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By Jason Stipp | 02-09-2011 03:53 PM

Calamos: Inflation Could Be Rapid When It Comes

The Calamos Investments CEO and Co-CIO explains how the firm's bond funds are positioned to get ahead of the inflation threat.

Jason Stipp: I'm Jason Stipp for Morningstar.

The markets have generally continued their good cheer into 2011, but there are some worry signs out there that are concerning investors.

John Calamos, he is the CEO and Co-CIO and Calamos Investments, sees some risk out there, but he is also seeing opportunity. He's here to talk about that with us today.

Thanks for joining me, John.

John P. Calamos Sr.: Nice to be here, Jason.

Stipp: So, I just wanted to talk about some of the yellow flags or some of the worry signs that are out there today among investors, and I think one that's been talked about for a while is inflation. For a long time it seemed that folks were agreeing that inflation was a problem in the long term, but deflation might be the bigger issue today.

However, in the last few weeks, we have seen some signs of inflation among commodities at the gas pump, for example. Is inflation a more immediate risk today than maybe it had been earlier?

Calamos: Well, I'll discuss that. One point I have to make because you've talked about people worrying about the market. We have to remember that every good market climbs a wall of worry, and we have plenty to worry about, so inflation is definitely one of those things that we have to worry about, and we are concerned about that.

More so, I think the concern would be among bond investors because how that inflation problem gets resolved, because of the high debt of the states and the government, that's the fear of inflation. But really the fear comes out: what happens to interest rates as they try to resolve? Will we have, as we've had in Europe, will we have a sovereign debt crisis, which could have an interest rate rise?

One of the fears and one of the mistaken notions I think investors have is somehow, they will be able to get in front of that. But just like when the tech bubble blew up, a lot of people were predicting that for three or four years, and when it happened, it surprised everyone. And we're fearful of the same thing happening here, because if something happens, we could see 300-400 basis point increase in interest rates, in two to three weeks.

Stipp: So it can be a rapid when it comes.

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