Inflation On The Rise

Inflation whether you have noticed is already on the rise.

Just look at the sovereign debt markets. Yields are up and bond prices down. Fed Chair Yellen and Bank of England headman Carney have said they will let inflation build. Yellen called it, high pressure economy. What would central bankers be without some catch term?

So here's the question: Will inflation be a short term or longer term affair. In short, an afternoon quickie or one more enduring? That's the question investors need to be considering now, particularly once the U.S. election is history.

As the Financial Times pointed out today:
"Global government bonds are facing their largest monthly losses in more than three years, as investors fear that the anchors of a rally that drove sovereign bond yields to record lows this summer are under threat.

Broad unease in sovereign bond markets has resulted in the largest drop in monthly total returns since May 2013, according to JPMorgan, led by a sell-off in British government debt.
While the gilt market is handicapped by the inflationary threat of a weaker currency, bond investors are also grappling with the prospect of the Federal Reserve raising interest rates in December and uncertainty over divisions at the European Central Bank over the future of its quantitative easing programme.

“What is coming into focus is the notion that QE may be going out of fashion,” said Adrian Hilton, fund manager at Columbia Threadneedle Investments."

In case yo don't recognize it, prices of bonds are receding and yields are climbing as central bankers are tossing in the towel on their best laid-monetary-easing plans that have gone awry when it comes to recovering global economies. Say hello to ECB President Mario Draghi. In a recent post, financialspuds.blogspot.com/2016/10/rigged-cpi,we mentioned TIPS, inflation protected securities. A sister article in today's same issue of the Times headlines, investors just dumped $1.1 billion into TIPS, the largest inflow since early 2015. Recall jawboning works--or at least it's tried--in both directions.

Our sense of it is inflation will be more of a long term rather than short term thing. Coming off these abnormally prolonged, artificially-held low rate, it won't much to cause serious damage to your portfolio, especially if you're in the wrong places at the right time. Look for central bank bureaucrats and regulators to do exactly the wrong thing at the right time here. Slow growth and inflation made worse by bureaucrats and politicians.

This won't be the good kind CBers hope to see.