Dick Bove Predicts Rampant Inflation and 8% Ten Year Bond By 2017

[Reub]

Dick Bove is someone who I have respect for because I heard him predict on CNBC with a somber face the huge stock market bear of 2008 just a few days before it began its historic fall. He is an analyst who I listen to. He recently predicted this:

"Bank analyst Dick Bove of Rafferty Capital Markets sees economic growth, inflation and interest rates heating up and then a recession ensuing by 2018.

The yield on the 10-year Treasury note will rise to 8 percent in 2017, he says in a report obtained by CNBC. The 10-year Treasury yielded 2.78 percent Monday afternoon.

"In order to develop earnings models for banking companies, you must have a 'worldview' related to money supply, the economy, inflation and interest rates," Bove writes.

"The view that I am using . . . implies a relatively fast growing economy, increasing rates of inflation, much higher interest rates, and a move back to recession by 2018."

This quote from here: http://www.moneynews.com/StreetTalk/Bov ... id/558773/

If he is correct about this and interest rates rise that much with raging inflation, what would be the effect on the PP? Would stocks and gold rise enough to counteract the huge losses that would ensue in long term treasuries?

BTW, he also predicts that banks would make a huge amount of money in this scenario.

[ns3]

Dick Bove is someone who I have respect for because I heard him predict on CNBC with a somber face the huge stock market bear of 2008 just a few days before it began its historic fall. He is an analyst who I listen to.

Predictions with a "somber face" that turn out to be true? How can any of us ignore that?

[Pointedstick]

Those are some awfully specific predictions. It'll be fun to dig this thread up in a few years and see how much reality matched the prediction.

[dragoncar]

Yes, he's very specific.  I like that.  Here's even more detail:
http://www.cnbc.com/id/101480694

"Along the way, though, he sees the 10-year yield rising from its current position around 2.8 percent to 3 percent in 2015 before spiking to 7 percent in 2016, 8 percent the following year, then back down to 7 percent in 2018—the year he expects a recession to set in."

I think what I'll do tomorrow is go to 3x33% in gold, equities and cash.  Then in 2017, I'm going to sell it all and buy 30 year bonds.  Who's with me?

I'll probably accumulate long bonds as interest rates rise, and then start to accumulate stocks after during the 2018 recession.

[moda0306]

Those are some awfully specific predictions. It'll be fun to dig this thread up in a few years and see how much reality matched the prediction.

I wish he would have mentioned where he thought unemployment would go.  I don't see the fed raising rates until worforce participation is much higher.

[Ad Orientem]

I don't know what I'm having for lunch tomorrow, but this guy knows what the economy is going to look like in four years? Color me skeptical.

[mgtow]

Everything I have read points to a recession already underway.  Why else would Staples (and some other chain who's name I forget) close 100s of stores?  Why would McDonald's sales be down by a figure not seen in over 10 years?  If you believe shadowstats.com, the unemployment rate is really above 20% which pretty much sounds like a depression to me (started in 2008).

[Kshartle]

Everything I have read points to a recession already underway.  Why else would Staples (and some other chain who's name I forget) close 100s of stores?  Why would McDonald's sales be down by a figure not seen in over 10 years?  If you believe shadowstats.com, the unemployment rate is really above 20% which pretty much sounds like a depression to me (started in 2008).

You are looking at objective reality. That is unwelcome here. The recession NEVER ended. All that happend was the government printed and borrowed and spent trillions. The Keynesian BS is a failure because it is based on lies that fight reality.

The next crash will be bigger than the last. We are now at basically zero percent ST rates.

The depression started before 2008. That was the popping of the last infaltionary bubble. There is a much much bigger one now. Bubbles are not acknowledged when you are in one. When it pops we'll all look back and comment on how obvious it was. Posters who talk about how the government has it all taken care of will say how they knew it would fail and how obvious the insolvency was.

Trust your gut.

[moda0306]

We still are suffering from the 1920's bubble.  Or maybe even worse! Maybe... Until we crash back to before the days of civilization, it'll all just be one big Keynesian bubble.

[Kshartle]

We still are suffering from the 1920's bubble.  Or maybe even worse! Maybe... Until we crash back to before the days of civilization, it'll all just be one big Keynesian bubble.

This goes back to the Roman debasement. Good thing for bread and circuses (SP)

What I'm getting at Moda is after the tech bubble popped the fed used cheap rates to inflate a housing bubble recovery, then that popped and it's used QE and rates to try to reflate it, in the process giving us new bubbles.

By bubble I mean unsustainable prices and/or economic activity.

the economy has not been allowed to fully recover ever because that will a painful unpopular recession which we need.

When I say its a long term depression it's because poverty keeps growing year after year......disparity of wealth is growing,.....real wages falling....labor participation falling etc.....

It's a gradual fall because the blow is being softened with printing and borrowing and spending. It's like if your neighbor loses his job and is way in debt but on the surface he looks somewhat ok, however he's just been borrowing money from friends to try to maintain his lifestyle. It can't go on forever.

That being said.....timing a bubble pop is impossible. That's why I am early and will always try to be early because being late is not an option for me.

[Benko]

While I grant that the shape of the economy seems to be changing, and that the current recovery has been rather tepid, I don't think that pointing to Staples closing stores is an indication of a recession.  It just means that people aren't going to brick-and-mortar stores to buy office supplies.

Don't recoveries usually include improving real unemployment rates?

[Kshartle]

While I grant that the shape of the economy seems to be changing, and that the current recovery has been rather tepid, I don't think that pointing to Staples closing stores is an indication of a recession.  It just means that people aren't going to brick-and-mortar stores to buy office supplies.

Don't recoveries usually include improving real unemployment rates?

Or real wages or living standards?

In the US a recovery means twice as many people on food stamps.

It is an unsustainable amount of theft and borrowing and the situation is getting worse.

When it pops look out. I expect they will fight it with inflation even though I hope they let it turn into a major deflation. I have bet towards inflation but I hope my investments lose and lose badly.

[Kshartle]

TennPa I agree with you about Staples to a large degree. Structural change is killing brick and mortor. I think this is fantastic.

However the unemployment rates are meaningless to me. It's total employment as a % of population and particularly amoung young people that matters.

In 20 years the current crop of 20 year olds will have meager skills and work experience, loads of debt, crushing taxes.

America is in MAJOR decline unless huge changes are made and capitalism is embraced.

Capitalism will not prevent the coming recession but it will cure the long-term depression.

[Fragile Bill]

If 10-year treasury yields were to hit 8% in late 2017, then I'm assuming 30-year treasury yields would hit 9%.  Based on 9%, I'm calculating a 39% hit to the bond portion of the PP between now and late 2017.  A 25% PP allocation to 10-year treasuries instead would only lose 18% over the same time frame.  I'm not saying that Dick Bove is clairvoyant.  Nor am I advocating a tweak to the PP.  Just having fun with numbers.

[donnyg1941]

It is really fascinating to read all the free market gurus on this forum. Never mind that it was Alan Greenspan, the arch libertarian, raised by that wonderful mother of it all, Ayn Rand, who was responsible for the bubbles that continued to bail out Wall St. every time they crashed the economy. Have any of you bothered to read Matt Taibbi's book Griftopia? It's all there, if you take your blinders off. If we had fiscal stimulus on the scale needed, rather than monetary stimulus, we might be having a very different economy, rather than the depression we are indeed in. The race to the bottom is not a solution, unless you are only concerned about making more for your own portfolio, and not the society you live in.

[barrett]

Based on 9%, I'm calculating a 39% hit to the bond portion of the PP between now and late 2017.  A 25% PP allocation to 10-year treasuries instead would only lose 18% over the same time frame.

Are these numbers from Fragile Bill correct? For me the LTTs are the least well understood asset of the PP. It's easy to find all kinds of yield charts online but where do I go find good info on exactly how yields affect prices over time? Ideally I'd like to see a calculator where I can plug in the date of issue and the coupon of a bond. Then I'd like to be able to plug in various scenarios such as this Dick Bove prediction (with a presumed yield, a particular bond on a specific date shows what gain or loss?). Hope that makes sense. Thanks for your help!

[Pointedstick]

The idea that markets need a regulating force to be effective is not a popular view on this forum.

Probably because they've had a regulating force since the very beginning, and yet here we are, complaining that it doesn't work. If regulation is possible, this means we need better regulators… but how you gonna do that? We're all the same kind of humans, and our government is set up in a very anti-technocratic manner.

[Pointedstick]

I don't think we should "give up." I simply have yet to see a credible, realistic plan for making the government and regulations work the way people think they ought to. Most ideas I've seen are as fantastical and unrealistic as the arguments that anarchists get dinged for making, IMHO.

Think about the recent discussion on immigration we had. We all pretty much agreed that immigrants are attracted by cheap labor opportunities and social services, and we also agreed that these things are politically impossible to make go away. Then we all pretty much agreed that border control was the "best of the worst" of the alternatives, but that it too was not politically feasible as long as the left has power. And sanctions on businesses that hire illegal immigrants are politically impossible as long as the right has power. So where does that lead us? Nowhere. We still have problem and we can't solve it because of political intransigence.

This is just my cynical perspective, but it seems to me that politics--especially representative, democratic politics--simply tends towards such impossible-to-resolve situations where politicians are afraid of making difficult decisions, pander to the lowest common denominator, and promise goodies to their voters that will be taken from non-voters or voters for the other party.

[donnyg1941]

"I don't think we should "give up." I simply have yet to see a credible, realistic plan for making the government and regulations work the way people think they ought to. Most ideas I've seen are as fantastical and unrealistic as the arguments that anarchists get dinged for making, IMHO."


I hope you all remember what Ronald Reagan famously said, which started the avalanche of deregulation. "Government is not the solution, Government is the problem." And with that phrase, the neo-liberal agenda was launched, and 50 years of calm in the markets and the economy went down the drain. So people began to believe that government was incompetent, and that the "Smartest guys in the Room" were the Ken Lays, the CEO of GE, etc. Well, we have now seen just how smart those guys really were, with Wall St. titans at the top of the list. They only believe in the free market when their profits are zooming, and they then become fierce socialists demanding Fed bailouts on the way down. Just get ready for the next bailouts, because they sure are coming, though they may be bail-ins, as we have seen in Cyprus. That law is already on the books in this country.

[Pointedstick]

donnyg1941, you appear to have mistaken me for a Republican. Around here, we favor free thinking a lot more than blind adherence to dogma, at which point the whole left-right-dichotomy thing can get pretty tiresome.

[Fragile Bill]

barrett,

I don't have a calculator, but you're welcome to my Excel spreadsheet.  It's tailored to measure the effect of Dick Bove's prediction on LTT's, but you could adapt it to other scenarios.  It is at...

https://drive.google.com/file/d/0B041bR ... sp=sharing

[donnyg1941]

Though I understand what you are saying about dogma, it seems there is a bit of libertarian dogma that floats through a number of posts on this forum. My comments are based on my reading of a number of books that came out before the crash of 2008, and afterward, including Greenspan's Bubbles and Griftopia. Without understanding the malevolent role of the Fed after Greenspan took the chairmanship, as well as the machinations of Wall St. banks, how can one decipher what has actually happened to our real economy these past 27 years?