I don't think there will be inflation because unemployment will be at 30%.
************************************************* --- On Thu, 5/28/09, Leland F. Jackson, CPA <[email protected]> wrote: > From: Leland F. Jackson, CPA <[email protected]> > Subject: Re: [OT] Get Your Life Jacket! Here Comes Hope and Change! > To: "ProFox Email List" <[email protected]> > Date: Thursday, May 28, 2009, 1:15 AM > I wasn't expecting the bond market to > have serious trouble > until there was real signs of inflation. > > Right now the economy seems to still be in a deflationary > cycle, as consumers continue to conserve their money by not > > spending unnecessarily, due to their fear about the shaky > Financial, Auto, and Mortgage sectors of the economy. > As > consumers spend less, business sell less requiring them to > > cut production and labor. This creates a kind of > deflationary spiral eating away at capital as the economy > spirals downward. > > A stimulus packages is designed to get businesses and > consumers spending again. The danger of a stimulus > package > is it can cause inflation, as money previously horded is > released back into the economy to satisfy consumer's > pent_up > demands. Prices can really go through the roof when > selves > begin to empty. The economy normalizes again when > business > once again start operating at levels sufficient to meet > consumer demands for goods and services. > > What seems to be happening in the treasury bond market > right > now is rates of return , (eg yields), on bonds are > increasing dramatically, as US Treasury Bonds sell for less > > and less under face value at action. For example, > imagine a > $10,000.00 bond that pays 5% interest annually or $500.00 > each year. Now, imagine a public that anticipates an > > average inflation rate over the next 5 to 10 years of 10% > annually. In order to cover the the expected 10% > annual > inflation rate, the purchaser of debt obligations would > need > at a minimum a 10% rate of return on USA Treasury > Bonds. A > bond purchaser could get the 10% annual yield on a > $10,000.00 bond that paid 5% interest annually by > purchasing > the USA Treasury Bond for $5,000.00 at public auction, > (Cost > of $10,000.00 USA Treasury bond of $5,000.00 that pays > $500.00 each year. > > This would mean people that previously paid face value for > a > $10,000.00, 5% bond would be carrying an unrealized loss on > > their book of $5,000.00. So, as the yield on the > bonds > increases during the USA Treasury Bond Auction, anyone that > > has previously purchased a bond for an amount that results > > in lesser yields will be trying to dump their bonds as fast > > as possible; before, their bond decline in value further. > This resulted in a sell off in bond that had a ripple > effect > on the trading value and interest rates in the mortgage > markets. > > I think most of what is going on right now is > psychological; > because, I haven't seen any report coming down the pike > indicating that inflation has started raising its ugly > head. > > Pete was right about gold doing well during inflationary > periods, relative to other investments like stocks and > bonds > that tend to suffer more, due to loss in purchasing power > when liquidated or worthlessness. Theoretically, gold > will > not produce any real gains or losses during times of > inflation, but gold tends to be a good store of > value. In > other words gold will increase in value during inflationary > > periods holding its good and services purchasing > power. The > last I heard, they are not making anymore land, so it too > is > a good store of value. > > http://en.wikipedia.org/wiki/Store_of_value > > Regards, > > LelandJ > > > Bob Calco wrote: > > http://www.cnbc.com/id/30968861 > > > > New Investor Worry: Treasury Selloff Spiking Interest > Rates > > > > - - - > > A selling spree in Treasuries pushed rates higher, > taking the yield curve to > > its steepest on record as spreads between the 2-year > and 10-year widened by > > over a dozen basis points on Wednesday alone. > > > > The 10-year saw its yield move above 3.70 percent, > after trading at 3.55 > > percent the previous day. The selling wave hit bonds > shortly after 1 p.m., > > even after the auction of $35 billion in 5-year notes > was well received. > > - - - > > > > bbbrrrbbbrrmmmm... > > > > Don't worry, that low, barely perceptible sound you > heard below deck was no > > big deal, just a small iceberg. > > > > - Bob > > > > > [excessive quoting removed by server] > > _______________________________________________ > Post Messages to: [email protected] > Subscription Maintenance: http://leafe.com/mailman/listinfo/profox > OT-free version of this list: http://leafe.com/mailman/listinfo/profoxtech > Searchable Archive: http://leafe.com/archives/search/profox > This message: > http://leafe.com/archives/byMID/profox/[email protected] > ** All postings, unless explicitly stated otherwise, are > the opinions of the author, and do not constitute legal or > medical advice. This statement is added to the messages for > those lawyers who are too stupid to see the obvious. > _______________________________________________ Post Messages to: [email protected] Subscription Maintenance: http://leafe.com/mailman/listinfo/profox OT-free version of this list: http://leafe.com/mailman/listinfo/profoxtech Searchable Archive: http://leafe.com/archives/search/profox This message: http://leafe.com/archives/byMID/profox/[email protected] ** All postings, unless explicitly stated otherwise, are the opinions of the author, and do not constitute legal or medical advice. This statement is added to the messages for those lawyers who are too stupid to see the obvious.
