The stagflation making gold ready for a solid bull run along with oil – should you sell the bonds?
Joe Weinman
Jul. 2, 2007

We all know stagflation is here. Stagflation is a combination of stagnating economy and rising prices as well as wages. The inflation part is coming from the increase in the price of the raw materials. The wage inflation is very mild as China and India continue to export their wage deflation. The inflation and stagnating economy due to real estate fall-outs, higher gas prices, and huge public and private debt have created a scenario for crude oil and gold go through the roof. When gold and oil rises together, inflation is rampant.

The biggest question is: what should you do with you corporate junk bonds, and Treasury Notes and Bonds. The Fed will be forced to lower the rates to support the sub prime mortgage sector and the residential real estate in general. But that does not mean that the longer end of the bond market will rally and long yield come down sharply.

Analytics, fundamentals, and technical charts point to the increase in the longer end of the yield spectrum and lower short-term rates. That means you should sell your bonds with two or more years left in maturity and but short-term notes and bill. The spread of buying the short end and selling the long end may work well also.

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