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Is Inflation a Real Threat?

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    Zane Brown of Lord Abbett gives his outlook for inflation.

  • Duration 4:00
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Picture portfolio or not inflation ready that's the latest warning at least from the bond king Bill Gross he is calling for investors to target bonds.

In the five year range but is that the right call let's get Zain Brown's take he's director fixed income at -- -- it.

They welcome back initially we left avenue a case of the job scenario has a lot of people hoping for more fed easing which obviously dilutes the dollar rates continue to be low.

What do you think about the latest threat of inflation.

Well -- really don't think we have great deal to worry about in terms of inflation certainly we don't have anything in the way of wage inflation with our level of unemployment and global levels.

Of unemployment you just citing Europe and elsewhere.

So the real concern might be monetary inflation but if you look at monetary inflation -- -- that that is created this big blob of money.

But it's not out there chasing goods and services that would be inflation it's out there sitting in the banks and the Fed is hoping.

That banks have enough confidence to finally lend that money only recently have we started to see banks lend that money.

Only when they start lending -- much more aggressively.

Are we likely to get the monetary inflation that people fear so our perspective is inflation's not a problem now not likely to be a problem anytime soon.

So what do you think -- Bill Gross is recommendation this is one he's had for awhile now stick with maturities out to five years and -- guys like that Jeff slacker right.

Urging he's known to be -- obviously saying hey you know making sooner rather than later raise rates.

Well I think that we'll probably sooner rather on later we may need to raise rates -- giving your.

Your point a little bit earlier that.

No -- hate things are seemingly do reasonably well but I think you know going up to five years is very safe bet before you don't wanna buy five year treasuries right you're locking in a negative return.

After you consider inflation it is who want ten years but I think the area to focus on might be the five to ten year area but -- -- corporate bonds and maybe even lower quality corporate bonds.

Whose companies are really likely to do very well if we get a repeat of what we had the first quarter -- -- two and a half percent growth.

We get that kind of chugging along every quarter this year those companies are gonna do just fine -- maybe it's not enough to push up the stock price but.

It's plenty for them to pay off their debt.

And I think those higher yields of lower quality investment grade or even below investment grade corporate debt.

Are likely to perform much better buoyed treasuries he -- the five year treasuries that may have been her.

Yet we showed our viewers a fighter yield point 83% so we talk about outpace you know I think yeah I can't let that reaction.

That BankAmerica Merrill Lynch report last month for the first time since 2008 I believe fixed income products.

Showed a gain.

Whereas stocks were down.

Going on -- meet at the bond there is just -- to get it right.

Well it does seem like they are overreacting to maybe the wrong kind of information.

But certainly last last month we did see an improvement in treasuries.

Whereas the first quarter we really saw much better performance out of what I talked about earlier.

Corporate bonds we really think the rest of the year is gonna be characterized by.

No decent levels of growth this recent fear of maybe going back into recession and then and therefore buying treasury securities.

We think that's rather misplaced we had the same -- year ago.

And this year were much better off more people are employed initial unemployment claims are dramatically lower than what they war.

And as we look forward no oil is much less of a problem than what it was a year ago so I think the things that concerned -- last year the might push us back into recession.

Really aren't in evidence we just get one or two odd numbers it seemed to indicate a slowdown right I think investors overreact they end up getting involved in treasury securities.

We think there's actually some risk there and actually more safety.

In lower quality.

Higher yielding debt.

-- -- We got it thanks -- see again soon.

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