The Next Great Bubble?

Over at the Zacks Equity Research blog, Dirk van Dijk says the latest market bubble isn't in commodities or oil because higher global demand for grain and energy are real (back to that topic in a second). Instead, it's treasuries, where the Fed's liquidity injections are prompting a surge in prices for U.S. debt.

He writes:

The flight to safety has [pushed] prices up and yields down to frankly absurd levels. Over the last three months, the CPI [Consumer Price Index] has risen at an annual rate of 6.8%, up sharply from a rate of 2.6% for the three months before that. In response to the credit crisis, the Fed has had no choice but to pursue an extremely accommodative monetary policy. Each passing week seems to bring more news of the Fed throwing yet more massive amounts of cash into the system, and often coming up with novel and innovative ways of doing so. The dollar is fast on its way to becoming the new peso, which will cause the price of imports to rise.

Van Dijk says that all spells more inflation pressures to come—and a drop in treasuries when cracks in the U.S. economy weaken demand for government debt. He advises investors to embrace inflation fears that could send the treasury market lower by buying stocks that get a boost from inflation, which brings us back to commodities and oil.

He likes names like miners Southern Copper, Rio Tinto, and Companhia Vale do Rio; smaller oil firms like EnCana, Devon Energy and Apache; and the oil majors—Exxon, Chevron, Conoco, and Petrobras.