Expect the next bear-market downturn soon as traders underestimate inflation

Bloomberg/ Mark Cudmore/8-17-2022

cartoon image of airborne money bags“My underlying thesis since last year has been that we’re in an unprecedented inflation-regime shift. Such levels of inflation have been seen before (more than 40 years ago), but never in such a direct and speedy transition from decades of low inflation. So the market will continuously underestimate and underappreciate the scale of the problem. As part of that, I have regularly argued that front-end yields need to go significantly higher still. And, importantly, there’s no risk of a Fed put and it doesn’t matter when inflation peaks, but how sticky it is.”

USAGOLD note: To paraphrase a famous comment, paradigm shifts can only be recognized in retrospect. If we are in a new and unprecedented inflation regime, as Cudmore theorizes, Wall Street has yet to recognize it choosing to believe instead that somehow the Fed is going to keep a lid on it.

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