NB the unofficial figures are from 2005 i.e. before some of the recent spending kicked in!

@Niklas – Thanks, yes, not very appealing at current inflation rates but well worth keeping in mind for the reasons you state. To be honest on the pure inflation view, I’m happy with equities/commercial property at the moment. What I should probably do to reduce volatility a tad is hold more cash… I’m too greedy at the moment!

Was it Mr Friedman who noted that ‘inflation is everywhere a monetary phenomenon’ (I didn’t think there was a codicil about output gaps)? i.e. there would be a lot of countries with high unemployment who have still had high inflation…

It’s the globally synchronised nature of govt bond issuance that’s interesting to me. There was an astonishing table in Moneyweek in Oct (I think originally from Societe Generale but I can’t find a link to it) that showed the unfunded liabilities plus level of ‘admitted to’ govt debt for about 20 countries that was pretty scary (l’ll try and find it and post from Twitter @smsfs). Actually made Britain middle-ranking in terms of the scale of the problem.

The yield situation is a lot less crazy now, and shorting to me looks risky with the future so uncertain. As FS alludes to, there’s an easy case to make for saying there’s not lots/any of inflation on the way – the main reason bond markets are so expensive is because nearly all traders are so relaxed about the chances of an inflation spike. (Plus weird technical factors like QE).

My view though is 20 year bull runs tend to end, and inflation is perhaps the least predictable of all unpredictable economic factors. When not if, I think — but I still wouldn’t short – not least as FS says because it’s going to be expensive while you’re wrong!

In terms of pigs at the trough metaphor, which I kind of like, yes, I see your logic. When you think the UK has bought £200 billion or so gilts in the past six months, and the government is going to have to keep issuing more and more debt without that willing buyer (who will eventually turn seller…)

Leaving aside investing, it’s certainly a reason to be pretty sure whatever Government gets in next Spring they’re going to have to slash public spending (otherwise bond markets will impose the hardship for them, via higher interest rates (to reduce consumption etc / i.e. Sterling crisis)).

So yes, I see your logic. But I’ve very rarely shorted anything. Perhaps someone more experienced will come along and add their views! I’m pretty much a long-only share/cash investor.

In the US, we’ve been in a 20yr bond bull run, what makes people think inflation will spike with all such a huge output gap? It won’t, no matter how much monetary expansion there is.

You can short bonds if you want, but remember when you short, you PAY a the dividend, so you have to bake in that rate to your effective rate of return.

FS

I have shorted something once in my life (and regretted it) but this is tempting (tell me I’m an idiot – go on…) using perhaps a short bond ETF?