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Inflation Fears: Really? Where is Fear of Anything?

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23 comments on Inflation Fears: Really? Where is Fear of Anything?

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This Tweet by John Hussman caught my eye.

“When I look at CCC’s rallying so hard — even if the default rates are at the low end of historical average — your chances of making money over the long run aren’t great. You’d be lucky to break even.”

CCC rated junk is one step above “in default with little prospect for recovery”.

Fear of Default? 

I see no evidence of fear of default.  The idea is laughable.

Bond Market Details

Fear of inflation? Really?

S&P 500 Volatility Index 

Expectations vs Fear

On May 10, the New York Fed reported Inflation Expectations Increase in the Short-Term, Remain Stable in the Medium-Term

The Federal Reserve Bank of New York’s Center for Microeconomic Data released the April 2021 Survey of Consumer Expectations, which shows that median inflation expectations increased at the short-term horizon but remained unchanged at the medium-term horizon.

Median year-ahead inflation expectations increased to 3.4% in April from 3.2% in March, while remaining unchanged at 3.1% at the three-year horizon. The one-year ahead measure is now at its highest level since September 2013. 

Consumers think higher inflation is coming. 

But where is the fear?

It does not show up in bond yields or the VIX. The stories are all made up.

Fear Coming

I do believe fear is on the horizon. But it is not fear of inflation. Rather it is fear of paying too much for junk bonds, too much for stocks, and too much for cryptos, most of latter will be worthless.

Writers, no doubt, will blame it on fear of inflation. 

That’s the excuse of the day instead of blaming the Fed with help from Congress for another huge set of bubbles. 

Fed Sponsored Speculation

Please note the Fed Sponsored Speculation: Real Interest Rates Are -4.1 Percent, Lowest Since 1980

The real interest rate is -4.09%. Adjusted for housing prices, the real interest rate is even more negative.

Fear of bubbles ought to be the fear. 

It’s coming! And when it arrives, fear of inflation will be dead last on the fear list.

Mish

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Mike Shedlock

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23 Comments
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Doug78
Doug78
5 years ago
It is not fear fear of inflation we have. It is fear that the Fed will raise rates to slow the economy. If we need -4% real interest rates to keep the markets up then that fear is justified although -4% real interest rates can continue for much longer that one thinks. Eventually the Fed does raise rates but now is not the moment for them to do so with the economy in a fragile state. Let’s see in a year or so.
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Scooot
Scooot
5 years ago
Reply to  Doug78
No earnings. Recent price rises are effectively rationing because of supply constraints. The economy is probably worse than the numbers suggest because people know about delays and price rises so they order well in advance of requirements if possible. Businesses need the turnover because low rates have driven down profit margins. Negative real rates exacerbate the profit margin problem and the supply constraints negatively impact on turnover. Central banks are keeping rates low and giving people free money, which doesn’t help the above it only keeps the balls in the air a bit longer. 
In the meantime, banks are awash with liquidity and are running out of reserve capacity. They’re selling treasuries to the Fed as part of QE and are then forced to repo them back overnight. The fear is this will prompt earlier tapering. They must certainly be considering it unless they have another solution they can apply with their magic wand.
We are therefore faced with a situation in which stocks are at record highs with the prospect of lower earnings, prices remain high because of free money and early orders, and an enforced upward shift in the yield curve due to early tapering talk. In addition there’s the prospect of fiscal tightening via higher taxes at some point. I’ve got no idea what the Central Banks can do about any of this, and I don’t think they do either.
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whirlaway
whirlaway
5 years ago
Schiff is making almost daily podcasts about how inflation will get out of hand, bitcoin will collapse, the dollar will collapse the same way etc. etc.  Same old same old.   As for his bitcoin calls…  well, if I had a bitcoin every time he called a top, I would be a multi millionaire now!   
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Eddie_T
Eddie_T
5 years ago
Reply to  whirlaway
He’s like a musician with only one song. But that’s okay, because he’s making money off his predictions, whether they come true or not. Like a broken clock, one day he will be right, though. Just not on any of his timelines, necessarily.
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Carl_R
Carl_R
5 years ago
As FDR said, “The only thing we have to fear is fear itself”.  While fear is not around, everywhere you look, you see fear of fear.
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MacPacAttack
MacPacAttack
5 years ago
Reply to  Carl_R
Well Carl, you needn’t fear anything really if you have faith in the right things.  But it’s reasonable to be concerned, I mean, if people can’t afford basic things that becomes destabilizing to society.  Inflation, or rather currency debasement, is an insidious thing that some have called a “hidden tax.”
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MacPacAttack
MacPacAttack
5 years ago
“Two pounds of wheat for a day’s wages, and six pounds of barley for a day’s wages, and do not damage the oil and the wine!” – Rev. 6:6 [NIV]
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Scooot
Scooot
5 years ago
The media is always late. The inflation fear began at the beginning of the pandemic when shortages developed, as evidenced by the rise in commodity prices and bond yields since. Now no one knows what to do, everything is expensive, except perhaps Gold 🙂 
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huntfrizz
huntfrizz
5 years ago
The fear as expressed in financial markets by those who control 90% of the assets and whom inflation will not meaningfully impact their daily lives? 
Fear is in the bottom third of americans who have not participated in this asset appreciation, and who will continue to fall behind the curve as wages fail to keep up with housing or cpi. Over leverage yourself and buy into the feds game, or forget any chance of owning a home, building meaningful wealth, or establishing a foundation for multi-generational prosperity. 
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taperwood
taperwood
5 years ago
Fear of losing income?
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shamrock
shamrock
5 years ago
Let’s say I am afraid of inflation, what should I do?  I sold all my bonds a year ago when the 10 year was barely over 0.5%.  What else is there to do?
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TexasTim65
TexasTim65
5 years ago
Reply to  shamrock
Presumably all your money is in cash.
The answer depends on how much cash you have and how old you are. Younger (<40) with less amounts of money (100K) will have quite different outlooks than older (50+) with more significant assets (400K+) since inflation will affect those 2 people and their retirement quite differently.
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shamrock
shamrock
5 years ago
Reply to  TexasTim65
Thanks, but I’d like to at least keep up with inflation.  With 0.4% money markets I’m already losing 4% of wealth per year.  And it’s going to get worse.
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artful dodger
artful dodger
5 years ago
Reply to  shamrock
Consider investing in a blue chip stock with a substantial dividend like Verizon.  The stock is pretty tightly rangebound, but it’s not overvalued by historic measures, and it pays a dividend of 4%.  It’s like buying a bond.
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Lipscomb407
Lipscomb407
5 years ago
Reply to  artful dodger
I’ve followed this strategy pretty closely with an outsized portion in companies like Kellogg, Kimberly Clark, Verizon, etc, etc. Overall yield is around 3.5%. These companies will be around in 5 years, 10 years, 100 years. (Assuming no SHTF scenarios anyway…and if that happens it hardly matters) In 20 years these companies will probably be paying 20%+ dividend on money put in today. You’re never going to get rich quick but it is a safer place to park money than anywhere else I can find right now.
The best part…if deflation ends up being the real issue these companies will do better (not good) than the overall market in that environment.
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Carl_R
Carl_R
5 years ago
Reply to  shamrock
Consider TIPS bonds.
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SyTuck
SyTuck
5 years ago
No fear here. I’m buying the dip on the Inflation scare.
Prices are up because people have tonnes of cash and the supply of goods is being choked by lock downs. When a company use to sell plywood for $30 is now selling it for $90 that’s where you want to be invested. We use to have producer inflation from hedgies chasing commodities. Now we have consumer inflation from helicopters of cash being dropped on the unwashed masses. This is a good thing for stocks.
When people start returning to work and supply lines open up, inflation will come back down. Although it will probably trend to the high side because spending will be up.
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JONZDOG
JONZDOG
5 years ago
Mish,  the inflation evidence is in the grocery store.
Steven
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Mish
Mish
5 years ago
Reply to  JONZDOG
OK – where’s the fear?
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randocalrissian
randocalrissian
5 years ago
Reply to  Mish
It might be fully contained within the toilet paper section.
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MacPacAttack
MacPacAttack
5 years ago
Reply to  randocalrissian
Maybe toilet paper shortages resulted from politicians who’s mouth diaper is overflowing.
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whirlaway
whirlaway
5 years ago
Fear of the bubbles bursting, to be precise.   It’s an everything bubble, so the fear of prices crashing is everywhere.
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Too much BS
Too much BS
5 years ago
If you look at Fed prepared papers to present no infation to keep low interest rates and it’s do the do nothing stand, than there’s no inflation.   If you go to Hardware stores, grocery stores, try to hire any tradesman, Transport anything, property taxes then you see and have to pay a lot more than a few months, weeks ago.    Don’t listen to the FEDs BS. Plywood in 2020 was $35 a sheet  now @ $90 it’s hyper inflation.  If you shop you name it, IT’s UP.
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