Bill Fleckenstein is someone who’s writing and analysis we have followed for many years. In this article he makes a very important point, which is that the majority of people are still worrying about deflation, when in reality, inflation is the real threat.
From the article:
“So we now live in a world where not only are central banks intent on producing inflation, but the G-7 industrialized countries also all want their currencies lower. Paradoxically, the conclusion of the bond market is to worry about deflation when the logical result is inflation.
I, for one, think that game has ended. But the bond market certainly has not begun to factor in success of the central banks in debasing their currencies, or making them decline against the value of goods and services, something that has occurred even as the world has yapped about deflation”.
Bill concludes by talking about the fact that the majority of investors have sought “safety” in bonds, when in fact, in an environment of rising inflation, bonds are anything but.
“Folks are going to lose gigantic amounts of money in bonds, as they did in our two bubbles, and, at some point, that may add a new group of buyers to the precious metals market. Unfortunately, those people who are the last to move into the metals market will find a fourth way to lose money, but that is getting way too far ahead of ourselves”.
The bubble in government and corporate bonds is without doubt the biggest distortion in the global economy today. At this stage in the cycle bonds are a very dangerous place to put your money. Far from being “risk free reward”, we see them as “reward-free risk”.
In the months and years ahead, bond holders face default risk, interest rate risk, and inflation risk, but very few people see it.
Also see the recent 247bull.com article Bond bubble could see the sky-fall.