No Stagflation Nightmare?

Fed chairman sees period of slow growth
WASHINGTON — Federal Reserve Chairman Ben Bernanke said Thursday that economic growth will slow noticeably in coming months while surging oil costs will raise inflation pressures. But he said the economy is nowhere close to the stagflation nightmare of the 1970s and he predicted an economic rebound by mid-2008.

Why are we even talking about stagflation nightmares? As long as people don't start hoarding like I am then we'll get through this period with nothing more than a flesh wound. There is no reason to panic.

5 Ways to Survive the Dollar's Dive
Stockpile non-perishable goods you know that you will need and use when you see a good deal.

Oh oh.

Look, I'm just trying to find a reason to be optimistic. There's just so much money now. As long as investors don't start comparing treasuries to bananas (thereby driving up the price of both) we'll be just fine!

U.S. Three-Month Bill Yields Tumble as Subprime Concern Rises
``There's so much money now that's seeking to get away from risk and toward riskless securities,'' said Walter Burke, a fixed-income technical strategist in New York at Merrill Lynch & Co., one of 21 firms that trade directly with the Federal Reserve. ``People are buying Treasuries like bananas as soon as stocks go down. I've never seen such a tight correlation.''

Oh oh.

I must be able to find something good in this. I know. With so many rushing to treasuries, surely inflation expectations must be coming down!!!

Treasury Yield Curve Steepest Since 2005 on Tumble in Stocks
Inflation expectations are close to the highest since June, as measured by the yield difference of regular bonds over Treasury Inflation Protected Securities, or TIPS. Ten-year notes yielded 2.40 percentage points more than similar-maturity TIPS, compared with a gap of 2.19 percentage points in early September. The difference reflects investors' expectations for inflation over the next decade.

Oh oh.

Okay, I'm going to give this one more shot. IEF is a non-inflation adjusted treasury bond fund and TIP is pretty much its inflation adjusted treasury bond fund counterpart. I'd only be concerned if the volume of trading in TIP is well above its three month average volume, the volume of trading in IEF was well below its three month average volume, and TIP is currently outperforming IEF. That's when I'd be nervous!!!!!

IEF
Today's Gain: 0.60%
Today's Volume: 276,680
Average Volume: 356,618

TIP
Today's Gain: 0.87%
Today's Volume: 342,683
Average Volume: 196,229

Oh oh.

This is most certainly not investment advice. I'm merely commenting on where we are, not where we are headed. That may or may not be all that useful. I could have just as easily commented where we were at the top of the dotcom bubble too.

However, that being said I'm comfortable being a stagflationist for yet another day.