You guy's are missing some key points. First off. The dollar only loses value vis a vis an easing cycle, if no one else is easing. While that's been the case recently it probably won't be the case going forward. Any crisis that's severe enough for further cuts in the Funds rate will be serious enough for Europe to also loosen their restrictive stance. 2. The dollar is no lower vs. the majors than at other points in time. In fact against the Yen it's been at the same level for years. Once upon a time the Pound was 3.50. Because the majors have crappy "balance sheets" so to speak they're all losing ground to some emerging currencies that don't come strapped with budget deficits and looming entitlement issues. 3. All one needs do is look at Treasury yields throughout the curve and you'll get an idea of how market participants view inflation pressures vs. the broader economic outlook. Bond investors are more concerned with the risk of holding non-Treasury assets than the indignity of holding low yield paper denominated in depreciating dollars. In other words, Treasury investors think the risk of recession out weighs the risk of hyper-inflation. Today's action couldn't have been more illustrative of the dilemma fixed income investors face. Grains, Oil, metals, foreign currencies and stocks all surged to multi year highs today while the 30 year Bond yield tumbled 6 basis points! Incredible, eh? Yields on the most inflation sensitive issue were LOWER today than yesterday. Why? One weak economic report after another....
1. euro rates are lower and dollar still loses its value. no chance dollar stabilize if euro starts cutting. don't forget US just 300 millin people and the world is 6.5 billion. Us is less important as it was 5 years ago. In Euros US GDP probably contracted during the last years Consumers around the world stronger than ever. So US can stay with its problems alone 2. dollar index at all times lows and no signs of stbilization - so it's clearly at the lowest point and keep going down 3. bonds issue is not clear as chinese and other EM invest into bonds as they can't use those dollars at home because of overheated economies. And they don't care much about infation - but just for now. It can change anyday. And the most important we all know why it happens now - Fed prints money and encourages spending instead of saving, consumer and government are irresponsible spenders The solution - consumer must stop spending. So US must go through recession. But it's not allowed now by Fed Policy. So We must expect dollar decline to continue probably forever. Enjoy the party before it ends
The big mystery is who are the guys keeping the fx and interest rate vol so so low. Commodities are surging suggesting a flight out of the dollar and bonds are like lead again. The euro is crawling higher I despise what asia is doing. Governments have no room in the capital markets. China is going to implode one day.
let's bite. pabst, maybe you are missing something here. A. yields were down today but real yields went even lower. making a statement about inflation with respect to nominal yields makes no sense. so today it was actually by the book - commodities up, dollar down and inflation premium on bond yields UP. B. actually I see that kashirin already covered the rest.
How do you figure inflation premium up? Bond rose in price on a day that every other market ALSO rose in price.
For a country that is now consuming mostly imported goods, lower $ means, inflation! To understand the % of the imported goods just walk into COSCO and tally! Fed, obliged the rich and betrayed the masses. p.s. BTW, Gas & OIL are also imported and all Americans are adversely effected by it's higher prices. Just observe the Oil hitting All Time High since Fed's cut. Don't blame the producing countries fort he price rise, they mostly need to convert the USD to other currencies and to get the same amount as before they need to raise the price thanks to Benny!
let's take 10y today as an example: tips yields were down 6.5bps while the note yield was down 5.5bps, i.e. inflation expectation up by 1 bp.
My guess is they will try and avoid a recession with the baby boomers so close to retirement. This may start a real domino effect on the markets, Goldman Sachs CEO would not get his 50 million bonus because the markets were doing poorly because baby boomers were cashing out. The Fed and wallstreet at this point in time will do everything possible to just keep juggling with both hands. Thats to bad because opportunity are created during recessions, I welcome recessions