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The Bond King says beware of bonds during inflation. Me too.

Posted by John Reed on

https://www.cbo.gov/publication/56598
I have been saying we are going to get hyperinflation since 2010 when my first edition of How to Protect Your Life Savings from Hyperinflation & Depression came out.

How to Protect Your Life Savings from Hyperinflation & Depression, 2nd edition book

The Figure 1 graph below shows the main evidence. Note that it is a product of the Congressional Budget Office—not the Milton Friedman fan club.
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A graph of the Fed balance sheet looks even worse and it is more to the point.
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I have said that politicians blame inflation on Wal-Mart and Exxon and Bernie and Pocahontas have already have done exactly that. Now Biden is blaming Putin’s invasion of Ukraine.
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1. It real does not matter where hyperinflation comes from when it comes. At least people stopped denying that higher inflation was here.
2. The biggest expert on inflation was the late Milton Friedman whom Biden loves to say is no longer in charge.

Friedman famously and accurately said, “Inflation is always and everywhere a monetary phenomenon.” That means it has one cause: The Fed “printing” too much money. “Too much” roughly speaking is a rate of money growth faster than the growth rate of the economy.

The Figure 1 graph below shows the money supply growing faster than the economy. It also means Putin is not the cause. Putin has a little power to mess with oil and gas supply and thereby its price. But inflation does not affect just one price and the current inflation is all but ubiquitous. So neither Friedman nor common sense allows blaming rises in all prices on Putin.
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I thought we might not get any warning. But we have gotten a ton of warning. However, all the “how to protect yourself from inflation” articles give the same bad advice: stocks, TIPs bonds and I bonds. Period. That is nuts.
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Buy real estate, stockpile food, fuel, medicine, bullion or base metal coins, borrow the biggest mortgage you can safely afford, foreign currency. Coins and foreign currency are liquid. You need some liquid assets to protect your ability to pay your bills.
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What you need to minimize is dollar-denominated assets and owning any bonds, annuities, or IOUs where you are the lender.
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Financial experts have long said that the percentage of your assets in bonds should match your age. In other words, the older you get, the higher the percentage of your net worth should be in bonds. The truth is NO ONE should own bonds
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There was a review of the book The Bond King in the Wednesday Wall Street Journal. The Bond King is Bill Gross, founder and former head of PIMCO. He was the undisputed master of the bond market.
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So when I, Jack Reed, say do not buy bonds, you may think it is preposterous for me or anyone else to say do not buy an entire asset class. Zat so? Here is the last sentence of that book review:
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“Beware of inflation, [Gross] cautioned—indeed, wrote the Bond King, by the same reasoning, beware of bonds.”
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Told ya.
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In CBO’s projections, federal debt held by the public reaches 107 percent of GDP (surpassing its historical high) in 2031 and continues to climb.

 


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