US' 10 yr Inflation Expectations at 1.94%, Unbelievable

According to Cleveland Fed, inflation is expected to be around 1.94% in 10 years' time. It's incredible and unbelievable. This is one of the data that the US Fed Reserve watch closely. With such low expectations, it is unlikely that the Fed will hike rates soon. The Producer Price Index is around 1.7%, and CPI at 1.1% last month. How could crude oil price at USD127/bbl not trigger inflation is quite staggering.

When US stocks peaked in Nov 2007, oil price was at SGD140/bbl. Using SGD as a common denominator and calibrated by around 3% of inflation per annum, today's oil price is around SGD124/bbl. We are a whisker away from tragedy.

For this reason, I am shortening my outlook for this bull run from 1.5 years to 1 year. I will start to diversify across alternatives and bond funds around Oct 2011. Time to reduce leverage.