Comments on: BONDS SAY DEFLATION, STOCKS SAY REFLATION. WHO IS RIGHT? http://pragcap.com/bonds-say-deflation-stocks-say-reflation-who-is-right Thu, 24 May 2012 14:08:24 +0000 hourly 1 http://wordpress.org/?v=3.3.2 By: Naa http://pragcap.com/bonds-say-deflation-stocks-say-reflation-who-is-right/comment-page-1#comment-6845 Naa Thu, 08 Oct 2009 18:33:03 +0000 http://pragcap.com/?p=9839#comment-6845 Stocks have surged 11% since June 10th. At the same time, the 10 year treasury yield has declined almost 70 basis points to close at 3.18% yesterday. Isn't Stocks also pricing in deflation? - You are discounting (cash flows) at a lower rate (decline of 70 basis points in RFR) plus the credit risk premium is also declining. Stocks have surged 11% since June 10th. At the same time, the 10 year treasury yield has declined almost 70 basis points to close at 3.18% yesterday.

Isn’t Stocks also pricing in deflation? – You are discounting (cash flows) at a lower rate (decline of 70 basis points in RFR) plus the credit risk premium is also declining.

]]> By: Angusdude http://pragcap.com/bonds-say-deflation-stocks-say-reflation-who-is-right/comment-page-1#comment-6831 Angusdude Thu, 08 Oct 2009 18:07:01 +0000 http://pragcap.com/?p=9839#comment-6831 2010 - Dow 5000 2010 – Dow 5000

]]> By: Larry http://pragcap.com/bonds-say-deflation-stocks-say-reflation-who-is-right/comment-page-1#comment-6822 Larry Thu, 08 Oct 2009 16:02:07 +0000 http://pragcap.com/?p=9839#comment-6822 The two asset classes may be telling telling the same tale. Stocks has historically been a leading indicator. They are nourished by earnings. Currently, productivty gains of companies are indicating in the future that earnings will be better. Bonds are driven by current rates. They suggest that the Fed will keep rates low. Stocks will benefit from low rates as it creates a good market for exports. Thus, a slow growth economy with chronically high unemployment - due to a threatening government - allows stocks to thrive on productivity and bonds to thrive on low rates. When top line growth begins, stocks will thrive. This is when the Fed may begin to raise rates. This action will slow exportation due to a stronger dollar and push bond prices down at the same time. The difference will be that stocks will recover. Bonds will not, at least, for a cycle. The two asset classes may be telling telling the same tale. Stocks has historically been a leading indicator. They are nourished by earnings. Currently, productivty gains of companies are indicating in the future that earnings will be better. Bonds are driven by current rates. They suggest that the Fed will keep rates low. Stocks will benefit from low rates as it creates a good market for exports. Thus, a slow growth economy with chronically high unemployment – due to a threatening government – allows stocks to thrive on productivity and bonds to thrive on low rates. When top line growth begins, stocks will thrive. This is when the Fed may begin to raise rates. This action will slow exportation due to a stronger dollar and push bond prices down at the same time. The difference will be that stocks will recover. Bonds will not, at least, for a cycle.

]]> By: TPC http://pragcap.com/bonds-say-deflation-stocks-say-reflation-who-is-right/comment-page-1#comment-6821 TPC Thu, 08 Oct 2009 15:32:05 +0000 http://pragcap.com/?p=9839#comment-6821 Earnings are going to be good. I fully expect stocks to get far overbought in the coming weeks. That will be something to sell into.... Earnings are going to be good. I fully expect stocks to get far overbought in the coming weeks. That will be something to sell into….

]]> By: Paul http://pragcap.com/bonds-say-deflation-stocks-say-reflation-who-is-right/comment-page-1#comment-6819 Paul Thu, 08 Oct 2009 15:26:08 +0000 http://pragcap.com/?p=9839#comment-6819 Powerful rally 107.07 at this minute and USD another new low Powerful rally 107.07 at this minute and USD another new low

]]> By: Rob http://pragcap.com/bonds-say-deflation-stocks-say-reflation-who-is-right/comment-page-1#comment-6816 Rob Thu, 08 Oct 2009 13:30:07 +0000 http://pragcap.com/?p=9839#comment-6816 If banks can borrow at 0.25% and make 2% on 5 year and 3.2% on 10yr Treasuries that is a (risky) but huge return. The Fed doesn't need to buy Treasuries directly. Banks can short the dollar and buy just about any asset. The question is how long will the carry trade last and how quickly it might unwind if the dollar reverses and the dollar shorts start covering. The Yen moved from 169 to 118 YEN/EUR (+40%) in a few short months when the carry trade unwound there last year. If there is a reversal, there could be a powerful move up in the dollar and down in asset prices on dollar short covering. The opposite of what was seen off the March lows. If banks can borrow at 0.25% and make 2% on 5 year and 3.2% on 10yr Treasuries that is a (risky) but huge return. The Fed doesn’t need to buy Treasuries directly. Banks can short the dollar and buy just about any asset. The question is how long will the carry trade last and how quickly it might unwind if the dollar reverses and the dollar shorts start covering. The Yen moved from 169 to 118 YEN/EUR (+40%) in a few short months when the carry trade unwound there last year. If there is a reversal, there could be a powerful move up in the dollar and down in asset prices on dollar short covering. The opposite of what was seen off the March lows.

]]> By: jt26 http://pragcap.com/bonds-say-deflation-stocks-say-reflation-who-is-right/comment-page-1#comment-6813 jt26 Thu, 08 Oct 2009 12:18:22 +0000 http://pragcap.com/?p=9839#comment-6813 The 4 examples were never followed by deflation (CPI) .. they were followed by temporary asset deflation due to allocation away from equities. Equities are up along with T's because corporate debt risk (perceived) has come down; they will decouple when that sentiment changes ... it's asset allocation not delfation (yet). The 4 examples were never followed by deflation (CPI) .. they were followed by temporary asset deflation due to allocation away from equities. Equities are up along with T’s because corporate debt risk (perceived) has come down; they will decouple when that sentiment changes … it’s asset allocation not delfation (yet).

]]> By: William http://pragcap.com/bonds-say-deflation-stocks-say-reflation-who-is-right/comment-page-1#comment-6812 William Thu, 08 Oct 2009 11:31:07 +0000 http://pragcap.com/?p=9839#comment-6812 Just read the title. Bonds say inflation too. Goldilocks is back and we now know she always was an artificial, silicon implanted manufactured wonder. Bonds say no CPI but plenty asset inflation through monetary excesses. Same as before. And that's the main reason gold is rising. Regards W Just read the title. Bonds say inflation too. Goldilocks is back and we now know she always was an artificial, silicon implanted manufactured wonder.

Bonds say no CPI but plenty asset inflation through monetary excesses. Same as before. And that’s the main reason gold is rising.

Regards

W

]]> By: CF http://pragcap.com/bonds-say-deflation-stocks-say-reflation-who-is-right/comment-page-1#comment-6810 CF Thu, 08 Oct 2009 10:56:17 +0000 http://pragcap.com/?p=9839#comment-6810 What about Q4 '07? Bonds definitely foreshadowed correctly then as well. What about Q4 ’07? Bonds definitely foreshadowed correctly then as well.

]]> By: James http://pragcap.com/bonds-say-deflation-stocks-say-reflation-who-is-right/comment-page-1#comment-6809 James Thu, 08 Oct 2009 08:27:33 +0000 http://pragcap.com/?p=9839#comment-6809 You're going to see this market begin to go down soon. Maybe not crash and burn, but DOW around 8700-9000. You’re going to see this market begin to go down soon. Maybe not crash and burn, but DOW around 8700-9000.

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