As the chart of the 10 year Treasury yield shows, we have come a long way in the interest rate journey and whilst further gains are possible can yields go much lower. If we are going Japanese, and the Germans already are, then of course they can. Ten years ago, having 50% in investment grade bonds in a portfolio for a cautious investor would have been eminently sensible especially with one’s attention in the rear view mirror, but today?

The major unintended consequence of government and central bank intervention since Volcker's stand against inflation has been to generate its nemesis; deflation. With interest rates near zero in the major economies, there is nowhere for rates intervention to go to provide a stimulus. Strangely the answer must be higher interest rates. We will then see some "creative destruction" which is what the financial system needs to reset and start a proper economic cycle, but with the investment banks, who stand to lose the most, controlling the strings (just how do you think the US Budget bill got changed to allow banks’ derivative positions to be included in subsidiaries covered by FDIC insurance? ie the taxpayer covers their losses) we need stronger hands at the tiller than a coalition of "politicians" or a lame duck president. We need somebody with balls and I don’t mean the second fiddle in the Ed Miller band…any volunteers?

David Fuller's view

Here is Clive Hale's Letter.

We have seen destructive deflation - declining economic production, sales and profits - from Japan since the 1990s.  Hopefully, Abenomics is the monetary experiment capable of reversing Japan’s deflation.  We are currently seeing destructive deflation in the European Union, as the consequence of a misguided single currency, too much cloying bureaucracy, and mediocre governance. 

We also see some positive deflation, created by persistent technological innovation, which lowers prices and increases sales, resulting in rising profits.   During the second half of this decade and well beyond, we will see much more positive than destructive deflation, due to not only accelerating technological innovation, but also cheaper energy prices, globalisation, the continued spread of capitalism, increasing middle classes and mostly rising populations.  These factors will increase global GDP growth, with more countries participating than ever before.

(See also: The Upside Of Deflation, by Michael Schmidt for Investopedia.)