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Sunday, November 29, 2009

TBCS Guest John Rubino: 'Long-Term Bonds And The End Of Our World'

Nouriel Roubini warns that an asset bubble is building as money chases commodities. Asian countries are considering capital controls to stem the inflow of hot money. The Wall Street Journal reports that rare coins are soaring at auctions, with a single penny recently breaking the $1 million barrier. U.S. stocks and crude oil are up 60% and 105%, respectively, from their post-crash lows. And of course gold is at a record high.

Looks like the stimulus orgy worked: Speculators are back and scooping up pretty much everything in sight.

Yet long-term bonds are just sitting there, which isn’t what you’d expect at the beginning of another inflationary boom. Because bonds trade on inflationary expectations their yields should be rising and their prices falling. Why aren't they?

One possible explanation is that the bond market doesn’t believe the new commodity bubble is for real, and expects a double-dip recession to send long-term rates even lower. That’s not unreasonable, given the bad recent U.S. housing news and the widely-anticipated commercial real estate bloodbath. So next year stocks tank, the economy contracts, and bonds are the place to be. Here's blogger Mike Shedlock's take on the coming deflation.

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