conciously_naive

Big Risks, Big Opportunities

I think people are not fully grasping the concept of inflation here. The point Bill Gross is making is that the money printing going on today is just replacing the money being lost. That does not spur inflation. On the other hand, it does lead to the potential devaluation of our dollar, which would lead to higher prices of any imports, which would cause inflation. Inflation is usually a supply demand game, and right now there is no demand and enough supply.

As far as the quest to time it, I dont think we need to know exactly when deflation stops and inflation reignites, which is inevitable, unless you think the world is coming to an end. It is more important to just watch the expectations. This can be measured to some degree in commodity prices, but more so in TIPS versus their Treasury counterpart. Right now, there are 5 year TIPS yielding less than a 5yr Treasury, implying negative inflation for 5 years. The only thing to own during inflation is cash/equivalents, so if you think that we will have deflation for 5 years, then sit on your hands.

If you think, on the other hand, that the markets will be back to operation in five years, than buy the TIPS. I dont think this is a "fatal" move, as the author suggests. TIPS are issued from the government, so there is limited default risk(once again, we go back to the world ending).