Is "the Market" Forecasting Inflation?
* Let’s be frank: Those of us who expect significant price inflation–and very soon–are disagreeing with the market “consensus” as gauged by market prices. But this shouldn’t be a deal breaker. After all, “the market” incorrectly forecast real estate prices for years, and the same for oil prices in the summer of 2008. If I think there is currently an asset bubble in US Treasurys, you don’t dispose of the argument merely by saying, “If you are right, why aren’t people shorting Treasurys?”
* Von Pepe sends this two-handed (you’ll see what I mean) Cleveland Fed paper on using TIPS yields to back out “the market’s” inflation forecast. They hem and haw a lot, but I think they are saying that inflation expectations in the mid-term have risen sharply since late 2008. (However, in an absolute sense they are still tame.)
* What really reassures me in my inflation outlook is today’s CNBC article, which quotes several “experts” who say I’m crazy. When learned market watches merely say I’m misdiagnosing the danger, that’s fine, maybe they’re right. But to say that inflation worries are “insane”? Nah, that sounds like housing boom talk.
