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Yield Curve Predicts Inflation

Economics / Inflation Dec 27, 2009 - 05:12 AM GMT

By: Andrew_Abraham

Economics

There is a record wide spread on the yield curve currently. A record breaking 287 points. For those of you who do not know what the yield curve is…it is the difference between the 2 year and 10 year notes. Usually when there is a difference like this it usually means rapid economic growth as well as Inflation. This time because governments all over the world have run the printing presses and inflation is more of a potential outcome.


The US Treasury is expected to issue as much as $2 trillion in government debt in 2010. The fact is the two-year note is currently yielding 0.92 percent. At the end of November, it hit a closing low of 0.66 percent, lower than at any time in the last 25 years. The next reality is that an inverted yield curve has often preceded recessions over the past 70 years, including the Great Depression.

Contrary… there can be a weaker recovery with slower growth could cause the curve to flatten a bit and more so … if the economic indicators are less robust investors might return to longer dated treasuries. Nothing is certain…and just the idea of prediction is an anti thesis for most trend following commodity trading advisors.

Inflation is the ultimate wealth destroyer in most cases. One’s purchasing parity falls while prices rise. However one way to protect capital is go long on the prices that are increasing. One way is to allocate to commodity trading advisors that are trend followers. If there is inflation very possibly commodity trading advisors can achieve returns not see since the inflation period of the 1980s.Trend followers made fortunes then.

Andrew Abraham
www.myinvestorsplace.com

Andrew Abraham has been in the financial arena since 1990. He is a commodity trading advisor and co manager of a Commodity Pool. Since 1993 Andrew has been a proponent of quantitative mechanical trading programs. Andrew's major concern is not only total return on investment but rather the amount of risk that one would have to tolerate in order to achieve returns He focuses on developing quant models that encompass strict risk adherence and correlation. He has been a speaker at conferences as well as an author of numerous articles. Andrew has spent years researching ideas that have the potential to outperform indices as well as maintain fewer draw downs.

Visit Angus Jackson Partners (http://www.angusjacksonpartners.com) Contact: A.Abraham@AngusJackson.com (mailto:A.Abraham@AngusJackson.com)

© 2009 Copyright Andrew Abraham - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


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