Reactions To Rising Inflation Have Begun – Investment Drama Ahead

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Inflation is biting reality, and consumers are taking notice. Such an environment has been absent for years, so it’s time for investors to shift gears and act.

The inflationary trend is the opposite of all other economic and market development cycles. Negative results generate reactionary business, financial, government and consumer behavior that fuels an uptrend.

Now that rising inflation is the theme of today, advance and reactionary actions are already visible:

Traders got green signal to increase the price

,Inflation helps increase profit margins,

“Companies seize the rare opportunity to increase prices and get ahead of their rising costs.”

wall street journal (November 15, page A-1)

Possible price hike before consumers start buying –

,Despite the inflation, the shopkeepers increased the expenditure,

“Retail sales rose 1.7% in October as consumers shrugged off the pandemic, higher prices.”

wall street journal (Nov 17, page A-1)

Financial management begins to make aggressive changes

,Calpers to take loan, add risk to meet target, [Higher inflation means higher liabilities, requiring higher returns]

“This move to the $495 billion California Public Employees Retirement System reflects the diminishing prospects for safe publicly traded investments by households and institutions alike and sets a tone for risk-taking by pension funds nationwide. “

wall street journal (Nov 16, page B-1)

Government seeks to demonstrate proactive, consumer-friendly role in –

,President calls for probe into gas prices,

“President Biden asks the Federal Trade Commission to investigate whether oil and gas companies are participating in illegal conduct aimed at keeping gasoline prices high after the White House made public about the cost of everything from fuel In the latest effort to answer concerns. groceries.”

wall street journal (Nov 18, page A-1)

The Federal Reserve tries to find its way out as “temporary” and “transient” assurances fail

,Fed officials pledge to address inflation risks,

“Federal Reserve officials said in discussions earlier this month that the central bank would not ‘hesitate’ to take appropriate action to address inflationary pressures that pose risks to the economy.”

The Associated Press (Nov 25)

Analysts became vocal about the reality of inflation –

,The Fed is running out of excuses on inflation,

“Every time the Federal Reserve comes up with an excuse for rising inflation and why it won’t last, the data knocks it back down.

“Inflation has not been temporary and has accelerated, reaching the highest level in a month since January 1990. It is also high when measured against pre-pandemic prices, so it does not just hold for deflation. last spring. It’s no longer just about a narrow set of COVID-disrupted supply chains, or demand for used cars and other popular goods. Even FAIT’s get-of-jail-free card, The Fed’s year-old policy targeting flexible average inflation is wearing thin.

“The only explanation left is that inflation will still be temporary – not as temporary as expected, but it will go away on its own. Investors still buy the story, but there is a growing risk that the Fed will have to act more aggressively. “

James Mackintosh Inn wall street journal (November 15, page B-1)

Bottom line: Wall Street is preparing for a dramatic investment shakeup

Wall Street is scanning the horizon for signs of rising inflation where it will hurt most: fixed income securities. Wall Streeters know that bond holders will suffer huge losses when bond “cautiousness” reverts to demanding full returns for the risk.

Long-term bond yields moved independently of the Federal Reserve’s short-term interest rate management. The long-term bond market will regain that independence as soon as the Fed initiates the necessary changes to market-set short-term rates. After all, a ten-year bond yielding a negative real return is no longer a real loser in periods of rising inflation.

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