Originally published February 15, 2018.
Surprise! When there’s too much money created by central banks, inflation is the obvious byproduct. This isn’t rocket science, although bankers have the ego to believe that it is.
Pure and simple, inflation is a monetary event. Picture a car flooded by too much gasoline—it doesn’t work—and you realize the predicament investors are in thanks to the Federal Reserve.
It’s why you keep your bond maturities short-term and hold on to your GNMA.
Yes, rates need to be higher. And perhaps there will be a time to invest in bonds with longer maturities. But I’m not in the timing business.
At the end of the day, when times are tough, the politically charged central bankers lack the will to dramatically increase rates to a level they should have been at years ago. That doesn’t mean they won’t chip away at the problem to save face. This is politics after all.
In the meantime, continue your course of adding to your bond component strategy, especially when prices are down.
