Category distortion

Inflation: the next stage of the Global Financial Crisis 2007-2031

What Inflation? “Oh, that’s nothing to worry about, the central banks have no choice but to keep juicing markets”… The market is so focused on the short-term and ignoring the consequences of the last 10 years of QE, monetary experimentation and easy rates, that its blundering into the next crisis. Inflation matters, and has jumped from financial assets into the real economy.

The Importance of 1.34%

US 10-year bonds and US equity are in fully rally mode. They show contradictory expectations for a stalled recovery and future strong growth! How can that be? Because the market is about what participants collectively think – and how markets think has been utterly changed by 12 years of monetary experimentation, repression, and distortion. We’ve got to change the way we think about markets.

The rules of Great Investing keep changing

There are many very clever investment firms – Baillie Gifford takes a long view to recognise and consider the future and trends, while Bridgewater is taking a view on inflation and rates. But, what if the most important factor likely to drive long-term returns proves to be the destabilising consequences of the last 10-years of interest rate repression and the distortion of rules, regulations and fads? These could prove the “no-see-ems” that tumble markets!

Did you feel the judder as the Fed warned rates will rise?

Fed Head Jerome Powell set the market wagging y’day, triggering a mini-taper tantrum in bonds and stocks when he revealed no immediate rate hike but the possibility/likelihood of 2 rate rises in 2023. Bonds and Stocks fell. Bonds are unlikely to get much better in coming months – unless we see a market wobble that forces Central Banks to intervene, or something that creates a flash flight to quality. We are now in new market phase – the correlation between bonds and equities is looking vulnerable to a reversal when the free money that’s fed the rally since 2010 dries up! This is getting….. “interesting”.