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February 4, 2018 | Inflation Irony: Nearly Everyone Wanted It, Now They Don’t

Mike 'Mish' Shedlock

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.
Inflation was supposed to pick up when the economy did. Economists claim it has. Now the concern is too much inflation.

Investors Shocked

Inflation concerns have analysts worried the Fed is behind the curve and the economy is overheated. Bloomberg asks How Worried Should You Be?

For almost a decade, investors have waited patiently for any hint of inflation in the U.S. economy, a sign the recovery can sustain itself without emergency stimulus from the Federal Reserve. Now they’re getting it, and many are shocked at the reaction.

“It’s kind of a strange time and we seem to be driven by a fear of what everyone wants, and that’s higher rates,” said Joe “JJ” Kinahan, the chief market strategist at TD Ameritrade. “Higher rates confirm a stronger economy, and the market was very afraid of that all week long. And that’s been a big reason for selling.”

Strategies that worked for years buckled in the rout. So-called short-volatility, in which traders bet that share turbulence will remain restrained, reversed, as Friday’s 29 percent spike in the Cboe Volatility Index triggered a 13 percent plunge in the ProShares Short VIX Short-Term Futures exchange-traded fund. About 27 million shares changed hands, the most since the Brexit vote.

Wrong Fear

Inflation is the wrong fear. Sure we might be in a temporary bout right now. But collapsing asset prices will quickly turn fears of inflation to fears of deflation, and the next round of QE likely will not help.

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Mike “Mish” Shedlock

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February 4th, 2018

Posted In: Mish Talk

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