Yield curve predicts Inflation

There is a record wide spread on the yield curve currently. A record breaking 287 points. For those of you who do not know what the yield curve isג€¦it is the difference between the 2 year and 10 year notes. Usually when there is a difference like this it usually means rapid economic growth as well as Inflation. This time because governments all over the world have run the printing presses and inflation is more of a potential outcome. The US Treasury is expected to issue as much as $2 trillion in government debt in 2010. The fact is the two-year note is currently yielding 0.92 percent. At the end of November, it hit a closing low of 0.66 percent, lower than at any time in the last 25 years. The next reality is that an inverted yield curve has often preceded recessions over the past 70 years, including the Great Depression.

Contraryג€¦ there can be a weaker recovery with slower growth could cause the curve to flatten a bit and more so ג€¦ if the economic indicators are less robust investors might return to longer dated treasuries. Nothing is certainג€¦and just the idea of prediction is an anti thesis for most trend following commodity trading advisors.
Inflation is the ultimate wealth destroyer in most cases. Oneג€™s purchasing parity falls while prices rise. However one way to protect capital is go long on the prices that are increasing. One way is to allocate to commodity trading advisors that are trend followers. If there is inflation very possibly commodity trading advisors can achieve returns not see since the inflation period of the 1980s.Trend followers made fortunes then.

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Andrew Abraham
A.Abraham@AngusJackson.com
www.AJpartnersinc.com
www.myinvestorsplace.com
Futures trading involves risk. People can and do lose money

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