I haven't had much to say lately, hence the lack of posts. But, today, I break that trend and return triumphantly to harp on my "we will not see deflation" viewpoint.
Not too much has changed in the past couple of weeks. Maybe more people are better discounting the rosy spin on CNBC and the like, recognizing that this recession probably hasn't ended. And, with that, a growing fear of deflation is taking hold. It could've been argued earlier this year that the consensus view was that inflation would win out, and very quickly. Hence, many an analyst who thought the 10-year would be closer to 5% right now than 2%. And with the evolution of that view, a greater sense these days that fixed income is the right place to be.
I hesitate to tell you that treasuries saw their final shining moment when the 10-year dipped below 2.5%. And I also won't argue that income doesn't have its rightful place in a portfolio. Still, I think it's time to be very careful with bond investments. While I could see a bond market that experiences another rally during 2010, I feel confident that over time, someone who buys US sovereign debt at these levels will regret it. Yes, wages are compressing for many, the employment picture is tough, so income should be sought in some manner. I would just avoid Uncle Sam's promises as part of that approach.
The point to remember is that the government favors inflation to deflation, and will do all in its power to ensure the former. It will print, stimulate, quantitatively ease, and whatever else is out there to achieve its goal. So, indeed, while in the natural state of things deflation should be reality given what we've experienced, it's chances of actually happening are slim to none.
