Simit Patel

How Investors Can Profit from the Coming Bear Market in Bonds

Hi doubleguns,

Thanks for your comments. If the Fed raises rates to increase demand for bonds, that will have the effect of tightening the money supply. technically speaking, tightening the money supply is deflation.

i expect, though, that demand for the US dollar will still decline and will do so faster than supply for dollars declines, and thus i would still expect a weaker dollar even if we have monetary deflation. ultimately, though, i am expecting the fed to buy most of the bonds, and thus for most deficit spending to be inflationary as the fed will just print money to buy the bonds.

there are, however, those who believe we will see ongoing deflation and dollar strengthening. the rationale is that the fed will raise rates to increase demand for treasuries, which will increase demand for US dollars and a higher yield will increase investors willingness to hold dollars. so it depends on how you view things. my personal view is that the fed will end up buying most of these bonds which will prove to be inflationary, and that even if the fed tries to raise rates, demand for US dollars will continue to decline, so i am expecting dollar devaluation, and will look for opportunities to trade accordingly (i make entry decisions based on when price movement begins to confirm fundamental economics).

hope that makes sense. :)


On Nov 05 06:28 PM doubleguns wrote:

> Simit, My straight forward question is when the bond is deflating
> is every thing else inflating? Sorry I sometimes cant think and type
> at the same time.