Only months after it was first noted – but, hey, its the MSM…
… the biggest factor driving cash into longer-term bonds is the feeling that there is no inflation threat to fixed-income securities, Tucci and Di Galoma said.
In fact, sentiment is shifting more toward the idea that the U.S. could face outright deflation, Tucci said.
Figure it this way: If inflation is 2% and a bond pays 3% interest, the “real” or after-inflation yield is just 1%.
But say inflation turns to deflation, and the U.S. sees broad-based declines in prices of goods and services, similar to Japan’s experience.
At a deflation rate of 2%, the real return on a 3% bond would be 5% — a huge number, by bond standards.
The deflationistas are still a minority camp on Wall Street. But their numbers will grow if the economic data get weaker instead of stronger.
I started talking this up in August, while Mish’s has been on it for quite a long time. As an aside, Mish’s has an excellent – and worrisome – look at the steel trade. Seems that the Chinese are low-balling everyone, and we’re still not buying: imports down around 55% from a year ago.
Its a Depression, boys and girls: get used to it. When will we get out of it? When we start making, mining and growing our own stuff. Oh, and balance the budget – without raising taxes.
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