Look at the US Treasury Yield curve and the Oil Futures curve. They are both so steep you’d need a rope and a pair of sharp crampons to climb them. While we know there are no pat answers for the shape of any curve, and while one does not want to be overly simplistic, these two curves tell me that much more inflation and much more growth are coming than you will gleen from reading today’s newspaper.
Over the past few weeks, the US Treasury Yield curve has been steepening to 10 year highs, around 350 basis points. Meanwhile, the 8 year Oil Futures Curve is in a kind of Super Contango, with DEC 2016 currently over 50% higher in price than DEC 2008 oil.
Most global investors will soon find themselves trying to figure out how to obtain sufficent income in a world where the purchasing power of cash is not likely to improve much further from here. Granted, the purchasing power of cash has had a huge 120 day run here. Truly phenomenal. Those are not the kinds of moves that tend to last, however. The bull market in cash still looks very, very counter-trend to me.
I’m now favoring the 1972-74 bear market, as the model for our current condition. Everyone else is fully entranced with the Deflationary bear market and economy of 1929-1928. I don’t buy it. The FED was only 15+ years young at that point. The US was like a volatile, emerging market back then. The Pound Sterling was the reserve currency. The FED, and the President(s) took several years before they even figured out what was going on, what the risks were.
Question to the New Deflationists: do you really think it’s a coincidence that most bear markets and economic downturns since the 1930’s have had inflationary characteristics? Whether you got inflation immediately, like in 72-74, or soon thereafter, like in 1990-92 or 2000-02, why do you suppose that’s the case? My answer: people learn “lessons” from history. And so has the FED.
Without the 1930’s there would be no such person as Ben Bernanke. He wouldn’t exist. His ideas wouldn’t exist.
As everyone studies black and white photographs of the 1930’s with those images of exhausted people, dust storms, and despair–I continue to prepare for lots more inflation.
-Gregor
