If you can predict inflation in advance, you can certainly make the ideal choice!
Too bad you can't.
-W
Trillions of dollars invested in the bond market don't seem to think inflation is a significant risk. 30 year Treasuries have been below 1.5% for months now.
Has the bond market not been badly distorted by CB liquidity? I'm far from an expert here.
Not an expert either, but:
Maybe the market's been distorted "goodly" by Central Bank liquidity. Maybe the liquidity is needed and that need is greater than the inflation risk. This would mean that the CB is making wise decisions. Sounds strange, but it's conceivable.
If the liquidity was distorting markets in a manner likely to cause inflation, rational bond buyers would require higher rates than 1.5%, wouldn't they?
(leans on cane, peers over reading glasses) When I was a kid, Treasury bonds were paying 13%.
Is it reasonable to believe that many markets have been disrupted by this manipulation? Stocks and assets via interest rates, etc.
It's reasonable to believe that many markets have been affected by this manipulation. As far as disrupted, it's reasonable to believe that coronavirus-related shutdowns probably put a lot of markets at risk of disruption (collapse, actually) but the CB's intervention is more likely to have kept those markets functioning instead of collapsing. That's the CB's job. It's possible that in the long run, CB intervention created some risks that wouldn't have existed, but it's reasonable to believe that those risks are only possible because the CB kept markets afloat in the first place.
How much pricing has been interfered with by central banks inventing demand where it wouldn't otherwise exist?
Lots of pricing has been interfered with, in the sense that markets may well have collapsed without it. Adding demand to a system where demand is plunging probably has the effect of stabilizing the system. It's hard to say whether the resulting prices are perfect from any particular viewpoint, but they might be better than the ones that would have happened without the "interference".
Which, again, is the CB's job. It was created to interfere with prices in order to keep them from periodically collapsing.
It's possible that it still hasn't produced enough demand. That the ongoing economic collapse from coronavirus-related shutdowns will end up swamping the system. I agree it looks weird that stocks are high while unemployment is higher, that bonds appear secure for now when they could have been heading for default, and that tons of new money doesn't yet cause inflation. But the money appears to be needed, and so far doing more good than harm. It remains to be seen whether the asset inflation, an indirect stimulus, will preserve enough economic activity to prevent sustained collapse.
I suppose that the inflation-preventing key is to wind down the bond buying when other demand ramps up. Only time will tell if that will work. If you can tell now what will happen, you're more knowledgeable than I am.
BAR BATTLE
One time, a big guy in a bar grabbed my wrist and looked challengingly down at my face. I did nothing (not a fast thinker). Then he shoved me by surprise, hard, toward the ground.
By the time I knew he'd shoved me, I was standing about four feet back, perfectly balanced, arms in the same position of modest readiness as before. My martial arts practice from years before had saved me. The ensuing staredown ended when he realized his intimidation hadn't worked; after a pause, he let his scowling girlfriend drag him away from the stupidity.
I feel like our current position is a bit similar. We've been tossed backward by a sudden downwards shove. Our prepared reflexes, some in the form of CB intervention and some in the form of stimulus, have helped us keep our balance for now to some extent. They're moves in probably the right direction, but what happens afterward is anyone's guess.