Flattening US yield curves have recently inverted forewarning of recession ahead and an end to the bond bubble – not only in America but globally. The record level of outstanding global debt (personal,corporate and sovereign debt) has never been more vulnerable to rising rates now than at any time throughout history.
During deflation all risk assets (stocks, bonds, commodities and real estate) deleverage and crash. And the coming deflationary era will likely eclipse all previous. Investors should be focused on return of investment, not return on investment for the next few years. But they aren't. They're chasing yield in earnest like never before (since at least 2007 anyway). Bank deposits yield little but at least they are backed by government and represent the only asset that assuredly increases in real value during deflation.
As for traders, volatility is back and with it the opportunity to boost returns by selectively shorting risk assets. Once deflation has run its course those who’ve preserved their capital will be presented with once in a lifetime buying opportunities – of virtually all assets.
