Bill Tedford is encouraging investors to bet against the statements of the president of the U.S. Federal Reserve, Ben Bernanke, who recently told a group of business leaders in Washington that the “inflation could fall from current levels.”

For over 20 years, Tedford has managed to Stephens Inc., of Arkansas, a bond portfolio that has overcome the major sector indices. And although Bernanke sees some lethargy in the U.S. economy could translate into a reduction of inflation, Tedford said that the general rise in prices in the country is already evident in the Consumer Price Index and up even further in 2010 and 2011 .

The manager and his fund have begun to encourage their customers to invest more in timber, oil, gas, agricultural raw materials and industrial and precious metals. All these commodities have historically been a good bet for rising inflation.

“What is alarming,” says Tedford, “is the possibility that inflation will explode beyond the numbers we are seeing now.”

These days, the debate in the U.S. focuses on whether fiscal policy in Washington has prepared the country for an outbreak of inflation and how severe it was. Tedford is in the group was concerned that all the dollars currently circulating in the economy cause an outbreak of inflation.

In the same group is John Paulson, the hedge fund manager who made billions of dollars by betting that mortgage-backed securities were to collapse. Paulson, who is creating a new investment fund specializing in gold, said a few weeks ago, during an investor conference that the U.S. monetary base, in full explosion, was a harbinger of inflation.

For 20 years, Tedford has managed a portfolio that currently manages U.S. $ 1,250 million, including $ 800 million in U.S. government bonds. During that period, audited performance has exceeded the benchmark U.S. Barclays Intermediate Government Bond Index in periods one, three, five, 10, 15 and 20 years. In the 12 months ended September 30, 2009, performance of 8.87% beat the index by over 2.6 percentage points.

Because it is specialized in U.S. government debt, with virtually zero risk, Tedford’s only concern is the economic policy dictated by Washington and the outlook for inflation. And these days, the model that was based for two decades, insists that inflation has an upward trajectory.

The key insight in the model of the monetary base Tedford is basically the money that circulates in the hands of the public or reserves banks deposit at the Federal Reserve. Over long periods, Tedford said, inflation remains closely in the monetary base increases that exceed economic growth.

For example, he notes, in the 40 years ended in 2007, the U.S. monetary base grew at 7.08% per year. Meanwhile, the GDP grew at 3.04%. The surplus of 4.04% in the monetary base growth that results is very similar to the CPI and the price index for personal expenses, another measure of general inflation.

After the global financial crisis that originated in the U.S., that country’s monetary base ballooned to more than U.S. $ 2 trillion (million million) by the end of November, compared to less than U.S. $ 850 million in August 2008 before the crisis burst, according to Fed data Even if you subtract the more than U.S. $ 1 billion in excess reserves, the country’s monetary base has grown over 11% in the last 15 months. Tedford said that this is one of the changes higher than measured. U.S. GDP during that period shrank by 2%.

“The weight of this significant increase in the monetary base points to a severe inflation in 2010 and 2011,” he adds.

Their model, which “anticipated that the 12-month CPI rose into positive territory in late 2009, will rise from 3% to 4% by the end of 2010 and then will approach 5% or 6% by mid-2011.” And if some of the excess reserves to start filtering into the banking system, as Tedford believes is happening, “inflation could rise even more.”

In fact, the manager says that inflation is already apparent. Although the adjusted annual CPI for October showed a fall in prices of 0.2%, the change from January until the week of December 25 indicates that prices rose more than 2.3%.

Not all economists accept the theory of Tedford. “You can not just look at the monetary base and draw a conclusion about inflation,” said Sung Won Sohn, an economics professor at California State University Channel Islands.

Although the monetary base has risen, Sohn noted that the velocity of money (the rate at which a currency circulating in an economy) has been reduced, meaning that price pressures are low because the money is changing hands more slowly.

It should be noted that the model of Tedford has received his shots. In mid-2004, projected a bout of inflation in response to the decision by the Fed to raise interest rates from 1%. However, the Treasury acted erratically and fell instead of rising, as they had in other times in history.

However, Tedford defends his model, ensuring that it has been very accurate in the past 20 years and is “responsible for our success against the benchmark interest rates.” In his own portfolio, is betting on the fall of Treasuries to 30 years, under the expectation that prices will fall as interest rates rise.

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