"Bravo on your audio yesterday regarding danger signals in the future regarding food price inflation. My question is do you see stagflation as a threat next year and if so do we position ourselves in precious metals?"

David Fuller's view Thanks for an interesting question.

Some food price inflation is already a reality for most of us and many people will be shocked by the prices of cotton goods next year. I would define this as stagflation for anyone who is unable to increase their income.

It is the scope for collateral damage that I am concerned about. You have already seen how rapidly long-dated government bond yields have risen in the last few weeks. I am hoping that they pull back and range a bit, not least so that I can re-establish short positions at better levels. However they may not pull back.

At important terminal junctures the new trend can just keep going, surprising everyone before a significant pause occurs. Remember stock markets following the March 2009 reaction lows. Arguably, the initial rise in bond yields could be very persistent because they were at bubble, historical (hysterical) lows in my view, and that is before we even consider the West's ballooning government debt.

US 10-year Treasury Yields have gone from 2.33% on 8th October to almost 3.50% today. Commodity price inflation will be a big shock for bond holders because they were seduced by the deflation/depression talk. There are plenty of sellers and few buyers of long-dated Treasuries now that the Fed has said that QE will be largely confined to shorter maturities.

Therefore we should not be to surprised if 10-year yields rise straight up through 4% for the first time since 2008. That would most likely still be a tailwind for equities but I think it could be a very different matter at 5.5%. It is not a question of if this will happen but when, in my view. My guess is that it will happen sooner than most people expect.

(Today's Audio has a more detailed discussion of this subject.)