Inflation vs Deflation
- Thread starter meanreversion
- Start date
- Watchers 17
lol yeh, i had a look at that...not sure i totally get it, had a look at that bit of that stuff b4 but don't quite get the reasoning...that blog has got less accessible since MM left. I thought using the difference between a inflation linked and a normal bond but wasn't 100% sure how it worked. It would give an interesting idea though as it looks like deflation is becoming the consensus.
Martinghoul
Senior member
- Messages
- 2,691
- Likes
- 277
There's all sorts of things you can do... The most straightforward way is to look at one of the inflation-linked mkts. For example, one of the most commonly used measures, 5y 5y fwd b-e inflation, in USD has come down to something like 2.1% from smth like 2.8%. There's also other measures.
I think the idea of the post is this:
In a deflationary period, the spread between teh 2nd and 6th Eurodollar futures should be somewhere around 20bps...
... and in a "U shaped" recovery the spread should be around 250bps
then if the spread is now 50bps we can figure out the "weightings" (or probabilities) that we can assign to each of the two outcomes (either 20bps or 250bps) and it turns out that to arrive at teh present 50bps the probability of a 20bps spread (i.e. deflation a la Japan) is 87%.
The author does go on to say that this is a little high for his liking.
Thats how I interpret it anyway.
As for TIPS and regualr bonds, I think teh idea is that TIPS are priced "at breakeven" as they have the same credit quality.. so by looking at the difference between the two you can get an idea of the markets expectations of future inflation.
In a deflationary period, the spread between teh 2nd and 6th Eurodollar futures should be somewhere around 20bps...
... and in a "U shaped" recovery the spread should be around 250bps
then if the spread is now 50bps we can figure out the "weightings" (or probabilities) that we can assign to each of the two outcomes (either 20bps or 250bps) and it turns out that to arrive at teh present 50bps the probability of a 20bps spread (i.e. deflation a la Japan) is 87%.
The author does go on to say that this is a little high for his liking.
Thats how I interpret it anyway.
As for TIPS and regualr bonds, I think teh idea is that TIPS are priced "at breakeven" as they have the same credit quality.. so by looking at the difference between the two you can get an idea of the markets expectations of future inflation.
BSD
Veteren member
- Messages
- 3,819
- Likes
- 988
I think it's a tad boring with just two options, so let's dig out that old standby stagflation just to round things off and provide us with another much needed alternative !
Atilla
Legendary member
- Messages
- 20,843
- Likes
- 4,026
I think there are so many opinions flying around it is difficult to see the woods from the trees. I am still well puzzled by all the inflation, deflation, disinflation and stagflation debates ensuing. Confused - you will be once you've read all about it.
With my layman's cap on - here is what I see. Prices at the pump, public transport travel tickets or supermarket prices all rising. Even my freaking gardner charges the same rates as I do. Either his prices are too high or I'm being screwed. What on earth is the world coming to...
It almost reads like the X-files.
The truth is out there.
Trust no one.
I want to believe but reality ain't no match to fiction...
With my layman's cap on - here is what I see. Prices at the pump, public transport travel tickets or supermarket prices all rising. Even my freaking gardner charges the same rates as I do. Either his prices are too high or I'm being screwed. What on earth is the world coming to...
It almost reads like the X-files.
The truth is out there.
Trust no one.
I want to believe but reality ain't no match to fiction...
montmorencyt2w
Senior member
- Messages
- 2,619
- Likes
- 294
Atilla
Legendary member
- Messages
- 20,843
- Likes
- 4,026
Just goes to show how much I know...
Inflation
Deflation
Disinflation
Biflation
Agflation
Hyperinflation
Stagflation
Fellation :cheesy:
meanreversion
Senior member
- Messages
- 3,398
- Likes
- 538
Wait a minute, isn't this just a fancy term for what we've always had, but the other way round? The cost of TVs, cars, food and so on fell whilst house prices were rising?
Atilla
Legendary member
- Messages
- 20,843
- Likes
- 4,026
Chainflation - cost of input price rises -> output price rises ... :clap:
Am I famous yet... :cheesy:
Last edited:
meanreversion
Senior member
- Messages
- 3,398
- Likes
- 538
Sinflation - I can't believe what teenagers get up to these days.
meanreversion
Senior member
- Messages
- 3,398
- Likes
- 538
Binflation - councils find it increasingly expensive to provide refuse collecation, year after year.
meanreversion
Senior member
- Messages
- 3,398
- Likes
- 538
Chinflation - Kerry Katona's been eating too many pies again.
N Rothschild
Legendary member
- Messages
- 5,296
- Likes
- 603
Biflation, what tard invented that? Called disinflation. http://en.wikipedia.org/wiki/Disinflation
meanreversion
Senior member
- Messages
- 3,398
- Likes
- 538
Roubini is like, such a contrarian, maverick kinda shoot from the hip guy. He correctly called the stock market collapse three years before it happened, he's very advanced and all.
Egoflation?
Egoflation?
Atilla
Legendary member
- Messages
- 20,843
- Likes
- 4,026
Too true all these labels so OT!!!
I'm thinking the opposite of acceleration is deceleration! Not diseleration.
It then follows that the opposite of inflation is deflation? What on earth is disinflation but corruption of Her Majesty's English...
N Rothschild
Legendary member
- Messages
- 5,296
- Likes
- 603
it is a decline in the rate of inflation..i.e the rate at which prices rise getting slower and slower..
deflation is negative inflation..
deflation is negative inflation..
