Inflation/Deflation

There have been many econoblog posts of the form, "ha, ha, the people predicting inflation have been wrong so far, when will they give up?". Let me try to explain why we know high inflation is coming eventually.

Should the Fed raise interest rates at some point in the future, as is widely expected, such higher interest rates might bring far worse consequences than can be achieved by simply staying the course. While some small, even token, rate hike would be tolerable, a return to historical norms could reap consequences in the general economy far beyond the direct effect on the federal government’s fiscal status. The fact is that the federal government is ensnared in a debt and interest rate trap of its own making from which it will be difficult to extricate itself.

Though the stock, bond and currency markets, at the moment, are preoccupied with the question of when the first interest-rate increase will happen, the real story lies in where interest rates are ultimately headed because that answer defines where stock, bond and currency prices are ultimately headed and the reality, dear reader, is that the Fed simply cannot — and will not — allow interest rates to crawl very high. Why is that you ask? Read on!

To understand how the stock market behaves it is imperative to realize that the stock market is overwhelmingly influenced by interest rates. It’s difficult to overstate this key fact. Interest rates are the bone and marrow of the stock market. More specifically, the stock market is ruled by long-term and short-term interest rates creating an overriding framework for what drives the market in which different sectors do better or worse at different points in the economic cycle. This article explains the behavior more fully.

With all of the things in the world to worry about, how much should we worry about a sudden sharp increase in UST yields? The short answer is not much and here is why.

After a long period of very low interest rates following the global financial crisis the central banks of the U.S. and U.K. are planning to gradually tighten their easy monetary policies as their economies improve. When their benchmark interest rates go up, interest rates elsewhere will go up to so should we worry if and when global financial conditions tighten?

Everyone knows that interest rates are going to rise in the future so the real question is not whether they will rise, but when and by how much. [This article analyzes when that will most likely be.]

The S&P 500 continues to hit new all time highs, but is your portfolio built on a house of cards? The politics to kick the proverbial can down the road may unleash dynamics that could be hazardous to your wealth. Here's why and how to protect your portfolio.

Might our Inflation-Deflation Watch be suggesting a breakout in asset price inflation is about to take place? Could it, in fact, be presaging the start of John William’s hyper inflationary depression in which prices rise exponentially even in light of massive unemployment and bankruptcies? This article analyzes the situation.

Janet Yellen and the Federal Reserve are so behind the inflation curve, and many other market implication curves, that we probably are staring at a 35% chance of a Hyper-Inflationary period by the time the Federal Reserve realizes that "noise" is actually real inflation!