Arnbjorn Ingimundarson

Inflation Risk Is Underpriced

Karl, I think you are doing yourself a disservice by dismissing everything associated with Friedman out of contempt for his political views. Even if the real world applications of monetary economics are more complicated than the neat MV = PY equation you will see in textbooks, the concept of money supply is hardly an absurd one.

Surely you would agree that if every household were sent a million dollars in the mail, inflation would be unavoidable. Hypothetical examples aside, if you think inflation can only occur during boom times, you need look no further back than to the 70s for an example to the contrary.

Inflation Risk Is Underpriced

nym: I wanted to focus on the money supply and inflation expectations in the bond market in this article. I do agree that once inflation expectations increase, investors will again look to commodities and I can see commodity prices rising sharply again in the not too distant future. I will probably write a separate post on this later.

Chris B: Thanks for a thoughtful comment and the ETF suggestions.

Inflation Risk Is Underpriced

Thank you for your comments.

The basic reason ultrashort funds are dangerous over long periods of time is that they amplify daily moves. Therefore, if you suffer a large down move, it will take more than a corresponding move in the opposite direction to break even.

seekingalpha.com/artic...

This is a link to an article written by Marc Gerstein in defense of leveraged ETFs. It has links to other articles so you can see both sides of the story and decide whether leveraged ETFs are for you or whether you would be safer staying away from them.

Inflation Risk Is Underpriced

cma,

You are right about the ultrashorts -- they are only good for short-trem positions. The flaws of ultrashort (and ultralong) funds hvave been brought up in many articles, so I did not see a reason to explain it here. Therefore I just mentioned that timing was important and advised caution. For longer term positions, other ways of shorting treasuries would be preferable.

Arnbjorn