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The “I-Word”

05/20/2021

We know the rules.  One, you must never say the “N-word.”  Likewise, you must never say the “F-word.”  Now, according to Barron’s magazine, it is impolite to use the “I-word” in polite company.

Right now, the stock market is over-reacting to INFLATION . . . there, I said the I-word!

Phase One of this over-reaction was that the Fed doesn’t realize inflation is increasing.  Currently, Phase Two is that the Fed will delay fighting inflation for too long, allowing inflation to explode and become harder to control later.  Phase Three is that the Fed will over-correct and throw the economy into recession, like it did in 1980.  So much anxiety over so little!

The Fed will not immediately raise interest rates.  First, it will start scaling back or tapering its monthly purchases of government bonds and mortgage bonds from $120 billion to maybe $80 billion or so?  When that happens, there will be a “taper tantrum” on Wall Street for awhile, putting stocks on-sale.  Then, the Fed will do it begin . . . and again.  At some point, the Fed will actually raise interest rates or “normalize” interest rates to more traditional levels.  They made the mistake of normalizing interest rates in late 2016 and upended the stock market for Christmas.  They learned a lesson!  At the earliest, I don’t expect interest rate increases before early next year.

Inflation . . . inflation . . . inflation . . . inflation . . . inflation . . . that wasn’t very polite of me!

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