Can Japanese Rates Happen Here?
The last time we visited the Oracle of Delphi was in
The purpose then and in today's restatement is not to glamorize the substance-induced hallucinations of our pagan predecessors around the time of Halloween -- that would be wrong, wouldn't it? -- but to emphasize that free will does not always operate in the manner intended. After all, we baby boomers were raised to believe both religious wars and infectious diseases were things of the past. How well have those triumphs of the rational endured?
Rising energy prices certainly qualify as the dominant market story of 2004, but the persistent bull market in bonds has to be a close second. The links between these two developments have been the Federal Reserve's refusal to offset the implied tax increase from higher energy by continued monetary ease, and the decline in inflationary expectations engendered by the combination of a flattening yield curve and this implied tax increase.
To top off the confusion, not only have the inflationary expectations as measured by the spread between Treasury inflation-protected securities (TIPS) and regular government bonds decreased since May, they have inverted as well. The consumer price index (CPI) is expected to increase at an average rate of 2.625% over five years, but only 2.371% over 10 years. The TIPS market is making something of a path-dependent forecast, and those have a lower success rate than regular forecasts, which scarcely have a success rate at all.
|Inflation Expectations At Various Horizons
|TIPS Yields Retreat With Rising Volatility
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV