Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
Central Bankers' Desperate Grab for Power - 18th Sep 19
Oil Shock! Will War Drums, Inflation Fears Ignite Gold and Silver Markets? - 18th Sep 19
Importance Of Internal Rate Of Return For A Business - 18th Sep 19
Gold Bull Market Ultimate Upside Target - 17th Sep 19
Gold Spikes on the Saudi Oil Attacks: Can It Last? - 17th Sep 19
Stock Market VIX To Begin A New Uptrend and What it Means - 17th Sep 19
Philippines, China and US: Joint Exploration Vs Rearmament and Nuclear Weapons - 17th Sep 19
What Are The Real Upside Targets For Crude Oil Price Post Drone Attack? - 17th Sep 19
Curse of Technology Weapons - 17th Sep 19
Media Hypes Recession Whilst Trump Proposes a Tax on Savings - 17th Sep 19
Understanding Ways To Stretch Your Investments Further - 17th Sep 19
Trading Natural Gas As The Season Changes - 16th Sep 19
Cameco Crash, Uranium Sector Won’t Catch a break - 16th Sep 19
These Indicators Point to an Early 2020 Economic Downturn - 16th Sep 19
Gold When Global Insanity Prevails - 16th Sep 19
Stock Market Looking Toppy - 16th Sep 19
Is the Stocks Bull Market Nearing an End? - 16th Sep 19
US Stock Market Indexes Continue to Rally Within A Defined Range - 16th Sep 19
What If Gold Is NOT In A New Bull Market? - 16th Sep 19
A History Lesson For Pundits Who Don’t Believe Stocks Are Overvalued - 16th Sep 19
The Disconnect Between Millennials and Real Estate - 16th Sep 19
Tech Giants Will Crash in the Next Stock Market Downturn - 15th Sep 19
Will Draghi’s Swan Song Revive the Eurozone? And Gold? - 15th Sep 19
The Race to Depreciate Fiat Currencies Is Accelerating - 15th Sep 19
Can Crypto casino beat Hybrid casino - 15th Sep 19
British Pound GBP vs Brexit Chaos Timeline - 14th Sep 19
Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - 14th Sep 19
War Gaming the US-China Trade War - 14th Sep 19
Buying a Budgie, Parakeet for the First Time from a Pet Shop - Jollyes UK - 14th Sep 19
Crude Oil Price Setting Up For A Downside Price Rotation - 13th Sep 19
A “Looming” Recession Is a Gold Golden Opportunity - 13th Sep 19
Is 2019 Similar to 2007? What Does It Mean For Gold? - 13th Sep 19
How Did the Philippines Establish Itself as a World Leader in Call Centre Outsourcing? - 13th Sep 19
UK General Election Forecast 2019 - Betting Market Odds - 13th Sep 19
Energy Sector Reaches Key Low Point – Start Looking For The Next Move - 13th Sep 19
Weakening Shale Productivity "VERY Bullish" For Oil Prices - 13th Sep 19
Stock Market Dow to 38,000 by 2022 - 13th Sep 19 - readtheticker
Gold under NIRP? | Negative Interest Rates vs Bullion - 12th Sep 19
Land Rover Discovery Sport Brake Pads and Discs's Replace, Dealer Check and Cost - 12th Sep 19
Stock Market Crash Black Swan Event Set Up Sept 12th? - 12th Sep 19
Increased Pension Liabilities During the Coming Stock Market Crash - 12th Sep 19
Gold at Support: the Upcoming Move - 12th Sep 19
Precious Metals, US Dollar, Stocks – How It All Relates – Part II - 12th Sep 19
Boris Johnson's "Do or Die, Dead in a Ditch" Brexit Strategy - 11th Sep 19
Precious Metals, US Dollar: How It All Relates – Part I - 11th Sep 19
Bank of England’s Carney Delivers Dollar Shocker at Jackson Hole meeting - 11th Sep 19
Gold and Silver Wounded Animals, Indeed - 11th Sep 19
Boris Johnson a Crippled Prime Minister - 11th Sep 19
Gold Significant Correction Has Started - 11th Sep 19
Reasons To Follow Experienced Traders In Automated Trading - 11th Sep 19
Silver's Sharp Reaction Back - 11th Sep 19
2020 Will Be the Most Volatile Market Year in History - 11th Sep 19
Westminister BrExit Extreme Chaos Puts Britain into a Pre-Civil War State - 10th Sep 19
Gold to Correct as Stocks Rally - 10th Sep 19
Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - 10th Sep 19
Stock Market Sector Rotation Giving Mixed Signals About The Future - 10th Sep 19
The Online Gaming Industry is Going Up - 10th Sep 19

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Long Term Bonds, Inflation and Deflation

Interest-Rates / US Bonds Sep 24, 2010 - 06:03 AM GMT

By: Tony_Caldaro

Interest-Rates

Best Financial Markets Analysis ArticleBeen thinking about Bonds, inflation, deflation, etc recently. Everyone seems to have a different opinion these days. Checking around all I could find on long term Gov't Bond rates was at the St. Louis FED. Could not find anything elsewhere. After reviewing the charts of Long Term Gov'ts since 1925, Moody's AAA since 1919, and Moody's BAA since 1919 ... I found a pattern.


In the 1920's when credit was flowing rates were declining. Then heading into the depression rates spiked momentarily after FDR increased the money supply dramatically when calling all the gold and raising the price from $20.67 to $35.00. Then during the main part of the depression rates continued to decline until the late 1940's. After that they started edging up into the 1950's until taking off in the 1970‘s and topping around 1980 or so.

Again credit started flowing as rates gradually declined, and they continue to decline. During the last deflationary cycle rates declined throughout the 1930's to 1940's. During this deflationary cycle rates are also declining as deflationary pressures persist. But here is the pattern.

The chart below notes the commodity bull market cycles, with 'green' arrows when they start and 'red' arrows when they end. Notice rates were declining heading into the depression. When FDR increased the money supply the commodity bull market began in 1933. That bull market continued until 1946, putting some inflationary pressure on the economy, and rates continued to decline. Rates did not start ticking up until after the commodity bull market was over in 1946.

The next cycle is quite different. Rates were rising from the late 40's/early 50's into the next commodity bull market, which kicked off in 1967. Look at the results of that bull market without deflationary pressures to offset it. Rates peaked right after the commodity bull market ended in 1980. Two commodity bull markets, two different results.

Now we jump ahead to the present. Rates have been declining since around 1980. Then continued to decline into the 1990's. This is similar to the decline in the 1920's. Deflationary pressures began around the turn of the century with the dotcom bust. The bull market in commodities kicks off in 2001. As commodities continued to rise rates, (except for a momentary spike), continued to fall. This is similar to the 1930's. Again the commodity bull market is offsetting the deflationary pressures in the economy.

When we look at 1929-1933 we see a total deflationary collapse. The stock market lost 90% of it value and unemployment soared to 25%. Commodities at that time were in a bear market too. It wasn't until FDR called all the gold and dramatically increased the money supply in 1933, which kicked off the commodity bull market, that things started to stabilize. Rather than going through a similar deflationary episode this time around Greenspan left rates low for a long time and kept liquidity flowing. This averted the first wave of the collapse, but it created new bubbles in real estate and the financial instruments. When those bubbles burst in the second wave of deflation, Bernanke started the printing press and dramatically increased the money supply. What followed was a myriad of alphabet soup programs, $875 bln from the gov't, etc., etc. etc. The FED/Gov't flooded the system with money. For the past two years the FED has been buying Gov't agency bonds to keep mortgage rates low, and Gov't bonds to support the expanding debt. Recently they announced they are buying further out the yield curve, which is exactly what the FED did in the 1940's to keep rates low.
What was old, is now new again.

Conclusion.
Long term rates, including AAA corporate’s, should continue to decline or hold steady until the commodity bull market ends in 2014.
Around that time deflationary pressures will probably have lost its effect on the economy.
Rates will start moving higher after the FED is comfortable that this has occurred. This is likely to occur during the next stock bull market cycle after 2014.

Rates will then start to normalize again in the area of 5% until the next commodity bull market kicks in. Then hyperinflation.
When a commodity bull market occurs during a deflationary period the net effect is low inflation.
When a commodity bull market occurs during normal times the net effect in high inflation.
Interesting world. When Gold tops in 2014 most will think inflation is dead and rates can now stay low for a long time. Then over the next several years the exact opposite will occur. One has to love historic quantitative data.

http://caldaroew.spaces.live.com

After about 40 years of investing in the markets one learns that the markets are constantly changing, not only in price, but in what drives the markets. In the 1960s, the Nifty Fifty were the leaders of the stock market. In the 1970s, stock selection using Technical Analysis was important, as the market stayed with a trading range for the entire decade. In the 1980s, the market finally broke out of it doldrums, as the DOW broke through 1100 in 1982, and launched the greatest bull market on record. 

Sharing is an important aspect of a life. Over 100 people have joined our group, from all walks of life, covering twenty three countries across the globe. It's been the most fun I have ever had in the market. Sharing uncommon knowledge, with investors. In hope of aiding them in finding their financial independence.

Copyright © 2010 Tony Caldaro - 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.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules