. oil prices jumped nearly 20% on Tuesday, with the June futures contract for West Texas Intermediate crude reaching $24.56 on its fifth straight day of gains."

https://www.forbes.com/sites/sarahhanse ... 195c752de6

[pmward]

Has anyone noticed that oil prices are rebounding? "U.S. oil prices jumped nearly 20% on Tuesday, with the June futures contract for West Texas Intermediate crude reaching $24.56 on its fifth straight day of gains."

https://www.forbes.com/sites/sarahhanse ... 195c752de6

It's only the front month. The back months (what really matters) have not been as volatile. Not ironically, USO rolled most of their front month contracts to 2-3 month out contracts... and as soon as they did that the front month started going up. Coincidence? I think not. Poor USO holders have gotten destroyed and have not participated in the rebound. Also, just because oil prices have been going up for a week or two doesn't mean the bear market is over. It could just be a fake out bull trap. Oil got very oversold, it had to bounce. But is that bounce permanent or just working off the oversold condition so it can fall further (only this time have the later months fall as well, which would be where the true devastation begins)?

[mathjak107]

we have never had a modern day recession when oil prices were not high

[StinkyToes]

San Francisco Bay Area home prices still rising:

https://mortgage.originalandsafe.com/ev ... me-prices/

"Median sale prices in the region increased 1.5%, led by year-over-year gains in the counties of Alameda (5.1%), San Mateo (6.5%) and Santa Clara (4.8%), according to a Zillow analysis. Contra Costa County home prices grew 1.9% from the previous March."

[pmward]

San Francisco Bay Area home prices still rising:

https://mortgage.originalandsafe.com/ev ... me-prices/

"Median sale prices in the region increased 1.5%, led by year-over-year gains in the counties of Alameda (5.1%), San Mateo (6.5%) and Santa Clara (4.8%), according to a Zillow analysis. Contra Costa County home prices grew 1.9% from the previous March."

SF houses rising. Water wet. This has been going on for decades and still has not had any real impact on inflation.