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I imagine you'd agree the U.S. has different monetary policy in the 1970s than it did today. I recall an expert say because the monetary policy has changed, dis

I imagine you'd agree the U.S. has different monetary policy in the 1970s than it did today. I recall an expert say because the monetary policy has changed, discussing the 1970s isn't useful. I don't believe there's any question we have a different monetary policy today than we did in the 1970s. The bond market is not predicting high inflation. I believe experts would say the 1970s are not relevant. So that's where we are.

voisin 5y ago
> The bond market is not predicting high inflation. I believe experts would say the 1970s are not relevant. I think it is at least partially relevant that no one working in bonds in 2021 was working in bonds in 1971/1973 period discussed here. It is fun to talk about these past periods but it is very much theoretical for most traders and lessons are hard to remember in your own lifetime let alone from the lifetimes of predecessors. I encounter this constantly in my profession, which is also heavily reliant on valuation and interest rates. No one in my field today has direct experience of rising interest rate environments since rates have been on a continuous decrease for decades. Even older folks that remember double digits rates still act as if rate can never go up again. They throw caution to the wind. As a result, the market is incredibly susceptible to issues if rates ever do go up. It is mind boggling.
jazzyk 5y ago
The bond "market" is dominated by Fed purchases (with money created out of fresh air), to keep borrowing costs low (aka QE). They are following the BoJ, which now owns around 70% of all government bonds. This charade can continue for a while longer, but what happens when governments own 100% of their own debt and all mortgage debt (MBS in the US)?
- anotherman554 5y ago
  Instead of relying on my own "ideas" on economics, a field I have no training in, I would simply stick to one of the two sources cited here for inflation predictions: " There are two popular methodologies for predicting inflation. The first is to rely on the Survey of Professional Forecasters, the oldest US survey of macroeconomic forecasts by economists, and the second is to rely on the breakeven rate, the spread between the US Treasury yield and the yield for TIPS, as a measure of market expectations." https://mailchi.mp/verdadcap/on-inflation?e=3cd9e40509 https://mailchi.mp/verdadcap/on-inflation?e=3cd9e40509

voisin 5y ago

> The bond market is not predicting high inflation. I believe experts would say the 1970s are not relevant. I think it is at least partially relevant that no one working in bonds in 2021 was working in bonds in 1971/1973 period discussed here. It is fun to talk about these past periods but it is very much theoretical for most traders and lessons are hard to remember in your own lifetime let alone from the lifetimes of predecessors. I encounter this constantly in my profession, which is also heavily reliant on valuation and interest rates. No one in my field today has direct experience of rising interest rate environments since rates have been on a continuous decrease for decades. Even older folks that remember double digits rates still act as if rate can never go up again. They throw caution to the wind. As a result, the market is incredibly susceptible to issues if rates ever do go up. It is mind boggling.

jazzyk 5y ago

The bond "market" is dominated by Fed purchases (with money created out of fresh air), to keep borrowing costs low (aka QE). They are following the BoJ, which now owns around 70% of all government bonds. This charade can continue for a while longer, but what happens when governments own 100% of their own debt and all mortgage debt (MBS in the US)?

anotherman554 5y ago
Instead of relying on my own "ideas" on economics, a field I have no training in, I would simply stick to one of the two sources cited here for inflation predictions: " There are two popular methodologies for predicting inflation. The first is to rely on the Survey of Professional Forecasters, the oldest US survey of macroeconomic forecasts by economists, and the second is to rely on the breakeven rate, the spread between the US Treasury yield and the yield for TIPS, as a measure of market expectations." https://mailchi.mp/verdadcap/on-inflation?e=3cd9e40509 https://mailchi.mp/verdadcap/on-inflation?e=3cd9e40509