Friday, October 31, 2008
Mark Hulbert says that investors in U.S. treasury bonds are betting on deflation:
"The Treasury market [is huge] and its collective judgment cannot be dismissed lightly.
The bond market is betting that the [consumer price index] will average less than 1 percent annually over the next decade....Economists at the Cleveland Fed have devised an econometric model that estimates [how much treasury bonds are] skewed downward by . . . liquidity considerations. That model recently calculated this bias to be around 0.5 percentage point, suggesting that the true message of the bond market right now is that inflation would average around 1.4% year over the next decade.
The bond market is betting on deflation.This puts into perspective the federal government's efforts in recent months to pour huge amounts of money into the financial arena. That would otherwise be quite inflationary.But not if the forces of deflation are as large as the bond market is evidently assuming them to be.And judging by the recent performance of both the bond and gold markets, it would appear as though deflation still has the upper hand."
There are good arguments for stagflation - instead of deflation.
But if the big boys are betting on deflation with their own money, that's important information.