Bond Outlook October 4th

Last week we allowed ourselves a level of optimism almost unique in the history of this Weekly. We predicated our change of view on the decline in oil prices, which, together with the lessening of cost pressure from other commodities and energy sources (notably gas), greatly reduces the danger of stagflation. Stagflation would result from central bankers needing to dampen cost-push inflation through raising interest rates to the point where recession sets in.