Late night bull session

I was talking with a young relative late into the evening. Some of my big picture long term ramblings:
* U.S. Bond market headed for a bubble
* Gold market is not yet in a bubble
* Stocks will likely benefit from inflation
* Real estate will eventually benefit from inflation

First the bonds. I often write that calling tops tends to be a low percentage play. It is so here. So many keep calling for a crash in bonds, a spike in yields, it is unlikely to happen soon. This past week, even the possibility of a debt ceiling impasse did not nudge yields significantly higher. On Friday, yields actually spiked lower as bonds roared ahead. The Fed keeps propping up U. S. bonds and has a lot of bullets left. They have fired off QE1, QE2 and could do that at least four more times before the jig is up, and it might be more than four. If I had to guess, the spike up in yields is six years out, but that is just a guess. Still, I would not buy and forget long term bonds at what I see as record low Fed manipulated yields.

Next gold, not yet to the bubble stage. Yes, eleven straight up years is a concern, record highs are a concern. Still, sentiment is not frothy enough to be calling long term top. I believe most of the demand is from Asia, and their economies continue to grow. Demand for gold will grow with those economies. If and when gold goes parabolic again, it will be trickier. Sentiment remains one of the best indicators for turning points. Gold will eventually be turned back by high interest rates, but someone else pointed out that there is often a two or three year lag before the start of rates rising and gold turning back.

Third, stocks can do well in an inflationary environment. Higher interest rates will be a head wind, and make for a bumpy ride, but both the top line of revenue and bottom line of profits will increase as prices increase. Over a long time frame that will increase the stock price and dividends will increase.

Fourth, real estate will eventually be a buy, but a spike in mortgage rates can cause a crash in prices. If and when 30 year mortgages go back to 8% or 10%, real estate values could tumble an additional 33%. There are some cash buyers, but the vast middle of the market still gets and needs a mortgage. Another potential wildcard is the reduction of the mortgage interest deduction. This is being openly talked about and could be a knife to the belly of a weak market. Longer term, real estate will benefit from inflation, but if the first prediction about bonds comes true, it will not be a smooth ride.

As always, these are my thoughts, don't take what I write as advice, as it is not meant to be. I am another small fish in a big ocean.

/edit to change:
* U.S. Bond market is in a bubble
* U.S. Bond market headed for a bubble