"You see that pink line (see chart below)? That’s the Fed’s inflation target. Do you see them hitting their target? They hit it 67 months ago but it was fleeting. That’s why Janet Yellen calls it ‘transitory’ because their target is never sustained or maintained.
The Fed is looking at core level of inflation of 1.5% right now. We’ve been saying you could see a reflation of inflation. And that’s been right but now we’re calling for lower highs (i.e. Reflation’s Rollover).
And if you pulled back this chart and looked at the longer-term trend you’d see that lower highs in inflation are pervasive for the last 38 years or so. This is a very bearish thing long term: Lower for longer (rates), slower for longer (growth), bad demographics all these things fully loaded, from a core or headline perspective, remain relatively low.
Guess what else that means? That’s also why bond yields are making lower highs long term. Bond yields and inflation look the same. Shocking? No.
This is basically the work of Gary Shilling, who isn’t as popular as Warren Buffett or Charlie Munger because he’s the uber bull on bonds. And you can’t get on CNBC being bullish on that.
But the slower for longer call on long-term inflation, demographics and bonds that to me is much more interesting once we get reflation’s rollover in the coming months because in the long-term picture of things it’s critical."