Buy the short end and sell the long end of the Treasury – play the stagflation equation
Alex Roja
Jun. 20, 2007

It is time to bet on the effects of the stagflation. The economy is stagnating. The commodity and wage inflations are firming. There is shortage of people in the burger flipping jobs. The Asian giants India and China are reporting hyperinflation is wages.

At the same time, the US economy is stagnating at 1.5% and a matter of fact, by first quarter of 2008, it can stagnate to total flat – no growth. That is called stagflation. What do you do in that environment?

How to play the short and long end of the yield curve?

The economic stagnation will force Fed to lower the short-term rates moderately for now and sharply in 2009. The global inflation will skyrocket the long term yield to 12% or above by end of 2009 unless the world economy gets depressed by then.

Stagflation is always followed by deep recession or depression. But for now, the shorter end of the yield curve will approach 0% and the longer end will approach 12%. At first inflation will show its teeth with total economic stagnation and then finally deflation will take over as economy goes into deep depression.

Buy the short end and sell the long end of the Treasury – play the stagflation equation
Alex Roja
It is time to bet on the effects of the stagflation. The economy is stagnating. The commodity and wage inflations are firming.
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