The biggest enigma over the next several quarters and, and perhaps years, will be inflation. In fact, weather we are talking about short term or long-term inflation, it’s the issue market participants will be required to wrestle with most.
Finally, we have headline scares out of China. Earlier this week markets were spooked about the possible default of the world’s most indebted developer, which is none other China’s Evergrande Group.
Assuming the FED and ECB are wrong, and inflation persists, the question is, what should the investment strategy be in such an environment.
lower than what they have been in many instances from 1970. And why are sugar prices so low? Because the people who produce sugar have become more productive at it, thus the unit cost of production has fallen, and producers can still make money.
COVID, inflation, deflation, global growth prospects, interest rates and a bunch of other things that I could probably write a book about, all worry me. However, all the above aside, the thing that mostly worries me above all others is the value of the dollar.
With US 10-year bond yields around 1.25% (as of Thursday July 22) the question is, what is the bond market telling us? Some say the bond market is pointing to stagflation from 2022 and beyond. Others say yields will rise because of inflation, and that these low yields are “transitory”.
Up to about 50 years ago, inflation was the main worry of central banks, primarily because high inflation eroded consumer purchasing power.
Today however this has changed, and the main objective is economic sustainability. By this I mean Central Banks want a continuation of growth with or without inflation.
You have probably heard the phrase buy the rumor sell the news. Well, the rumor for a while now has been inflation, and the news is that we are seeing very strong inflationary pressures. At least that is what many pundits say. So far however, the market is not selling the inflation news.
The Fed last week basically told us what most of us suspected. First, the Fed was optimistic about economic growth, while anticipating higher inflation, while stressing that COVID is still a risk.
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