William Hester of Hussman Funds wrote a research article entitled Bond Yields, Earnings Yields and Inflation.
The article is rather academic and conclusion might be of some interest if you fine tune your portfolio the way Hussman Funds folks does:
The article is rather academic and conclusion might be of some interest if you fine tune your portfolio the way Hussman Funds folks does:
Inflation is not a likely outcome in the near-term. For now, credit risks are likely to be of concern to investors until the economy gains a better footing, and these risks can move stocks and bonds in different directions. Longer-term, investors should be alert for rising inflation. At that point, stock investors may want to be particularly sensitive to any changes in the level of bond yields, because the correlation of the changes in bond yields and stock yields will likely rise along with inflation. Most importantly, stock valuations generally suffer through the entire process of rising inflation, rather than simply responding to the end result.
