Earlier this week the S&P500 hit a new all time record high and then proceeded to embark on an ugly pull back.
The fear index surged over 20% soaring to levels not seen in March of 2021!
Why?
Inflation 'fears'
Lets get this straight for a second. Investors were selling assets to raise cash based upon inflation fears?
Inflation can wreak havoc on cash. Inflation takes that cash and reduces its buying power! Raising cash while prices are rising means that cash you have from selling stocks will buy you LESS of what you want to buy down the road.
Inflation makes your cash LESS valuable. Why would investors be selling assets to raise cash? To put that cash in bonds perhaps? Wait.... bonds don't get more valuable in an inflationary environment. Perhaps gold? Silver? Copper? Bitcoin?
And yet nothing was seeing a 'safe haven' buying frenzy from these 'inflationary fears'.
What were we seeing earlier this week? Another tree shake.
Yes inflation... the rampant kind will ultimately wreak havoc on the markets.
Yes inflation... the long lasting, stubbornly high kind that we haven't seen in over 40 years ill ultimately wreak havoc on the markets.
And yet we are a long way away from that coming our way anyway. It is the way. I've got more to say on that way.
Please disregard that run-on.
Powell has stated on more than one occasion.. probably more like 100 times or better, perhaps even more than better, that he is looking for long lasting inflation that runs well above the FEDs goals.
We are no where close to that. One or two or three or even six big inflation numbers are not enough. Especially coming out of the entire global economy being in lockdown for months.
What we are seeing is all that pent up demand hitting a supply chain that is battling to keep up. At some point demand will slow, subside, normalize... and all that excess supply on the way... will help keep prices in check. They may even drop... some precipitously so.
Depending on how out of whack prices get... this most recent price boom could actually trigger lower prices down the road? Which is why the FED will be slow to take their foot off the gas pedal.
Have a great Friday and a wonderful weekend